Mediation Between Magic Hat and West Sixth Breweries

Magic Hat and West Sixth breweries go to mediation!   Well, sort of...

It is refreshing to see that the two parties in a trademark dispute are opting for mediation, according to reports.  Lawsuits and court processes are expensive, drawn out, unpredictable and uncontrollable by the parties. Mediation offers an alternative process that is quicker, less expensive, and retains control of the process to the parties. Unpredictability remains, but this is usually a good aspect allowing for the discovery of hidden or latent problems, and/or the creation of unique solutions. Hopefully, Magic Hat and West Sixth will benefit from this mediation, and I applaud them for their efforts.

What troubles me is the selection of a magistrate judge to serve as mediator.  Now, I do not know who this judge is, so I don’t want to…judge, but for the most part, judges are not mediators.  Sure, they can “mediate” according to their definition of mediation, but this falls short of the processes used by experienced mediators.  A common mistake is to assume that those in the legal profession (attorneys, judges, etc) are also seasoned mediators.  This is not true most of the time.  To be sure, some mediators are, or were attorneys and have changed professions. Yet, the experience gained in the court system does not translate well to mediation.

The primary distinction between mediation and litigation is the focus of advocacy.  Whereas the attorney advocates for her/his client and for a winning judgment, a mediator advocates for the mediation process and helps parties come to an agreeable resolution. The goal is not to prove right/wrong, legal/illegal, or decide who put forward a better argument; it is to overcome the dispute through a resolution that both parties agree on, and, for the most part, create.

Perhaps attorneys and judges realize this, and they probably do. Their challenge is to reach such resolution by using the most effective techniques during mediation. While facts and figures work well in the courts, they have little bearing in most mediations. Again, mediation is about resolving a dispute on agreeable terms by both parties, and not what the data influences. After years of argumentation, adjudication, and client advocacy, it is difficult for anybody to transfer to process-focused methods. This is not to say that some once-legal-minded mediators cannot effectively mediate, but merely to point out the fact that mediation skills are not easy to grasp and practice. Becoming a skilled and effective mediator takes time; it is a full time practice.

My fear is that the mediation West Sixth and Magic Hat will, reportedly, undertake may be more of an arbitration and less of a mediation.  That is, the mediator will hear the arguments and decide on a resolution for the parties, instead of the parties coming up with one with the assistance of the mediator. I could be wrong.  But if this mediation does not work, it will give Mediation in general a bad rap. And that will hurt everybody who becomes involved in a dispute, and that’s all of us.

Small BREW Act, Taxes and Craft Brew

The growth of craft beer as an industry has persuaded some to take notice as to what "craft" brewing really means and its role in the overall beer industry. While debates continue over craft v. crafty, production levels salience on definitions and independent v. corporate brewing, one issue has craft brewers seemingly debating each other, and that issue is tax.  More precisely, excise federal tax on the production of beer, no matter if it's craft, independent, neither or both. 

Basically the excise tax code is set up so that those breweries who produce more beer are taxed more on the federal level. Right now, that production level is 2 Million barrels per year (those producing such quantities are taxed more per barrel than those producing less).  On the ground, it currently means that all craft breweries do not pay this extra tax, but large breweries (like SABMiller and AB-InBev) fork over the money.

Yet, the growth of craft beer has pushed some breweries closer to this 2 Million barrel level, and therefore more taxation.  As such, or by coincidence, the Brewers Association has altered/updated its definition of craft brewery to include breweries producing up to 6 Million barrels per year (among other stipulations).  Following this, there have been efforts to alter/update the tax code.  Without getting into details, the new tax proposals seek to increase the production level to 6 Million barrels per year before enduring the full excise tax of $18/barrel. 

This has some people in an uproar (or at least discomfort).  Some claim that only a handful of large craft breweries will benefit from this while most of the other medium/small craft breweries will see little benefit, especially if the money saved by the large breweries is spent on marketing--giving them a leg up on the competition, which is the smaller breweries.  Are you following?  It's a bit complicated, so to summarize:  Craft breweries are getting bigger. Getting bigger means more excise tax.  Change definition of "bigger" to avoid this tax burden increase. Those "bigger" breweries benefit most, while smaller breweries see little gain. I think that's the gist of it.

This will be interesting to watch to see if a rift develops (or grows) between the handful of big craft breweries (like Sam Adams, Sierra Nevada, New Belgium , etc) and the more numerous small breweries (like Crooked Stave, Lagunitas, Foothills). It will also be interesting to see how the Brewers Association handles this disagreement.  It should be noted that the BA supports this new tax code, as well as a majority of its member breweries. Consensus is difficult to achieve in any industry, so we'll see how this situation develops, if at all.  Sources predict that this new tax code will not pass Congress.

It should also be noted that the main argument in favor of this proposed tax code is job creation.  With the money saved from the discounted excise tax (from $7/barrel to $3.50/barrel for production under 60,000 barrels), small breweries can re-invest in their companies, hire more employees and build up their neighborhoods.

What's the Matter with Craft Beer? Cracks in the Foundation

The Craft Beer industry is taking off; sales are rising, approaching 10% of overall beer sales, which interestingly have dropped. Craft Beer is growing, even through Recession. No doubt this is time for rejoicing for craft beer, craft beer geeks and tap rooms. But there are fractures in the foundation that are coming to light. How these are managed can either fix the cracks, or expound them.

It is important to note that craft brewing is a business and must take on certain business responsibilities. One is establishing and protecting a brand. For the most part a brand is a name. To differentiate beers consumers (for the most part) identify with names: Sam Adams (by Boston Beer Company), Budweiser (AB-InBev), Coors (MillerCoors).  If Boston Beer Company labeled one of their beers "Bud", AB-InBev would see this as trademark infringement (and so, too, would a judge).  This blatant example illustrates why trademark laws are in place.

However, in the business world of trademark infringement the devil is in the details. While "Bud" is an obvious example, Righteous is not, nor is Seven Seas. In these cases the breweries involved are geographically separate, their markets do not overlap. Ostensibly the struggle is to keep other craft breweries from copying each other, stealing names and taking advantage of others' successes.

While some of this might be true, we must look at the business side: protecting trademark.  For if a company does not protect its trademark, then it could lose it, if not now then later. So a brewery on the west coast must keep an eye out for similar beer names/labels emerging on the east coast, not for fear of theft of customers, but of losing trademark. If that happens, then larger companies that are closer can start using that same name/label, and no infringement of trademark can be claimed.  

So, to take "Bud" as an example (which was actually contested in court), if Boston Beer Company started using "Bud" to label a product, and AB-InBev did not claim infringement, then anybody could start using "Bud"…even MillerCoors. Brand recognition would be out the window as would fair competition.

While this may sound easy to avoid, it certainly is not. Trademark infringement disputes are going to happen. In a growing industry full of small companies, it is inevitable that names/labels will fly under the radar, only to appear in the form of cease and desist (CD) letters.

And this is how management of these disputes can either fix the cracks, or widen them. Sometimes the business decision is not best for the business, especially in a personal industry like Craft Beer, and with the explosion of social media.  Trademark protection is necessary, but it's not as black and white as a CD letter.