Trademarks: Here We Go Again

It seems like we can't even blink between trademark disputes in the craft brewing industry. And it also seems like each dispute grows uglier than the previous.  Today, we see two breweries engaged in this ugliness: Magic Hat Brewing Co. and West Sixth Brewing, with the former suing the latter for trademark infringement. Social media sites just ooze of nastiness, mostly from supporters of each brewery, but occasionally from the breweries themselves--at least, they have not done much, if anything, to stop the flow.

Some of the rancor stems from the image of a giant beer company picking on a weaker one. And this does not sit well in a culture that has only recently become aware of the affects of bullying. Magic Hat is the playground bully; West Sixth is the new kid at school. The fight has begun.

Sadly, it could have been avoided. Private phone conversations, one-on-one discussions and even email would have been preferable to social media, lawyers' letters and lawsuits. Even though it sounds like attempts at personal contact were unsuccessful, going from discussion to lawsuit is a giant leap over some critical steps. Facilitated dialogue, mediation, and settlement conference are always options for disputants.  While more effective prior to retaining legal counsel, these options are still on the table.

Still, it surprises me that Magic Hat and its corporate connections have not figured out the power of social media. A power that can build and destroy. West Sixth knows this and are using it to their advantage. At least, so far. While I'm no prognosticator, this dispute will harm both breweries. And that's sad. 

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. 

Craft and Crafty Beer

The Brewers Association recently announced that the time has come to draw a line between authentic craft beer and crafty beer. The BA wants clarity as to what companies produce which beers.  In other words, the BA doesn't want large breweries to claim to be producing craft beer when, according to BA definition of craft, they are not.

Ostensibly, the crux behind this debate is the definitions of craft and large breweries.  Is this simply a case of small companies trying to make a name for themselves? Or is it a case of large companies trying to dominate smaller ones?

The scale of production of a brewery is the central figure used to define “craft[1]” and “macro[2]”, but it’s not the only one.  A craft brewery cannot produce X amount of beer and still be considered "craft". But how does production affect the "craft" side of beer? That's a tough question for BA to address.  So, ownership is another factor, and its salience towards defining “craft” has increased in recent years for several reasons, mentioned below.

For the most part, craft and macro were separate and didn’t directly compete.  Anheuser-Busch's foes were Miller and Coors; Dogfish Head's (DE) foes were…well, that’s hard to say since their share of the beer market was less than 1% and localized.

But times have changed. Craft beer has exploded over the last 10 years, even during the Great Recession, while macro beer has expanded over the globe, into China and India. Today the number of small breweries in the U.S. has eclipsed 2,000 while the number of macros has decreased (due to consolidation) to a handful.  In that time Miller and Coors merged, Anheuser-Busch was bought by InBev and Boston Beer Company’s (Sam Adams) success has persuaded the BA to re-define “craft”.  The latter's growth has pushed the "craft" definition to new limits, literally.

While the big breweries were merging they were also keeping an eye on the small guys.  The latter’s success did not proceed unnoticed. The small breweries’ market share in the beer industry has surpassed 6%, while overall beer sales have decreased: Craft is going up, macro is going down. To assuage this, macros have taken to two tactics: compete with craft, or buy them (or both).

Buying is financially easy, but personally difficult. The beloved Chicago-based Goose Island brewery was bought by AB-InBev and ended that competition, and was greeted with intense beer-geek backlash.  And this highlights a dilemma: is Goose Island still “craft” even though it’s owned by AB-InBev?  And why would that matter? We’ll get back to that.

The other option, directly compete, is tricky, because in order to do so the macro company must admit there is a difference in terms between craft and macro, thus accepting the “craft” definition, and thereby admitting that there's a difference in product.  MillerCoors is attempting to compete directly by establishing smaller brew houses with their own brands and labels, like Blue Moon, Tenth and Blake, AC Golden. But why do they need to do this? Why not just produce the Blue Moon recipe under Coors labeling?  And here we are back to the question posited above: Why does labeling, and therefore ownership, matter?

First, we must establish that it does matter. The actions of BA and the macros establish that it does. And here we (finally) get to the core issues: product and livelihood. 

Product: The difference between the craft breweries' products and the macro breweries' products are vastly different. Craft breweries produce varieties of beer, while the macros produce, mostly, one. While craft brewers detest the product from macros, they do marvel at the consistency macros display on such large scale productions. In short, craft beers are more diverse, while more susceptible to production mistakes, while macros are consistent yet uniform. And this are the stigmas each carry.

Livelihood: The conflict attaches to the product, or perhaps more directly the stigmas.  Many craft beer geeks (their numbers are growing) don't see macro beer as "real beer", but as mass produced flavored water. They are defiant toward the macros and do not want any of their money going to these businesses. Macros know this, so they turn to tactics mentioned above.  If they succeed then the craft breweries will have direct competition with large breweries that they never really had before. And this threatens their passion and livelihood.

The key point here is that the BA and craft brewers do not wish to eliminate the competition. They are not calling for macros to cease production of certain beers. What they are calling for is the claiming of such beers by their owners. Those craft beer geeks want to support the small breweries, but are being deceived by small brewing operations owned (and operated) by the macros. And that is what the BA is trying to confront: displayed ownership of product. Why hide it? Be proud of your product is the BA mindset. Perhaps this sheds light on a larger difference in the modus operandi of marco and craft: To make money or make beer?

Further reading:

http://www.brewersassociation.org/pages/media/press-releases/show?title=craft-vs-crafty-a-statement-from-the-brewers-association

John Cochran of Terrapin Beer Company highlighting the complexity of brewing, beer and business.

http://business.time.com/2012/12/27/trouble-brewing-the-craft-beer-vs-crafty-beer-cat-fight/#ixzz2K3fu06H9

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[1] The term "craft" replaced the common term "micro" as the popularity of small breweries increased, and so too did their production, thus ushering in a need to change the definition

[2] Characterized as "American Adjunct Lagers" and commonly referred to as "BMC" (Bud/Miller/Coors)

Brewer vs. Reviewers

Recently on Ratebeer.com and BeerAdvocate.com a copy of a blog was posted on these websites' forums. The blog was written by an irritated brewer from California. The message was simple: those who review beers on the aforementioned websites, and who do not brew large quantities of beer, have no business reviewing as they are ignorant about beer and to know what they are reviewing. While this claim is an opinion--about others' opinions--the reasoning and logic behind it were equally misguided. As it happens, the users/reviewers on Rate and BA tore this small brewery a new A-hole. Not only did they disagree with the premise, but they also shredded the thinking behind it.

The blog also attacked retailers who use these websites' rankings as "shelf talkers" in the stores. The lack of knowledge presented here is astounding. Yet, I will assume no offense was intended, so I will take none. For now....

Too bad for Mother Earth Brew Co. They've lost a ton of present and future business. Clearly the impact of their blog post was not weighed against its intent. And the 'apology' that followed made little sense and seemed insincere. The damage had been done. It can be repaired with huge doses of humility, apology, possibly humor and changes at the brewery.