Current Legal & Regulatory Issues Affecting the Wine Industry California ABC Regulations – Contests & Sweepsta

1. Current Legal & Regulatory Issues Affecting the Wine IndustryCalifornia ABC Regulations – Contests & Sweepstakes Richard Mendelson Dickenson, Peatman & Fogarty rmendelson@dpf-law.com Michael C. Mann Dickenson, Peatman & Fogarty mmann@dpf-law.com

2. SB 778 Creates New Statutes Governor Brown signed Senate Bill (SB) 778 into law creating two new Business and Professions (B&P) Code Sections (25600.1 and 25600.2) authorizing consumer contests and sweepstakes conducted by authorized California Department of Alcoholic Beverage Control (ABC) licensees. These statutes became effective January 1, 2013. SB 778 contains significant restrictions, examples of which are described in the following information provided. However, it does not contain the restrictive monetary provisions imposed by B&P section 25600 and ABC Rule 106 for “free goods” or “things of value” provided to the consumer. The most significant aspect of the new statutes is the absence of such monetary limits for prizes provided to the consumer in connection with these new marketing tools. SB 778 addresses two major marketing concepts: contests (a game of skill) and sweepstakes (a game of chance), defined as follows:

3. B&P Code Section 25600.1 B&P Section 25600.1 states that an authorized licensee mat conduct consumer contests and defines a contest as a game, contest, puzzle, or similar activity that holds out or offers to participants the opportunity to receive or compete for gifts, prizes, gratuities, or other things of value as determined by skill, knowledge, or ability rather than upon random selection.

4. B&P Code Section 25600.2 B&P Section 25600.2 states that an authorized licensee may conduct or sponsor consumer sweepstakes and defines a sweepstakes as a procedure, activity, or event for the distribution of anything of value by lot, chance, or random selection where the odds for winning a prize are equal for each entry.

5. B&P Sections 25600.1 and 25600.2 Sections 25600.1 and 25600.2 both define “authorized licensees” as a winegrower, beer and wine importer general, beer manufacturer, out-of-state beer manufacturer certificate holder, distilled spirits manufacturer, distilled spirits manufacturer's agent, distilled spirits importer general, distilled spirits general rectifier, rectifier, out-of-state distilled spirits shipper's certificate holder, brandy manufacturer, and brandy importer. These authorized licensees may conduct these marketing activities conditionally whether the licensee holds any additional license in conjunction with those defined here. It is imperative that one qualifies as an authorized licensee before entering the consumer contest or sweepstakes arena. Note that an authorized licensee does not include a beer and wine wholesaler. Nor does it include a beer and wine importer general, or a distilled spirits importer general that only holds a wholesaler's or retailer's license as an additional license.

6. B&P Section 25600.1 - Contests B&P Section 25600.1 restrictions include: • Entry into or participation in a contest shall be limited to persons 21 years of age or older. • Skill, knowledge, or ability does not include the consumption or use of alcoholic beverages. • Entry or extra chances in a contest shall not be made available via the purchase of an alcoholic beverage. • No contest shall involve consumption of alcoholic beverages by a participant. • A contest may not be conducted for the benefit of any permanent retail licensee. • Advertising or promotion of a contest shall not identify or refer to any retail licensee.

7. B&P Section 25600.1 (cont.) • Advertising or promotion of a contest shall only be conducted on the premises of a retail licensee when such advertisement or promotion involves a minimum of three unaffiliated retail licensees. For purposes of this subparagraph, "unaffiliated retail licensees" shall not include any retail licensee owned or controlled in whole or in part by an authorized licensee or any officer, director, or agent of that licensee. • A contest shall not provide for the instant or immediate awarding of a prize or prizes. • Instant or immediate notification to the consumer that he or she is a winner is permissible. • Except for providing a means of entry, a contest authorized by this section shall not be conducted at the premises of a retail licensee or the premises of a winegrower or beer manufacturer operating under a duplicate license for a branch office. • Alcoholic beverages or anything redeemable for alcoholic beverages shall not be awarded as a contest prize. This shall not prohibit a contest in which the prize is cash or cash equivalent or the awarding of cash or cash equivalent.

8. B&P Section 25600.1 (cont.) • A retail licensee shall not serve as the agent of an authorized licensee by collecting or forwarding entries or awarding prizes to, or redeeming prizes for, a contest winner. • A licensee that is not an authorized licensee shall not directly or indirectly underwrite, share in, or contribute to, the costs of an authorized contest, or serve as the agent of an authorized licensee to collect or forward entries or to furnish any prize to a contest winner. • The authorized licensee shall provide an alternative means of entry that does not require a visit to a licensed premises. • Removable entry forms shall not be used on alcoholic beverage labels, containers, packaging, cases, or cartons. • Removable entry forms that are neck hangers shall be used only on bottles of wine or distilled spirits, and shall not require purchase of the product. • Removable neck hangers shall be used only if other entry forms are available at the point of sale or if an alternative means of entry is also available. • Entry forms may be provided through electronic or other media, including point of sale.

9. B&P Section 25600.1 (cont.) • All permitted means of entry, including the use of electronic or scanner codes shall clearly indicate that no purchase is required to enter. • Contest prizes shall not be awarded to an authorized licensee, retail licensee, or wholesale licensee or agent, officer, employee, or family member of an authorized licensee, retail licensee, or wholesale licensee. For the purposes of this paragraph, "family member" means a spouse, parent, sibling, child, son-in-law, daughter-in-law, and lineal descendants, including those by adoption. • An authorized licensee shall maintain all records pertaining to a contest for three years following the completion of a contest. • Nothing in this section authorizes conducting any contest where consumers are entitled to an allotment or accumulation of points based on purchases made over a period of time that can be redeemed for prizes, things of value, or additional contest entries.

10. B&P Section 25600.2 - Sweepstakes Section 25600.2 restrictions include: • No entry fee may be charged to participate in a sweepstakes. • Entry or extra chances in a sweepstakes shall not be made available via the purchase of an alcoholic beverage. • Entry into or participation in a sweepstakes shall be limited to persons 21 years of age or older and shall be open to all residents of California. • No sweepstakes shall involve consumption of alcoholic beverages by a participant. • A sweepstakes may not be conducted for the benefit of any permanent retail license. • The authorized licensee shall provide an alternative means of entry that does not require a visit to a licensed premises. • Removable entry forms that are neck hangers shall be used only on bottles of wine or distilled spirits, and shall not require purchase of the product.

11. B&P Section 25600.2 (cont.) • Removable neck hangers shall be used only if other entry forms are available at the point of sale or if an alternative means of entry is also available. • Entry forms may be provided through electronic or other media, including point of sale. Codes that may be scanned or electronically entered by a consumer are permitted as a form of entry. • All permitted means of entry, including the use of electronic or scanner codes shall clearly indicate that no purchase is required to enter. • All sweepstakes entries shall provide the entrant with an equal odds of winning. • A sweepstakes shall not provide for the instant or immediate awarding of a prize or prizes. Instant or immediate notification to the consumer that he or she is a winner is permissible. • Except for providing a means of entry, a sweepstakes authorized by this section shall not be conducted at the premises of a retail licensee or the premises of a winegrower or beer manufacturer operating under a duplicate license for a branch office.

12. B&P Section 25600.2 (cont.) • Alcoholic beverages or anything redeemable for alcoholic beverages shall not be awarded as a sweepstakes prize. This paragraph shall not prohibit a sweepstakes in which the prize is cash or cash equivalent or the awarding of cash or cash equivalent. • A retail licensee shall not serve as the agent of an authorized licensee by collecting or forwarding entries or awarding prizes to, or redeeming prizes for, a sweepstakes winner. • The matching of entries with numbers or pictures on the point-of-sale materials at retail licensed premises is permitted only if entrants are also offered the opportunity to use an alternative means to determine prize-winning status. • An authorized licensee may furnish and maintain a deposit box on a retail licensed premises for the collection and forwarding of sweepstakes entry forms. • A licensee that is not an authorized licensee shall not directly or indirectly underwrite, share in, or contribute to, the costs of a sweepstakes authorized by this section or serve as the agent of an authorized licensee to collect or forward entries or to furnish any prize to a sweepstakes winner.

13. B&P Section 25600.2 (cont.) • Advertising or promotion of a sweepstakes shall not identify or refer to any retail licensee. • Advertising or promotion of a sweepstakes shall only be conducted on the premises of a retail licensee when such advertisement or promotion involves a minimum of three unaffiliated retail licensees. • For purposes of this subparagraph, "unaffiliated retail licensees" shall not include any retail licensee owned or controlled in whole or in part by an authorized licensee or any officer, director, or agent of that licensee. • Sweepstakes prizes shall not be awarded to an authorized licensee, retail licensee, or wholesale licensee or agent, officer,' employee, or family member of an authorized licensee, retail licensee, or wholesale licensee. For the purposes of this paragraph, "family member" means a spouse, parent, sibling, child, son-in-law, daughter-in-law, and lineal descendants, including those by adoption. • An authorized licensee shall maintain all records pertaining to a sweepstakes for three years following the completion of a sweepstakes.

14. Final Note • Under both statutes, an authorized licensee that violates any provision of sections 25600.1 or 25600.2 in addition to any other penalty imposed may be prohibited by the department from offering a contest or sweepstakes to California residents for a period of 12 months. • Now that these new tools are legal we envision many authorized licensees participating by offering consumer contests and sweepstakes as part of their marketing programs. With that said, be sure you understand the new privileges being given and the many limitations associated with them. We think it is safe to say that ABC as well as your competitors in the industry will be watching closely. As in all cases if you are unsure of how to proceed seek guidance.

15. Thank You Dickenson, Peatman & Fogarty www.dpf-law.com Richard Mendelson rmendelson@dpf-law.com Michael C. Mann mmann@dpf-law.com