Protecting Our Barefoots: Policy Problems in the International Market [Note]

Item Type Article; text

Authors Reeves, Andrew M.

Citation 27 Ariz. J. Int'l & Comp. L. 835 (2010)

Publisher The University of Arizona James E. Rogers College of Law (Tucson, AZ)

Journal Arizona Journal of International and Comparative Law

Rights Copyright © The Author(s)

Download date 27/09/2021 17:28:48

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Link to Item http://hdl.handle.net/10150/658993 PROTECTING OUR BAREFOOTS: POLICY PROBLEMS IN THE INTERNATIONAL WINE MARKET

Andrew M. Reeves*

I. INTRODUCTION

Although France, Italy and Spain remain the world's top wine producers by volume,' Western Europe's share of global wine production has fallen significantly since the 1960s. 2 So-called "new" wine regions-particularly the United States, Australia, New Zealand, South Africa, Chile and Argentina-have dramatically increased production and market share in that same period.3 These countries and wine regions have benefited from a number of fortuitous circumstances: a "hands-off' stance from government regulation, technological advances that, at times, feel like the world of wine is moving into the world of science fiction,4 a lack of the devastating phylloxera plagues and a general change in consumer preference. With growth, however, has come conflict. The current alcohol-related regulatory regimes in the United States and the European Community are, in many respects, fundamentally incompatible. While geographical indicators ('GIs') are the norm in the European Community6

. J.D. Candidate, Class of 2011, University of Arizona Rogers College of Law. With special thanks to John A. Reeves and Barak Orbach for helpful comments on previous drafts. Here's to Railroad Flat. 1 The and Brandy Commission estimates that, in 2008, these three countries provided nearly fifty percent of the world's wine. See The Australian Wine and Brandy Corporation, Market Insight Report, GLOBAL WINE SUPPLY MONITOR, Jan. 2009, at 6. 2 See, e.g., GLYN WITTWER & KYM ANDERSON, GLOBAL WINE MARKETS, 1961 To 2003: A STATISTICAL COMPENDIUM 83 (2004). 3 id. 4 See infra Section IV.A. 5 Discussion of the history and consequences of phylloxera is generally beyond the scope of this Note. In short, however, readers may wish to know that in the late 19t century, European wine regions were nearly destroyed by the presence of a type of aphid (the phylloxera). An entomologist for the U.S. Department of Agriculture, Charles Valentine Riley, eventually provided the only viable solution: graft stock susceptible to the plague to American wine stock ( labrusca) that was generally immune and replant such stock in European soil. As a result of this successful solution, the French wine industry was saved from certain disaster. For more information, see generally CHRISTY CAMPBELL, THE BOTANIST AND THE VINTNER: How WINE WAS SAVED FOR THE WORLD 2005). See generally, Mark Silva, Sour Grapes: The Comprimising [sic] Effect of the United States' Failure to Protect Foreign Geographic Indications of , 28 B.C. INT'L & COMP. L. REV. 197 (2005). 836 Arizona JournalofInternational & ComparativeLaw Vol. 27, No. 3 2010

in relation to the protection of wine-related intellectual property, the United States protects its wine industry primarily through trademark law and regulations promulgated by the Bureau of Alcohol, Tobacco and Firearms. As explained in Section II, these two systems have decisive differences that, for over a century now, have created a set of conflicts cumulatively known, only somewhat jokingly, as the "Wine Wars."' With other countries quickly expanding into the international wine market, and with most of those countries embracing trademark regimes, the problem has only been exacerbated. International law, especially the Agreement on Trade-Related Aspects of Intellectual Property Rights ('TRIPS') 8 passed by the World Trade Organization ('WTO') in 1994, has attempted to alleviate these problems but, as Section III will argue, so far the effort has proven futile. As a result of these "compatibility" problems between intellectual property regimes, the European Union has actively sought to establish bilateral agreements with other wine producing nations worldwide in an effort to protect their own GIs.9 Section IV will briefly analyze three such agreements executed as part of this strategy and will argue that, though possibly at odds with the mandates of the TRIPS agreement, Europe's proactive approach has been a success. It will be further argued that this success has come at the expense of the U.S. wine industry. Along these lines, Section V will point to the fact that, unlike the European community ('E.C.'), the U.S. government has paid scant attention to its relationships with fellow upstart wine countries and, because of the ineffective nature of international law and multilateral treaties in this area, will argue that this "hands off' approach is problematic. As an example, a recent conflict in Australia over the well-recognized brand "Barefoot," will be analyzed to show that, without bilateral treaties, American winemakers-saddled with a bizarre Prohibition-era distribution scheme and a number of somewhat nonsensical regulations-may find their intellectual property rights are not as well protected in foreign markets as those of their oenological counterparts in Europe. In conclusion, this Note will argue that, if the U.S. wine industry is to continue to make strides toward becoming an international wine exporter on the scale of the Europeans, bilateral treaties will need to be negotiated or much of the "regulatory remnants" of the temperance era will need to be swept aside.

See, e.g., Stacy D. Goldberg, Who Will Raise the White Flag? The Battle Between the United States and the European Union Over the Protectionof GeographicalIndications, 22 U. PA. J. INT'L EcoN. L. 107 (2001). Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, 1867 U.N.T.S. 154, Annex IC, Agreement on Trade-Related Aspects of Intellectual Property Rights,33 I.L.M. 1125, 1197 [hereinafter TRIPs Agreement]. 9 See, e.g., Agreement Between the European Community and Canada on Trade in Wines and Spirit Drinks, Can.-EC, Sept. 16, 2003, 2004 O.J. (L 35) 3. Protecting our Barefoots 837

II. TRADEMARK PROTECTION IN THE UNITED STATES AND AMERICAN REGULATION OF WINE LABELS

A. The Lanham Act

Trademark protection in the United States is generally achieved through enforcement of the Lanham Act.1 o Even before the effective implementation of this Act in 1947 the common law recognized the importance of trademarks in American commerce. As Justice Frankfurter once eloquently put it:

The protection of trade-marks is the law's recognition of the psychological function of symbols. If it is true that we live by symbols, it is no less true that we purchase goods by them. A trade-mark is a merchandising short-cut which induces a purchaser to select what he wants, or what he has been led to believe he wants. The owner of a mark exploits this human propensity by making every effort to impregnate the atmosphere of the market with the drawing power of a congenial symbol. Whatever the means deployed, the aim is the same-to convey through the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this is attained, the trade-mark owner has something of value. If another poaches upon the commercial magnetism of the symbol he has created, the owner can obtain legal redress."

Though extensive discussion of the Lanham Act and trademark protection in the United States is beyond the scope of this Note, a few sections-section 1125, the so-called "federal dilution statute,"' 2 and section 1127, the statute pertaining to abandonment of marks' 3-are well worth briefly analyzing. The beginning of section 1125, "the federal dilution statute" reads as follows:

(a) Civil action

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin,

1oLanham Act, 15 U.S.C. § 1051(2010). " Mishawaka Rubber & Woolen Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 205 (1942). 12 15 U.S.C.A. § 1125 (West 2006). 13 15 U.S.C.A. § 1127 (West 2006). 838 Arizona Journal ofInternational& ComparativeLaw Vol. 27, No. 3 2010

sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.14

Importantly, section (a)(1)(B) of the dilution statute sets a relatively low bar for possible infractions-the standard is one of misrepresentationrather than deception or the possibility of consumer confusion. 5 In relation to wine, this is especially problematic because designating the "geographic origins" of wine is not always straightforward in the complex American industry. For instance, does attaching the geographic signifier "Napa" to a bottle of wine produced in the Napa Valley with grapes from other regions constitute misrepresentation? According to California courts, it does. In 2005, Bronco (famous for supplying Trader Joe's with the massive quantities of grapes needed to saturate the industry with "Two-Buck Chuck") was forced to test the limits of the dilution statute-and lost. Beginning in the early '90s, CEO Fred Franzia began an impressive expansion of Bronco's holdings that included, importantly, the purchasing of Rutherford , Napa Creek , and Napa Ridge (all in operation since at least the early 1980s).6 The "Napa Ridge" name, alone, cost Bronco over $40 million dollars. 17 Rather than continue to operate the somewhat faltering vineyards as purchased, though,

14 15 U.S.C.A. § 1125 (West 2006). 1s One commentator, Kenneth Plevan, has argued that the dilution statute is an unnecessary extension of intellectual property rights doing little more than serving the interests of major corporations:

[T]he owners of the most powerful trademarks in the world lobbied Congress to enact the statute. What did these powerful trademark owners want the dilution statute to protect? I suggest they wanted it to protect the sensibilities of vice presidents of marketing at powerful companies who are somehow offended when someone else uses their company's trademarks without actually causing confusion . . . I personally think that the dilution laws are of dubious constitutionality.

Hughes et. al, That's a Fine Chablis You're Not Drinking: The Proper Place for GeographicalIndications in Trademark Law, 17 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 933, 952 (2007). 16 Bronco Wine Co. v. Jolly, 29 Cal. Rptr. 3d 462, 468 (Cal. Ct. App. 2005), cert. denied, 546 U.S. 1150 (2006). " Id. at 469. Protecting our Barefoots 839

Bronco simultaneously poured capital into improving the bottling and production facilities and, in what proved to be their fatal step, incorporated them into the complex production and grape distribution system it already had in place for many of its other wines. This, among other things, involved combining grapes grown on the Napa properties with large quantities of grapes from other sources (mostly from Lodi, California, which is in California's Central Valley). Though controversial, Bronco adhered to both state and federal laws concerning labeling: although they kept the name Napa on the highly visible 'masthead' of the labels, smaller writing on both the back and front of the bottle did indicate that a majority of the grapes used in production were not from the Napa region.' 8 In 2000, though, the California legislature-bending to intense pressure from other California winemakers-passed legislation barring the labeling of any wine with the name "Napa" (or any other significant viticultural region within the Napa Valley, such as Rutherford Creek) that did not strictly comply with the federal rules requiring that 75% of the grapes used to produce wine connected by brand name to a specific geographic region originate in the region in question.19 Bronco had previously eluded this requirement through a grandfather clause in the federal laws that exempted marks in use prior to 1986 from the 75% requirement. 20 Although it took a number of cases and appeals to sort out, the ultimate verdict finally came in 2005 when, in Bronco Wine Co. v. Jolly, it was decided that, in the case of wine labeling, state laws could preempt federal laws and, further, that the dilution standard of misrepresentation would now be taken at face value: if the possibility of confusion for consumers existed for a mark, winemakers should avoid its use. 21 Though hailed by many in the wine industry as a major win for the "little guys" (i.e. boutique producers),22 only time will tell if this dogmatic adherence to legal rules will play out well. For one, the wine industry in California has thrived of late because of its ability to integrate and incorporate operational efficiencies. In bad rain years, it seems highly possible that other Napa winemakers-the very winemakers that so fervently opposed Mr. Franzia's labeling practices-will struggle to meet the 75% quota for their own wines. Having essentially cut off

18Like all things with wine, labeling requirements are complex. In brief, though, winemakers are required to apply for federal Certificates of Label Approval (COLAs) before releasing their wine for sale. The requirements are laid out in 27 C.F.R. § 4.39 (2006). 19Cal. Bus. & Prof. Code § 25241 (West 2001). 20 27 C.F.R. § 4.39(i)(2)(iii) (2006). 21Bronco Wine Co., 29 Cal. Rptr. 3d at 469-71. For an extended discussion of this case, see CAROL ROBERTSON, THE LITTLE RED BOOK OF WINE LAW: A CASE OF LEGAL ISSUES 129-137 (2008). 22 See, e.g., Maura Dolan & Jerry Hirsch, Napa Vintners Toast California'sJustices, Los A NGELES T I M E S , Aug. 6, 2004, at Cl, available at http://www.articles.latimes.com/2004/aug/06/business/fi-wine6. 840 Arizona Journal ofInternational& ComparativeLaw Vol. 27, No.3 2010 their only easily accessible lifeline (every other grape source in the state), Napa vineyards may be forced to consolidate to stay alive. In the reverse, in years where there is an overabundance of grapes, Napa winemakers will likely have a difficult time using them all productively. Because, if the highly prized nature of Napa wine grapes are reflected in their cost, there is no incentive for winemakers in other regions to buy surplus from Napa as they will no longer be allowed to indicate that said grapes were produced in Napa (unless, of course, the wine reaches the crucial 75% threshold). In an effort to avoid waste, then, it seems highly plausible that, in abundant years, Napa winemakers may resort to mass-producing wine (the very thing that the winemakers do not want their region to be known for). In short, paternalistic laws like those adopted by the California legislature often have negative effects and, further, contribute to major inefficiencies in an industry that, for many producers, is already difficult to turn a profit in. No matter how this plays out, at the very least, it seems unlikely that Mr. Franzia will swoop in to bail out other winemakers affected by labeling issues. Such issues are complex and the Bronco case, among other things, demonstrates that these issues are still evolving even when this country's own wine regions are involved. When the matter becomes international, though, the complications only become more problematic. Thus, the question has repeatedly been posed as to whether calling a California "," though it was obviously not produced in France's Champagne region, is a possible offense of the dilution statute?23 Currently, there is not a clearly defined answer. Most problematic, though, has been that each time a labeling issue has been raised, it has been solved on a case-by-case basis-a situation that benefits neither the legal system (as this is overly burdensome) nor wine producers (who do not know whether their marks will make them liable for a Lanham Act violation). Section 1127, involving abandonment of trademarks, presents its own difficulties. The relevant portion of the statute reads as follows:

A mark shall be deemed to be "abandoned" if either of the following occurs:

(1) When its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Nonuse for 3 consecutive years shall be prima facie evidence of abandonment. "Use" of a mark means the bona fide use of such mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.

23 See generally Brian Rose, No More Whining about GeographicalIndications: Assessing the 2005 Agreement Between the United States and the European Community on the Trade in Wine, 29 Hous. J. INT'L L. 731, 734 (2007); see generally Goldberg, supra note 7; Silva, supra note 6. Protectingour Barefoots 841

(2) When any course of conduct of the owner, including acts of omission as well as commission, causes the mark to become the generic name for the goods or services on or in connection with which it is used or otherwise to lose its significance as a mark. Purchaser motivation shall not be a test for determining abandonment under this paragraph.'

For an example of trademark abandonment in the wine industry, one need look no further than the driving force behind the Bronco litigation, Fred Franzia himself At this point, the Franzia family has absolutely no connection to the infamous, low-quality boxed-wine found on college campuses and bad cocktail parties nationwide. Nevertheless, the name is not a common one and, sure enough, it does stem from "Franzia Brothers Wineries"-established at the turn of the century by an Italian immigrant named Giuseppe Franzia-Fred's grandfather.26 All the Franzia children and grandchildren, like Fred, learned the business but, in 1973, Coca-Cola acquired the Franzia Brothers Wineries as a number of family members sold their shares in the company. 27 Refusing to work for the soft-drink giant, Fred (along with a few other relatives who had never wanted to sell the original winery) formed the Bronco Wine Company. The Franzia mark, though, now belonged to Coca-Cola. Unfortunately, perhaps unaware of the legal intricacies of the abandonment statute, Fred Franzia never challenged his right to use the mark-despite the fact that Coca-Cola never utilized it.28 When the eventual owners of the Franzia mark, The Wine Group, began production of Franzia boxed-wine in the 1980s, there was little that Mr. Franzia could do. Though Section 1127(1) makes it clear that the long period in which the Franzia mark went fallow would be prima facie evidence for abandonment, Mr. Franzia never challenged the mark or attempted to use it

24 25 U.S.C.A. § 1127 (West 2006). 25 Mr. Franzia, in fact, insists in all interviews that this be made abundantly clear. See, e.g., Dana Goodyear, The World of Business, Drink Up, THE NEW YORKER, May 18, 2009, available at http://www.newyorker.com/reporting/2009/05/18/090518fafact goodyear. 26 id. 27 Id. Not a major player in the wine industry, and bending to pressure so as never to become one, Coca-Cola eventually sold their interest in Franzia Brothers Winery to what would later become one of America's largest wine conglomerates, The Wine Group, in 1981. A brief but insightful discussion concerning Coca-Cola's unwillingness to actually enter the wine trade can be found in The Wine Group's own promotional literature. See The Wine Group, Inc. - Company History, http://www.fundinguniverse.com/company- histories/The-Wine-Group-Inc-Company-History.html (last visited Sept. 20, 2010). 28 Disputes over using surnames in the California wine industry have taken on legendary proportions. Franzia's cousins, the Gallo Brothers, had the most famous surname dispute. It played out in E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280 (9th Cir. 1992) when Ernest and Julio, the two eldest Gallo brothers, managed to convince the judicial system to bar their younger brother, Joseph, from using his own name on the artisanal cheeses he had taken to producing and selling. For further reading, see Andrew Grumbel, The Curse of the House of Gallo, THE INDEPENDENT (London), Mar. 3, 2007. 842 Arizona Journal ofInternational& Comparative Law Vol. 27, No.3 2010 himself. By default (through eventual commercial use), The Wine Group reasserted their interest in the Franzia mark, and boxed-wine sales took off. Undaunted-though not thrilled with the "box association"-the Franzia clan, through Bronco, still produces wine second in quantity only to the Gallo Family.29 Nevertheless, this story certainly indicates just how harsh the abandonment statute can be-whether one utilizes it to obtain an abandoned mark or fails to use it to recapture one that is desired. Another luminary of the industry, Robert Mondavi, serves as a useful example of how the second part of the abandonment statute works. Mondavi's fanciful inception of the term "Fum6 Blanc" in 1968 to describe wine made from grapes proved to be a major selling point.30 Although Mondavi never chose to seek trademark protection for the mark at the time3 1 (mostly because he was attempting to conceal the very idea that Fum6 Blanc was nothing other than Sauvignon Blanc), Fumd Blanc is now synonymous in California with Sauvignon Blanc. Should Mondavi's heirs finally change their minds and seek trademark protection for the term, pursuant to section 1127(2), trademark protection would no longer be available as the term has become a signifier for a particular type of wine varietal. This problem-the paradoxical problem of marks becoming too successful thereby making them generic and not available for the full protection of the Lanham Act-has been especially troublesome for European winemakers who have long opposed American wine companies usage of 'generic' terms (e.g., Burgundy and Champagne) to describe their products.32

B. BATF Regulations

To further complicate matters, the Bureau of Alcohol, Tobacco, and Firearms (BATF), the government agency given the task of monitoring and enforcing trademark issues in relation to wine labels,33 has developed a somewhat incomprehensible hierarchy determining which wine-related nomenclatures receive protection and which do not.34 Under its scheme, there are four possible

29 The Gallos, incidentally, have been related by marriage to the Franzias for some time as

3Fred's0 aunt, America, married Ernest Gallo shortly after World War II. See JULIA FLYNN SILER, THE HOUSE OF MONDAVI: THE RISE AND FALL OF AN AMERICAN WINE DYNASTY 85 (2008). 3 See KEVIN ZRALY, THE WINDOWS ON THE WORLD COMPLETE WINE COURSE 71 (2007 ed. 2006). 32 See Carol Robertson, The Sparkling Wine War: Pitting Trademark Rights Against Geographic Indications, 18 Bus. L. TO DAY 19 (May/June 2009), available at http://www.abanet.org/buslaw/blt/2009-05-06/robertson.shtml. 13 See 27 U.S.C. §§ 201 & 205(e) (1999). 34 For extensive discussion of this problem see Kevin H. Josel, New Wine in Old Bottles: The Protection of France's Wine Classification System Beyond its Borders, 12 B.U. INT'L Protectingour Barefoots 843 wine-related distinctions: generic, semi-generic,36 nongeneric names, which are not distinctive designations of specific grape wines,3 7 and nongeneric names, which are distinctive designations of specific grape wines. So called "generic" names include "vermouth" and "sake."39 In determining the generic nature of these terms, the BATF has (correctly, it would seem) concluded that few American consumers recognize that "vermouth" originally referred to a Piedmontese recipe for from the 18th century" or that "sake" refers to alcohol in general in Japan rather than Nihonshu (what Americans would normally think of as fortified Japanese rice wine). 41 In short, these terms have been so far removed from their origins that consumers think of them simply as generic types of wine. Semi-generic names have been the most hotly debated in discussions with the European Community. 42 The BATF provides the following list of such names: Angelica, Burgundy, Claret, Chablis, Champagne, Chianti, Malaga, Marsala, Madeira, Moselle, Port, Rhine Wine (syn. Hock), Sauterne, Haut Sauterne, , and Tokay.43 In theory, American winemakers are allowed to use these labels for their wines so long as:

[T]here appears in direct conjunction therewith an appropriate appellation of origin disclosing the true place of origin of the wine, and if the wine so designated conforms to the standard of identity, if any, for such wine contained in the regulations in this part or, if there be no such standard, to the trade understanding of such class or type."

In practice, though, a number of complications arise. For starters, some of these semi-generic designations refer to grape varietalS (e.g., Claret and

L. J. 471, 474 (1994). As Josel notes, "[i]t is not entirely clear where or how the BATF's classifications fit[s] into the Lanham Act's analysis of distinctiveness and registrability . . . ."Id. at 48 1. 27 C.F.R. § 4.24(a)(1) (2006). Id. at (b)(1). 3 1Id. at (c)(2). 3 1Id. at (c)(3). 3 Id. at (a)(2). 4See KAREN MACNEIL, THE WINE BIBLE 334-35 (Suzanne Rafer & Barbara Mateer eds., 2001). 41 See Louise Southerden, Customary Ways: Japan, SYDNEY MORNING HERALD, Sept. 15, 2008, at 22. 42 See Josel, supra, note 34. 43 27 C.F.R. § 4.24(b)(2). 44 Id. at (b)(1). 45 Varietals are distinctive species of vines. , for instance, is a common red varietal. Bordeaux, however, is a wine type made from merlot grapes. 844 Arizona JournalofInternational & ComparativeLaw Yol. 27, No. 3 2010

Tokay), some are geographical in origin (e.g., Haute Sauterne and Burgundy), and some refer to production methods (e.g., Champagne and Port).4 One can only imagine how difficult it would be to label a sparkling (Champagne production method) wine from California made from Tokay grapes, let alone how confused it would leave the consumer!47 The idea, it would appear, is that these particular designations have become "generic enough" that many consumers no longer associate the names with the places, wine varietals, or production methods they were originally connected to, and now see them as descriptive signifiers for wine products (e.g., are sparkly and Clarets are red). The third category, nongeneric names which are not distinctive designations of specific grape wines, is less problematic and includes such terms as "Napa Valley" and "Spanish." 48 The fourth category, nongeneric names which are also distinctive designations of specific grape wines, however, has many of the same problems as the second category. The examples given by the BATF are: Bordeaux Blanc, Bordeaux Rouge, Graves, Medoc, Saint-Julien, Chateau Yquem, Chateau Margaux, Chateau Lafite, Pommard, Chambertin, Montrachet, Rhone, Liebfraumilch, Rudesheimer, Forster, Deidesheimer, Schloss Johannisberger, Lagrima, and Lacryma Christi.49 Under this system, some notable French wine regions receive wholesale protection (e.g., Graves and Medoc) so that American winemakers may not use these names even if they identify true origins (e.g., California Bordeaux Blanc would be unacceptable); some wine types (e.g., Liebfraumilch) receive protection so that, theoretically, if an American producer made a Liebraumilch50 they would need to call it something else;5 and, finally, a

4 It should be noted that the matter is even more complicated as Tokay happens to be a wine region in Italy, a grape varietal, and a specific style of wine famous in Hungary (Tokaj). Californians growing up in the Central Valley of the 1950s through 1980s, though, generally associate Tokay with the heavily fortified sac wine made from the Valley's surplus of cheap grapes at the time. Along these lines, Champagne is a region of France and a production method while Port refers to Portugal but in actuality is a method of production from the Douro region of that country that involves significant fortification during fermentation. It would have to be something like "California Tokay Champagne". 4 27 C.F.R. § 4.24(c)(2). Interestingly, this category already has the possibility for protection within another area of American intellectual property law: certification marks. For discussion see infra Section II.C. 49 Id. at (c)(3). 5o Liebfraumilch is made from a blend of Muller-Thurgau, , silvaner, and kemer grapes (plus not more than 30 percent of other grape varietals). See MACNEIL, supra note 40, at 520. s1 Interestingly, it is possible, for approximately $50, for home-winemakers to receive all the supplies necessary to make their own "California Liebfraumilch." See Let's Make Food & Wine, http://www.letsmakefoodandwine.com/californialiebfraumilch-p- 1229.html?osCsid=a5bdf273512e408fae907fe54f680172 (last visited Sept. 21, 2010). If an unwitting entrepreneur sold the final product as such, he or she would be subject to injunctions and fines from the BATF. Protectingour Barefoots 845

number of famous French winehouses (for no apparent reason) receive special protection (e.g., Chateau Yquem) so that no producer could label their wine as being in the "style of Chateau Margaux."52 The arbitrary nature of the BATF hierarchy has left many winemakers wanting5 3 and can only lead to two possible conclusions: either the BATF drafters of these provisions were not well acquainted with the complex world of wine or, more sinisterly, the American government is simply playing favorites. Perhaps it is a little of both. Congress chose to codify the BATF's semi-generic category thereby clearly indicating their willingness to allow American winemakers to utilize such terms. 54 As for French wine appellations, one noted expert has argued that the French laws determining them are "a bit complicated" and are "too rigid and a major barrier to creativity."55 Either way, it is understandable that some wine producers-those from Champagne for instance-and any number of French winehouses (e.g., Chateau Mouton-Rothschild) are peeved that American regulations either leave them out entirely or encourage free-riding from American wine producers. 56

52 French "winehouses" or "chateaux" indicate more than a fancy building or possible winemaker. Instead, they are wrapped up in the complicated French appellation system. For simplicity's sake, these chateaux can be thought of as vertically integrated corporations that own both the grapes being used in production and the production facilities themselves, and, most importantly, the growth and production take place within a clearly identifiable (and small) region. This practice is quite different from many producers who sometimes purchase their grapes from wherever they can get them (obviously with agriculture there are both shortages and gluts from year to year) or, send their grapes to production facilities that are more cheaply run in other areas (it is cheaper from both a labor and real estate perspective to bottle Napa wine grapes in the inexpensive Central Valley than it is in Napa or Sonoma). For further discussion of the French system see Josel, supra note 34. 5 Not all academics, however, believe that this presents a substantial problem on a domestic level. As Kenneth Plevan has said,

I defer to everyone else . . . to figure out how we harmonize two clashing interests, where everything works fine here in the United States . . . [but where] legitimate interests may well exist-particularly at that lower level of protection in the context of deception-because European consumers have different reactions than American consumers.

Hughes, supra note 15, at 952-53. 54 26 U.S.C.A. § 5388(c)(1) (West 2006). 5 See MACNEIL, supra note 40, at 116. As Aaron Lang has argued, "the point is simply that businesses in the United States and other developed countries are in a much better position to engage in free-riding . . . ." Aaron C. Lang, On the Need to Expand Article 23 of the TRIPS Agreement, 16 DUKE J. COMP. & INT'L L. 487, 497 (2006). 846 Arizona JournalofInternational & ComparativeLaw Vol. 27, No.3 2010

C. Certification Marks

One possible solution to the problem of GI protection for both American and European winemakers is the use of certification marks. One commentator, Milo Coerper, has gone so far as to argue that certification marks are the only means of establishing a property right in a geographic indication in the United States and thus the only possible solution barring widespread legislative action. Certification marks involve "any word, name, symbol, device, or any combination, used or intended for use in commerce with the owner's permission by someone other than its owner, to certify regional or other geographic origin." To successfully utilize the protection of a certification mark, though, some kind of trade association-like the Napa Valley Vintners Association, would need to apply for the mark and then allow winemakers (themselves part of the association) to use it. A classic example of a certification mark is "100% Kona Coffee" for coffee grown within certain regions in Hawaii. The problem with certification marks, however, is that, at least in America, the types of associations required to obtain the marks either do not exist or, if they do, membership is a hotly debated and politically charged topic.59 Further, the mark "must be open to anyone who meets the standards set forth for certification" and, as a result, free-riders may benefit from the mark without having to be involved in the original certification procedures.60 From the European perspective, although thousands of highly regulated wine-related associations do exist, certification marks do not provide quite as much protection as GIs and, as a result, European winemakers would rather spend their resources fighting for GI protection. In light of these problems-both with the Lanham Act and the BATF regulations-it is not surprising that European wine producers have been pushing for better wine-related intellectual property protection continuously for over a

5 Milo Coerper, Certification Marks as a Means of Protecting Wine Appellations in the United States, 15 No. 4 GP SOLO & SMALL FIRM LAw, 42, 42 (1998). Bruce Babcock & Roxanne Clemens, GeographicalIndications and Property Rights: Protecting Value-Added Agricultural Products, Midwest Agribusiness Trade Res. & Info. Ctr., 2-3 (2004), available at http://www.card.iastate.edu/publications/DBS/PDFFiles/04mbp7.pdf. 9 Defining the geographic territories of the "Napa Valley," for instance, has led to a number of problems as every wine producer in the region would like to be included in such a definition. Thus, membership in the Napa Valley Vintners Association is a highly prized commodity. For a legal perspective on this issue see Bronco Wine Co. v. Jolly, 29 Cal. Rptr. 3d 462 (Cal. App. 3d. 2005). 6 See, e.g., Molly Torsen, Apples and Oranges: French and American Models of Geographic Indications Policies Demonstrate an International Lack of Consensus, 95 TRADEMARK REP. 1415, 1433 (2005). See also INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE 544 (ROBERT P. MERGES ET AL. EDS., 3d ed. 2003). Protecting our Barefoots 847 century.6 ' Finally, in 1994, all 149-member states of the WTO successfully 62 negotiated TRIPS and agreed to its terms. But, as will be argued in the next section, TRIPS may have created more harm than good (for both European and American winemakers) and should be "augmented" 63 with bilateral treaties dealing with specific wine-related issues between wine producing countries.

III. THE TRIPS AGREEMENT

Section 3 of the TRIPS agreement is specifically devoted to Geographical Indications. Article 22, the first of the section, defines GIs as "indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin."64 An easily identifiable example would be Roquefort cheese:6 5 though, in reality, this pungent stuff can be produced just about anywhere, under French law (and, by extension, TRIPS) only cheese fermented in a specific set of caves in Roquefort-sur-Soulzon has the right to bear the Roquefort name. In short, GIs attribute special qualities, whether rightly or wrongly, to what in the wine industry is known as "." Though no exact translation is possible, "terroir" typically involves a combination (somewhat mystical) of soil, climate, place, production methods, and history.

61See Paris Convention for the Protection of Industrial Property of Mar. 20, 1883, 24 U.S.T. 2140, 6 I.L.M. 806 (1967) as revised at Brussels on Dec. 14, 1900, at Washington on June 2, 1911, at The Hague on Nov. 6, 1925, at London on June 2, 1934, at Lisbon on Oct. 31, 1958, and at Stockholm on July 14, 1967, and amended on Oct. 2, 1979. The United States refused to sign on to the Lisbon or Stockholm concessions. 62 TRIPS Agreement, supra note 8. 63 do not advocate that TRIPS should be replaced or that the United States should not have agreed to the Agreement. On the whole, TRIPS provides the greatest global level of protection for intellectual property that we have seen thus far and many concessions were made in the bargaining process to protect vital American interests (e.g. technological innovations). Articles 22-24, however, deal with Geographical Indications and are almost as helpful to winemakers as the Lanham Act and BATF regulations-which is to say, not very helpful at all in the opinion of this Note's author. 6 TRIPS Agreement, supra note 8, at art. 22.1. In addition to being easily identifiable, Roquefort cheese was the first product to be recognized by France's complex system of Appellation d'Origine Contr6l6e (AOC) in 1925-the system that now covers GI protection in France and, to some extent, served as the model for developing GI protection for the rest of the European Community. For in depth discussion concerning Roquefort and various other intellectual property issues related to les fromages, see generally Jenny Mosca, The Battle Between the Cheeses Signifies the Ongoing Struggle to Protect Designations of Origin Within the European Community and in the United States in Consorzio per la Tutela del Formaggio Gorgonzola v. Kaserei Champignon Hofmeister GMBH & Co. KG, 8 TUL. J. INT'L & CoMP. L. 559 (2000). 848 Arizona JournalofInternational & ComparativeLaw Vol. 27, No. 3 2010

TRIPS then goes on to state that Member states should, through injunctions, denial of trademarks, or other legal avenues, prohibit "the use of any means in the designation or presentation of a good that indicates or suggests that the good in question originates in a geographical area other than the true place of origin in a manner which misleads the public as to the geographical origin of the good."6 This would mean that a Wisconsin maker of bleu cheese could no longer label it as Roquefort cheese or Roquefort-style cheese-theoretically. The problem is that Section 24 of the TRIPS agreement is devoted to exceptions and reads, in part, as follows:

Where a trademark has been applied for or registered in good faith, or where rights to a trademark have been acquired through use in good faith either:

(a) before the date of application of these provisions in that Member as defined in Part VI; or (b) before the geographical indication is protected in its country of origin;

measures adopted to implement this Section shall not prejudice eligibility for or the validity of the registration of a trademark, or the right to use a trademark, on the basis that such a trademark is identical with, or similar to, a geographical indication.67

Thus, if our Wisconsin cheese producer had been making "Sheboygan Roquefort" for some time, and had either trademarked the name or registered for the name in good faith, TRIPS would have no effect upon their ability to continue to "deceptively" market their product as Roquefort rather than the more generic bleu cheese. The situation is even more complicated when it comes to wine and spirits as the TRIPS agreement explicitly deals with these in Section 23. The applicable language reads as follows:

Each Member shall provide the legal means for interested parties to prevent use of a geographical indication identifying wines for wines not originating in the place indicated by the geographical indication in question or identifying spirits for spirits not originating in the place indicated by the geographical

6 TRIPS Agreement, supra note 8, at 22.2(a) and 22.3. Also, it should be noted that the standard here, as with the American dilution statute in the Lanham Act, is one of misrepresentationrather than deception. 67 Id. at 24.5. Protectingour Barefoots 849

indication in question, even where the true origin of the goods is indicated or the geographical indication is used in translation or accompanied by expressions such as "kind", "type", "style", "imitation" or the like.68

It would appear, then, that this provision specifically accounts for the problems European winemakers have complained of in relation to the Lanham Act and the BATF regulations discussed earlier. "California Champagne" or "Tipo-Chianti" 6 9 would no longer be valid. As with Section 22, Section 24's exceptions eliminate any meaningful protection that may have been provided. Practically the only American wine producers that still use the semi-generic terms at the center of this debate are the so-called "jug wines" which have steadily declined in popularity for the last thirty years and that have, incidentally, secured trademark protection long before the enactment of TRIPS (thereby making their marks excluded or "grandfathered in" under Section 24.5). Section 24 does explicitly state that member countries agreed "to enter into negotiations aimed at increasing the protection of individual geographic indications under Article 23"71 but, at this time (over a decade later), it still has not happened.72

8 Id. at 23.1. 69 One of the earliest American cases to confront any of these intellectual property issues in relation to wine involved exactly this "Tipo-Chianti" nomenclature, Italian Swiss Colony v. Italian Co., 110 P. 913 (Cal. 1910). Even then, nearly one hundred years ago, the American court system decided that "Tipo-Chianti" and Chianti were already too generic to serve as stand-alone marks. Id. at 915-16. Incidentally, it should be noted that Chianti is made from grapes and is, thus, neither a varietal nor a proper signifier of a geographic region as it is made all over the Italian peninsula. There is strong indication that a number of WTO member countries would not have agreed to TRIPS without the inclusion of Section 24. As Vicki Waye has noted:

The United States, Canada, Australia and many Latin American countries opposed prohibition on claims that a product was produced in the style or contained the character of a product of a protected geographic indication. These countries opposed the prohibition because they had imported European production methods, which had been adapted to local conditions. Instead they proposed a more limited form of protection based on 'misleading use' which would only prohibit false claims of geographic origin and which would exempt geographic indications that had become generic.

Vicky Waye, Assessing Multilateral vs. Bilateral Agreements and Geographic Indications Through InternationalFood and Wine, 14 CURRENTS: INT'L TRADE L.J. 56, 57-58 (2005). 71 TRIPS Agreement, supra note 8, at art. 24(1). 72 See Irene Calboli, Expanding the Protection of GeographicalIndications of Origin Under TRIPS: "Old" Debate or "New" Opportunity?, 10 MARQ. INTELL. PROP. L. REv. 181, 194-97 (2006). The WTO took up the debate about TRIPS and GIs again in the 850 Arizona JournalofInternational & Comparative Law Vol. 27, No. 3 2010

Perhaps most problematic of all, though, is that the American judicial system has come to the determination that the TRIPS Agreement is not self- executing. Instead, lawmakers must create and pass legislation incorporating the protections agreed upon in Articles 22 and 23-something they have yet to do thus far.74 Thus, at this point, winemakers are left to dispute resolution provided for by the WTO itself. Under the Understanding of Dispute Settlement, a WTO panel mediates and arbitrates disputes between parties.7s Either party may appeal the panel decision to the Appellate Body. Once the Appellate Body makes its decision and the Dispute Settlement Body (DSB) adopts such decision, the compliance process begins. The party found in violation of its obligations must comply with the decision within a reasonable period of time." If such party fails to implement the ruling, the complaining party "may request authorization from the DSB to suspend . . . concessions or other obligations" it has to that member. WTO decisions, however, have no real enforcement mechanism; the system requires member nations to self-enforce DSB decisions. Barring this, member countries can attempt to implement trade restrictions or increased tariffs.7 9 As a result of these problems, many WTO members have come to the rather common-sense conclusion that working outside the framework of the WTO is the most efficient way to achieve their goals. Thus, so-called "TRIPS-plus"

"WTO's Decision Adopted by the General Council" (Aug. 1, 2004) and, unsatisfactorily for many, came to the conclusion that the issue of GIs would remain an unresolved issue of interest for future discussion. See World Trade Organization, Decision Adopted by the General Council on 1 August 2004, Annex A, para. 49, WT/L/579 (Aug. 2, 2004). 7 See Flores v. S. Peru Copper Corp., 414 F.3d 233, 257 n.34 (2d Cir. 2003) (describing the differences between self-executing and non-self-executing treaties); ITC Ltd. v. Punchgini, Inc., 482 F.3d 135, 161 (2d Cir. 2007) ("TRIPS is plainly not a self-executing treaty."). See also Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809 (1994) (stating that TRIPS and other GATT agreements "are not self-executing and thus their legal effect in the United States is governed by implementing legislation"). 74 See generally Silva, supra note 6. Silva makes the interesting and novel argument that the United States' unwillingness to protect foreign GIs at home will have consequences for our own trademark protection in other WTO member countries. Currently, in China, such an issue has come up as a Chinese company, Hongye Grape Wine Co., has attempted to register the GI "Napa Valley" for one of its domestic wines. For more detailed information on this dispute, see generally Mark J. Calaguas, A Rosd by any Other Name: Protecting GeographicalIndications for Wines and Spirits in China, 3 Lov. U. CHI. INT'L L. REv. 257 (2006). 75 See General Agreement on Tariffs and Trade - Multilateral Trade Negotiations (The Uruguay Round): Understanding on Rules and Procedures Governing the Settlement of Disputes, art. 2.1, Dec. 15, 1993, 33 I.L.M. 112 (1994) [hereinafter DSU] 16See id. arts. 17.14, 19.1. 77 See id. art. 23.1. 78 IdB 79 See BARRY E. CARTER ET AL, INTERNATIONAL LAw 419 (5th ed. 2007). Protecting our Barefoots 851 agreements have become the norm. Whether these agreements violate the so- called "most favored nation principle" established in Article 4 of TRIPS is debatable.8' Nevertheless, until the WTO determines the status of extra bilateral agreements intended to protect intellectual property based wine interests between member states, all emerging wine nations should actively seek to produce as many of these treaties as is necessary to protect their wine exports abroad and trademarks or GIs at home.

IV. TRIPS-PLUS AGREEMENTS: BILATERAL EFFORTS AT CLOSING THE LOOPHOLES

Bilateral agreements between WTO member states seeking to protect wine-related intellectual property interests are, until TRIPS is amended or a more appropriate enforcement mechanism is developed, a necessary next step for new wine producing countries. Unfortunately, no such agreements are currently in place between nascent wine-developing countries. Nevertheless, the European Community has actively sought to create a number of such agreements82 and, by looking at a few of them, it can be easily seen how useful they are in protecting and promoting the specific concerns of winemakers.

A. The 2006 Wine Agreement between the United States and the European Community

In March of 2006, the "Agreement Between the European Community and the United States of America on Trade in Wine"t 3 was reached, which ended

so See Goldberg, supra note 7. 8 The "most favored nation" (MFN) principle, in effect, is the principle governing the application of trade tariffs throughout the WTO member countries. In short, receiving MFN treatment means that, when a party enters a multilateral trade agreement, their tariff schedules should be no higher than any other party involved in the agreement (minus certain exceptions). Whether this notion explicitly applies to non-tariff related issues is not entirely settled though. If it were, bilateral agreements would likely become an impossibility. See Waye, supra note 70, at 57-60; but see Goldberg,supra note 7, at 130. 82 To name just a few, the European Community has already arranged such agreements with the United States, Canada, Mexico, Chile, and South Africa. See Treaties Office Database, http://ec.europa.eu/world/agreements/SimpleSearch.do (type "wine" into the search function) (last visited Sept. 21, 2010). 83 Agreement Between the European Community and the United States of America on the Trade in Wine, U.S.-E.C., Mar. 10, 2006 [hereinafter U.S.-E.C. Agreement], available at http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:087:0002:0074:EN:PDF. 852 Arizona JournalofInternational & ComparativeLaw Vol. 27, No. 3 2010

the previous bilateral agreement in force, the so-called "Wine Letter,"84 and augmented the limited protections provided for by TRIPS. The process, though, was an arduous one and required major concessions by both sides. For its part, the United States agreed to Article 6, section 1, and Article 7, section 4, reading, in part:

1. With respect to wine that is sold in the territory of the United States, the United States shall seek to change the legal status of the terms in Annex II to restrict the use of the terms on wine labels solely to wine originating in the Community ...

4. [T]he United States shall maintain the status of the names listed in Title 27 US Code of Federal Regulations, Section 12.31, set forth in Annex IV, Part C, as non-generic names of geographic significance that are recognised as distinctive designations of a specific wine of a particular place or region in the Community, distinguishable from all other wines ...

Not surprisingly, the wines listed in Annex II in question are precisely the wines that the BATF has classified as semi-generic-Burgundy, Champagne, Chianti, and Tokay for instance-that have been the most hotly debated in past negotiations about wine and intellectual property between the United States and the European Community.86 Annex IV, Part C, is an even more far-reaching provision as it requires U.S. winemakers to put an end to using nearly 100 terms 81 (all of them either French, Spanish, German or Italian in origin). Perhaps most troublesome for American winemakers, though, has been what originally seemed to be a positive point in negotiations: Appendix I. Although the document goes into great detail, it is both obtuse and self-defining. Nevertheless, Point 5 of the agreement does explicitly state that "Points 1 and 2 of

8 Letter from John M. Walker, Jr., Assistant Sec'y (Enforcement and Operations), U.S. Treasury Dep't, and Stephen E. Higgins, Dir. Bureau of Alcohol, Tobacco and Firearms, to Leslie Fielding, Dir.-Gen. for External Rel., Comm'n of the Eur. Cmtys. (July 26, 1983), available at http://www.fas.usda.gov/itp/agreements/euwine.html. 8s U.S.-E.C. Agreement, tit. III, art. 6 § 1, and art. 7, § 4. It should be noted that nowhere in the agreement does the term "geographical indication" appear. Whether this was by design is debatable but the absence is somewhat startling as GIs were the focus of so much of the TRIPS agreement. It at least seems possible that, in an effort to avoid creating any kind of binding future precedent in relation to GIs, the United States agreed to change the legal status of the specific terms in question to avoid dealing with the much more difficult Problem of TRIPS-compliance and GIs generally. For a complete list of BATF classifications and a discussion of the problems with the classification system see Section II supra. 87 U.S.-E.C. Agreement, Annex IV, Part C. Protectingour Barefoots 853

this Appendix shall remain in force for a period of three years . . . which shall be extended for additional successive two-year periods, unless: (a) either Party provides written notification to the other Party that the period should not be extended .... Point I deals with U.S. winemakers ability to use the following very common and popular "traditional" terms: "chateau, classic, clos, cream, crusted/crusting, fine, late bottled , noble, ruby, superior, sur lie, tawny, vintage and vintage character." 89 Under the aforementioned "Wine Letter," renewal also occurred on a rolling two-year basis. For nearly twenty years, neither side objected to the renewals. Perhaps, as a result, the United States was lulled into a false sense of security and did not object to the timetable laid out in Appendix I. For whatever reason, though, this particular provision has returned to haunt some domestic winemakers in a significant way. On February 6, 2009, the European Community passed Commission Regulation No. 113/2009, "Concerning the use of certain traditional terms on labels for wine imported from the United States of America." In part, it reads:

Wine originating in the United States of America and imported into the Community before 10 March 2009 under the Agreement between the European Community and the United States of America on trade in wine, using terms permitted in accordance with Appendix I to the Protocol on wine labeling as referred to in Article 8(2) of that Agreement, may be held for sale and put into circulation until stocks are exhausted.9

On March 10, 2009, the European Union informed the United States that, as threatened in the February Regulation, it would not extend the terms of Appendix I and that, as a result, U.S. winemakers utilizing any of the terms in question would no longer be allowed to export wine into the Community. Particularly shell-shocked by this decision was Clos du Val winery.91 Despite being in continuous operation since 1972 and having a well-established worldwide recognition for quality wines, Clos du Val is in trouble, as it can no longer export wine to Europe. 92 It seems far-fetched that this situation will not be resolved as,

8 Id. at app. I, point 5. 89 Id. at app. I, point 1. 9 Commission Regulation 113/2009, 2009 O.J.(L 38) 25, available at http://eur- lex.europa.eulLexUriServ/LexUriServ.do?uri=OJ:L:2009:038:0025:0025:EN:PDF. 91 Kate Lavin, 'Clos' to Go: What about 'Chateau'?European Community Challenges U.S. Wine Labels, WINES & VINES, May 2009, available at http://findarticles.com/p/articles/mim3488/is_5 90/ain31944077/. 92 Interestingly, both Clos du Val and Chateau Montelena-another Napa winemaker dramatically affected by this turn of events-both participated in the famous "" in 1976 that pitted upstart California wineries against many of France's most famous producers. Chateau Montelena actually won the portion of the competition, while Clos du Val finished with honors in the portion. Though very cynical, the author of this Note finds it somewhat dubious that the European Community objects to 854 Arizona Journal of International& ComparativeLaw Vol. 27, No. 3 2010 most likely, the E.C. is utilizing the ban as a bargaining chip to extract greater protection for its own winemakers. The U.S.-E.C. Agreement wasn't entirely negative for American winemakers. Importantly, Article 4, Point 2 reads:

Within the scope of this Agreement as defined in Article 3, neither Party shall restrict, on the basis of either wine-making practices or product specifications, the importation, marketing or sale of wine originating in the territory of the other Party that is produced using wine-making practices that are authorised under laws, regulations and requirements of the other Party listed in Annex I and published or communicated to itby that other Party.93

For decades, the European Community has objected to a number of winemaking practices advanced in the United States: the addition of chips in the fermenting process, the adding of malic and lactic acid, reverse osmosis, and the use of a spinning cone column to name just a few. Traditionally, most red wines and some select white wines, especially , are barrel aged in oak for a very lengthy period to allow the oak to impart character and flavor to the wine. Oak barrels, though, are very difficult to produce (they are still manufactured by hand) and can be prohibitively expensive. A number of winemakers in California, realizing this, experimented with using inexpensive steel tanks and simply adding oak chips to the tanks to achieve the same effect. For the most part, it did, and the practice has caught on not only at home but in a number of other new wine countries like Australia. In Europe, however, the practice is currently banned. is an important, naturally occurring process, whereby 'harsher' malic acid is converted into the more pleasant lactic acid. Natural bacteria introduced in the fermentation process create this effect, though controlling it can be a time-consuming and expensive process (which is why there is such a marked difference between a good bottle of chardonnay and a cheap one-the cheap one probably has undergone very little malolactic fermentation). Recently, enologists have begun to more finely control this process by introducing

California winemakers using "traditional expressions" when such winemakers have consistently outperformed their European counterparts for over 30 years. For more information on the famed Judgment, see generally GEORGE M. TABER, JUDGMENT OF PARIS: CALIFORNIA VS. FRANCE AND THE HISTORIC PARIS TASTING THAT REVOLUTIONIZED WINE (2005). Or, for those preferring Hollywood, see the recently released movie, BOTTLESHOCK (2008). 93 U.S.-E.C. Agreement, art. 4. Protectingour Barefoots 855 malic and lactic acids themselves-a cheaper and much more scientific solution to this age old winemaker's dilemma.9 Reverse osmosis was originally developed (at UCLA) as a method to convert salt water into fresh water. Enologists at UC Davis, though, quickly realized the technology could have positive benefits for winemakers. Both reverse osmosis ('RO') and the use of a spinning cone column are highly complex scientific methods that, in laymen's terms, break much of the wine being treated into its separate components (basically water and alcohol). If a wine is too 'strong,' RO allows the winemaker to take the alcohol out and reintroduce it, little by little, until the desired alcohol level is reached. This is important in drier areas as grapes that are not mature often reach undesirable sugar levels (which leads to higher alcohol levels) before they can properly be harvested. Or, for growers in regions where overabundant rains can be a problem, RO allows winemakers to extract excess rainwater from wine musts prior to fermentation actually occurring. Either way, many believe this method effects the 'terroir' of a wine (its unique sense of place) and frown upon its use. This, though, is purely speculative.9 5 Such technological innovations stand in stark contrast to both long-time European winemaking traditions and current biodynamic practices that have become all the rage on much of the continent.' Still, most new wine producing countries (especially the United States and Australia) have embraced technological innovation and the U.S.-E.C. Agreement's recognition that, in the future, American winemakers will no longer be hassled about their winemaking practices is a very important step forward.97

94 For a simple though informative explanation of the fermentation process see Richard Gawel, An Introduction to Malolactic Fermentation in Wine, http://www.aromadictionary.com/articles/mlfarticle.html (last visited Sept. 7, 2010). 95 For an interesting explanation of the RO process and further discussion see Josh Hermsmeyer, What Reverse Osmosis Is and Why It's Used, THE CAPOZZI WINERY BLOG, (Aug. 26, 2006, 12:05 AM), http://www.pinotblogger.com/2006/08/22/what-reverse- osmosis-is-and-why-its-used/. 96 Biodynamic winemaking combines traditional organic farming techniques with strange mystical practices. Some such practices include planting during certain periods of the lunar cycle, burying cow horns full of manure on proposed vineyard sites, applying spiritually- treated animal blood to the soil, and spreading the ashes of undesirable varmint (like mice) over areas one desires to protect. Amazingly, this movement (begun in the 1920s by an Australian 'spiritualist') has gained quite a bit of ground lately. For an amusing take on it, see Joe Eskenazi, Voodoo on the Vine, SAN FRANCISCO WEEKLY, Nov. 18, 2008, available at http://www.sfweekly.com/2008-11-19/news/voodoo-on-the-vine/l. 9 It seems only a matter of time before Europe falls in line. UC Davis has become, in the last forty years, the preeminent institution in the world to learn winemaking and, as a result, many European winemakers have made it a habit of sending their heirs to Northern California to learn the family business. It is unlikely that being introduced to techniques that produce consistent results and save large quantities of capital will have no effect on these future producers. 856 Arizona JournalofInternational & ComparativeLaw Vol. 27, No.3 2010

Views about the apparent success or failure of the U.S.-E.C. Agreement have been decidedly mixed. Many European winemakers immediately cried foul believing that the European Community had traded away its two most powerful bargaining chips (certification requirements and the acceptance of American oenological practices) in future GI negotiations." For their part, many American opponents of the GI system generally objected to the U.S. agreeing to a change in legal status of the controversial terms previously discussed (like Tokay). As one vocal commentator, Jon W. Dudas, Deputy Under Secretary of Commerce for Intellectual Property and Deputy Director, United States Patent and Trademark Office, said at hearings prior to the adoption of the U.S.-E.C. agreement:

Make no mistake, what the EU is asking for is not fair treatment, it is preferential treatment. It is nothing less than a subsidy of European agriculture interests through claw back of generic terms. If adopted, the EU's demands could undermine the world's systematic approach to intellectual property protections, and not just for GIs."

At the same hearing, Frank Z. Hellwig, Senior Associate General Counsel for Anheuser-Busch Companies, proclaimed that "[a] threat ... arises from the clear preference the European Union gives to geographic indications over trademarks in their efforts to impose their system on the United States . . . If they succeed, they will have changed the core principles of our intellectual property system and expropriated the trademarked property of U.S. companies."'" Although this Note deals specifically with wine, the beer industry too has run into GI problems in the past-especially Anheuser-Busch. The term "Budweis" originally derived from the Germanic transliteration of the name of a small Czech town, Cesky Budjovic. As early as the 1870s, brewers in Cesky Budjovic were brewing, selling, and exporting a popular beer known as Budvar (in Czech) and Budweiser (in German). When, in the late 1800s, Anheuser-Busch began brewing and selling its own beer of the same name, it was inevitable that problems would eventually ensue. Although the Czech Budweiser is not sold under that name in Americao' (the Czechs, literally days before Germany invaded

98 See, e.g., Cyril Penn, Trade Agreement Preserves 'California Champagne,'SAN FRANCISCO CHRONICLE, Sept. 22, 2005, at F2, available at http://www.sfgate.com/cgi- bin/article.cgi?f=c/a/2005/09/22/WIGVVER6B61.DTL (quoting a French champagne producer as stating that the grandfather clause is "an absurdity on a moral point of view"); Eric Arnold, Trade Deal Approved by EU with Reservations, WINE SPECTATOR, Dec. 22, 2005 (outlining complaints by European winemakers about American oenological practices that will leave them at a competitive disadvantage as Americans do not have to "take what nature gives [them]"). 99 The Status of the World Trade Organization Negotiations on Agriculture: Hearing before the Comm. On Agriculture, 108t Cong. 305 (2003). " Id. at 328. 101 The Czech Budweiser is, however, sold here and can be found under the name "Czechvar". Protectingour Barefoots 857 their country in WWII, sold the rights to the name in the North American market to Anheuser-Busch), it is sold throughout the rest of the world and lawsuits have been brought on nearly every continent in relation to this issue.'" The Czechs argue that 'BUD' (and its derivatives) should be a recognized GI while Anheuser- Busch argues that the primacy of their trademark should trump any possible protection that may come from GI protection afforded to the Czech Budweiser. Although this is yet to be fully resolved, the Czech Budweiser's success in fighting one of the world's largest corporations over an intellectual property issue goes to show that Mr. Hellwig's and Mr. Dudas' concerns may not be mere speculation. The European Community's entrenched stance on GIs does have ramifications. No matter what the view concerning the U.S.-E.C. Agreement is, though, one thing is clear: the Agreement has initiated debate, dialogue, and action in a manner that the TRIPS Agreement had failed to. Thus, regardless of how things play out in the debate over traditional expressions and GIs, it looks as if bilateral treaties will be involved rather than complex, multilateral agreements.

B. The Agreement on Trade in Wines and Spirit Drinks Between Canada and the European Community

In September of 2003, Canada and the European Community negotiated their own bilateral treaty in relation to wine (and spirits).103 The main thrust of the treaty concerned GI protection and, unlike the U.S.-E.C. Agreement, is explicit in this.'1 Canada agreed to amend its own Trademarks Act and terminate twenty- one "generic" classifications of wines in three phases: 1) Bordeaux, Chianti, Claret, Madeira, Malaga, Marsala, Medoc, M6doc, Mosel, and Moselle were immediately terminated upon publication of the Order; 2) Bourgogne, Burgundy, Rhin, Rhine, Sauterne, and Sauternes were phased out by December 31, 2008; and 3) Chablis, Champagne, Port, Porto and Sherry will be eliminated by December 31, 2013.'0 For its part, the European Community has agreed to simplify the certification process of Canadian wines, to protect specific Canadian GIs such as

102 See generally Peter V.K. Reid, That Other Budweiser: The World-Renowned Czech Lager Will Now Be Widely Available in the U.S. as Czechvar, MODERN BREWERY AGE, June 28, 2004, available at http://findarticles.com/p/articles/mim3469/ is 26 55/ai n8592333/pg_4/?tag=content;coll. For a more specific discussion of the legal issues inherent in the case, see ROBERTSON, supra note 21, at 147-160. 103Agreement Between the European Community and Canada on Trade in Wines and Spirit Drinks, Can.-EC, Sept. 16, 2003, 2004 O.J. (L 35) 3 [hereinafter Can.-E.C. Agreement]. 1 Title III actually begins with the heading "Geographical Indications of Wine." 105 Order Amending Subsections 11.18(3) and (4) of the Trade-Marks Act, 138 C. Gaz. Par I, 239 (2004 Can.) available at http://canadagazette.gc.ca/part/2004/30020207/html/reglel-e.html. 858 Arizona JournalofInternational & ComparativeLaw Vol. 27, No. 3 2010 the Okanagan Valley and Niagara Falls, and, most importantly from the Canadian perspective, recognize "Rye Whiskey" as an exclusively Canadian product.'06 This particular issue has created controversy as a number of American producers make rye whiskey (Wild Turkey, Jim Beam, and Red Hook Rye being the most famous). Although the issue has not generated any press yet, it is possible that, under the terms of the Can.-E.C. Agreement, American rye whiskey producers will have to change their product names to continue to sell in the European and Canadian markets.'o7 That said, for Canada, it is a pretty good bargain-they agree to stop using terms they are hardly using and, in result, they receive a virtual monopoly on a term they do not currently have monopoly power over.os

C. The Agreement Between the European Community and Australia on Trade in Wine

In January of 1994, the European Community and Australia came to their own agreement concerning the wine industry'"-just months before the passage of the TRIPS agreement. The Austl.-E.C. Agreement deals, much like the United States' own agreement with the European Community, primarily with two contentious areas: oenological practices and wine labeling/trademark issues. The oenological practices at stake were similar to those previously discussed in Section IV.A supra and, as a result, will not be elaborated upon.' The treatment

06Can.-E.C. Agreement, Art. 17 & Annex 111(b). 107 This presents a similar problem to the one that Clos du Val currently faces. For discussion of this issue see IV.A supra. As Canada and the U.S. are members of NAFTA, though, it seems unlikely that the Canadian government would be willing to enforce any claims, at least in Canada itself, to the term "rye". NAFTA predates the development of the WTO and, theoretically, the terms of NAFTA have stronger claims on its members than those agreed to in the WTO (Article XXIV of the GATT is fairly explicit about this). 1 For a general discussion of the E.C. treaty with Canada (and its positive benefits for both parties) see Jean-Christophe Boze & Jean-Francois Nadon, "Give Me a Cup of Sack, Boy!": Why Bordeaux, Chianti, and Medoc are Not Generic Denominations in Canada Anymore, 10 DRAKE J. AGRIC. L. 247 (2005). The authors note that "several studies conducted by the federal government have shown that Canadian winemakers are not opposed to the progressive phasing-out of generic denominations as long as it is accompanied by better access for their products in the European market." Id. at 252. 1 Agreement between the European Community and Australia on Trade in Wine, Austl.- E.C., Jan. 31, 1994, 1994 O.J. (L 88) 3 [hereinafter Austl.-E.C. Agreement]. no The Author has yet to find discussion concerning the implications of the fact that the European Community's major bargaining chip with American winemakers-their oenological practices-in the negotiations of the U.S.-E.C. Agreement involved production methods that, ten years earlier, were conceded to by the Europeans in an effort to protect their GIs in Australia. It seems likely that, for one, the Austl.-E.C. Agreement served as the blueprint for similar bilateral agreements that followed it and, for another, helped lay the foundation for general European acceptance of new oenological practices (while Protectingour Barefoots 859 of geographical indications and traditional expressions was, however, quite a step forward at the time the agreement was accepted. In Title II-Reciprocal Protection of Wine Names and Related Provisions on Description and Presentation"' -the European Community lays the foundation for its ambitious project (still ongoing) to reclaim and solidify its rights to a vast quantity of GIs and traditional expressions. First, in Article 6, the Agreement explicitly calls for legal enforcement mechanisms in both the E.C. and Australia to ensure that wine not adhering to the geographical indication provision of the Agreement will be barred from market. As this is a highly important issue, this section of the Austl.-E.C. Agreement deserves to be quoted at some length:

1. The Contracting Parties shall take all measures necessary ... for the reciprocal protection of the names referred to in Article 7 which are used for the description and presentation of wines originating in the territory of the Contracting Parties. Each Contracting Party shall provide the legal means for interested parties to prevent use of a traditional expression or a geographical indication identifying wines for wines not originating in the place indicated by the geographical indication in question." 2

On its face, this provision may appear fairly innocuous-until one realizes that Article 7 references Annex II, a sixty-six page addendum to the Austl.-E.C. Agreement (itself only nine pages in length) containing the names of nearly every conceivable GI and wine region in Europe and Australia.113 With such an extensive list of protected names, it should come as no surprise that conflicts are bound to come up with exceeding frequency. One such protected name, "Auburn," involves a sub-region of the Clare Valley region of South Australia. Haven't heard of it? Likely this is because the entire Clare Valley region produces only about 2% of Australia's wine and, as a sleepy town within the Clare Valley, Auburn (apart from a few boutique outfits) produces hardly any wine at all. Which, in other circumstances would be fine, were it not for the fact that California has its own sleepy town of Auburn that, unlike the Clare Valley, has been producing wine since the gold rush began in

simultaneously establishing the understanding that Europe's profitable wine market would remain closed to those that refused to recognize the importance of GIs). "' Austl.-E.C. Agreement, No. 1,86/5. 112 id. "' Id. at 86/16-86/2. It should also be noted that, of the sixty-six pages, only five relate to Australian concerns and the rest are devoted to Europe-further evidence that Europe has been attempting to control intellectual property in wine through fairly one-sided bilateral treaties. 860 Arizona JournalofInternational & ComparativeLaw Vol. 27, No. 3 2010

1848.114 If the winemakers of Auburn wanted to ship their wine to the European Community their geographical indication -Auburn- would have to be left out or they may face legal consequences. Per Article 6 of Title II, Australian winemakers in Auburn, Australia could choose to deny them access to the European market. As silly as this may seem, such fine distinctions do have consequences. Ultimately, in deciding whether or not to establish Auburn as a unique American Viticultural Area (AVA), the winemakers in town opted, instead, for the more broadly construed signifiers "El Dorado" and "Sierra Foothills."". Article 6 further creates massive complications in regard to traditional expressions, stating that:

2. The protection provided for in paragraph 1 also applies to names even where the true origin of the wine is indicated or the geographical indication or traditional expression is used in translation or accompanied by expressions such as 'kind', 'type', 'style', 'imitation', 'method' or the like."'6

As a result of this, a number of highly common California wine styles-tipo- Chianti and method champenoise among them-would, like the Auburn example infra, be banned from the Australian market should the European Community so desire it. From the veritable "wine war" that took place between the European Community and the United States, it is not farfetched to imagine the European Community exercising its power to ban such California wines in Australia. Finally, possibly in an effort to ensure that no loopholes and grandfather clauses may still be in place, the Austl.-E.C. Agreement adds Article 6.4:

The registration of a trade mark for wines which contains or consists of a geographical indication or a traditional expression identifying a wine as referred to in Article 7 shall be refused, or if domestic legislation so permits and at the request of an interested party be invalidated, with respect to such wines not originating: (a) in the place indicated by the geographical

114 Even the Tourism Bureau for South Australia has admitted that wine is a new phenomenon in the Clare Valley and that, in 1849, Australia's Auburn was called Tateham's Waterhole for its first (and, at the time, only) permanent settler, William Tateham who lived in a hole in the ground. See Clare Valley Visitor Guide, http://www.southaustralia.com/regionalguides/clarevalley/index.html (scroll to p. 27) (last visited Sept. 21, 2010). Auburn, Cal., on the other hand, was a thriving gold rush town by the late 1840s and, by the 1870s, had a number of fully operational wineries. One such winery, the Baumbach winery, is still operational today over 140 years later. See Baumbach Wines, http://www.baumbachwines.com/index.html (last visited Sept. 21, 2010). "' See 27 C.F.R §§ 9.61, 9.120 (2008). 11 Austl.-E.C. Agreement, No. L. 86/3. Protectingour Barefoots 861

indication; or (b) in the place where the traditional expression has been traditionally used." 7

Thus, the Agreement has gone as far as to explicitly state that trademark protection may not be possible-at all-for wines being sold in Australia and the European Community that do not meet the strict GI and traditional expression standards set forth in the Agreement-Eurocentric standards foisted upon a much weaker bargaining partner hoping to protect its nascent wine industry by the European Community. As these bilateral agreements show, the dialogue about GIs and trademark protection for wine is not taking place at the international level through the WTO" but, instead, through highly focused and specific agreements crafted by the European Community. The American wine industry has been reluctant to buckle to mounting pressure from European winemakers to change its longstanding practices of using semi-generic signifiers and traditional expressions to describe wine types and production methods. Nevertheless, if Europe continues to successfully negotiate agreements that-like the Canadian agreement and the Australian agreement-force potentially profitable wine markets into denying American access, American winemakers may be left with little choice. The solution, it would seem, would be for American winemakers to band together with other nascent wine producers to create their own bilateral treaties protecting their own concerns. One such concern-maintaining trademark protection abroad despite America's strange and antiquated set of Prohibition-era distribution laws-is the focus of the next portion of this Note.

V. AMERICA'S FAULTY DISTRIBUTION SYSTEM AND THE CURIOUS CASE OF THE MISSING BAREFOOT CASES IN AUSTRALIA

A. Background to the Barefoot Case

In 2009, the Federal Court of Appeals in Australia decided the case of E 9 & J Gallo Winery v. Lion Nathan Austl. Party Ltd." The plaintiff was the "Barefoot Winery," California makers of a popular line of wines in the "super- value" ($4-8) range since 1986. Michael Houlihan, President of Barefoot Cellars at the time, originally registered the "Barefoot" name with the Trade Mark

117 id " This is especially true because the most recent round of WTO negotiations, the Doha Round, has been stalled since November of 2001, and there are still no indications that negotiations will resume any time soon. 119 E & J Gallo Winery v. Lion Nathan Austl. Party Ltd., [2009] FCAFC 27, 2009 WL 765541 (Austl. Fed. Ct. App.) [hereinafter Gallo 2009]. 862 Arizona Journal ofInternational& ComparativeLaw Vol. 27, No.3 2010

Registry on March 9th, 1999."2 On January 17, 2005, E & J Gallo, America's largest wine producer, purchased Barefoot Cellars from Houlihan and, as a result, acquired all legal rights to the registered mark."' Nevertheless, due to pending negotiations with another winemaker, Logan Wines, who "had a registered trade mark which . . . was remarkably similar to the Barefoot design which Gallo Winery had acquired from Barefoot Cellars," Gallo decided to wait until September 2007 to attempt a full-scale launch of the Barefoot brand in Australia. 122 The defendant, an Australian brewery, began producing a beer known as "Barefoot Radler" in 2008.123 Ultimately, both the identical names and, incidentally, similar logosl 24 lead to the Californians seeking injunctive relief in the Australian Courts. Their first attempt was not a success. In June of 2008, the primary judge (the Australian version of what, in America, would be a trial court judge) that heard the case determined that "there had been non-use of Plaintiff's registered trade mark" and, further, that the Defendant's use of the mark as to beer was "not likely to deceive or cause confusion for the purposes of § 120(2) of the TMA [Trade Marks Act of 1995]" despite the fact that he had earlier concluded that the "mark Barefoot Radler was 'deceptively similar' to the trade mark Barefoot."'25 Thus, two major points of contention were brought up in the initial trial: (1) whether Barefoot had abandoned its mark in Australia through non-use, and (2) whether the Barefoot Radler mark infringed upon the monopoly right granted to Barefoot wines.

B. The Issue of Non-Use or Abandonment

120 E & J Gallo Winery v. Lion Nathan Austl. Party Ltd., [2008] FCA 934, at 1 2, 2008 WL 2878553 (Austl.) [hereinafter Gallo 2008]. 121 Id 122 Id TT 170-74. 123 "Radler" is a beer style mostly found in Germany and the U.K. (where it is known as,a "shandy" or a "shandygaff') that involves, at least to American palettes, the strange mixture of lager and carbonated German-style soda pop (something like a cross between Budweiser and 7-Up). The name is derived from a slang-word, in German, for "biker," as the style became popular with mountain bikers who wanted a refreshing drink that, despite having alcohol, would not hinder their ability to continue their athletic pursuits. 124 To see the similarity of the logos compare http://www.barefootwine.com/our- wines/Greatwinewithouttheattitude.html (last visited Sept. 7, 2010) with http://www.barefootradler.com.au/#/barefoot/ (last visited Sept. 7, 2010). 125 See John R. Schmertz & Mike Meier, In Trademark Dispute Between Large U.S. Beverage Maker and Large Australian Beverage Maker Over Use of "Barefoot" Mark On Its Wine, Federal Court of Appeal Rules That Australian Company Did Infringe U.S. Company's Mark, 15 INT'L L. UPDATE 7 (2009). Protectingour Barefoots 863

The issue of abandonment, essentially, constituted Barefoot Radler's defense as they brought a cross-claim to have the Barefoot Winery's mark removed from the Trade Mark Register.' 26 In Australia, the issue of abandonment from non-use is controlled by the Trade Marks Act of 1995.127 The pertinent sections read:

(1) Subject to subsection (3), a person may apply to the Registrar to have a trade mark that is or may be registered removed from the Register.

(4) An application under subsection (1) or (3) (non-use application) may be made on either or both of the following grounds, and on no other grounds:

(b) that the trade mark has remained registered for a continuous period of 3 years ending one month before the day on which the non use application is filed, and, at no time during that period, the person who was then the registered owner: (i) used the trade mark in Australia; or (ii) used the trade mark in good faith in Australia; in relation to the goods and/or services to which the application relates.128

As was observed by the Australian court in a previous case involving non-use, "the essential requirement for the maintenance of the validity of a trade mark is that it must indicate a connexion in the course of trade with the registered proprietor, even though the connexion may be slight . . . ."129 In this case, Barefoot Cellars originally exported wine to a German purchaser, Einig-Zenzen GmbH & Co. and, later, Einig-Zenzen sold the wine to Beach Avenue Wholesalers who offered it for sale in Australia.1" As the actual owner of the trade mark (Mark Houlihan, President of Barefoot Cellars, originally owned the mark and had registered it in Australia and, later, E&J Gallo Winery acquired rights to the mark after purchasing the company from Houlihan) did not know that the wine had ended up in Australia, Barefoot Radler-and the trial judge-agreed that Barefoot had abandoned its mark."

126Gallo 2008, 100. 127 For a discussion of abandonment under American law (the Lanham Act) see supra Section II. 128 Trade Marks Act, 1995, §§ 92(1), (4)(b) (Austl.) 129 Pioneer Kabushiki Kaisha v. Registrar of Trade Marks [1977] 137 CLR 670, 683 (Austrl.). 130 Gallo 2008, 113, 114. 131 Id. T 133, 215. 864 Arizona JournalofInternational & ComparativeLaw Vol. 27, No.3 2010

In a previous case relied upon in their arguments by Gallo,132 the Australian court dealt with the problem of wholesalers:

[W]hen it is said that a trade mark is used to distinguish the goods of one man from those of another, that abbreviated statement obviously does not refer to the goods of the owner of the mark in the sense of goods which he owns or possesses. After the goods have been sold by him his mark may still, using the definition of trade mark in the Act, be used in relation to those goods for the purpose of indicating a connexion in the course of trade between them and him, the registered proprietor of the mark. The manufacturer who sells goods, marked with his mark, to a warehouseman, wholesaler or retailer does not ... thereupon cease to use the mark in respect of those goods. The mark is his property although the goods are not; and the mark is being used by him so long as the goods are in the course of trade and it is indicative of their origin, that is as his product.13

Thus, at first blush, this language would seem to indicate-as Gallo argued-that "knowledge or intention on the part of the registered proprietor is not determinative; that which matters is whether its goods, to which its trade mark had been applied, were on the market at all."'34 The judge, however, did not agree with this determination and decided "a registered proprietor does not use a mark in the Australian market unless he retains some connection with or control over the goods when they enter that market."l35 Thus, though some cases of Barefoot wine were decidedly offered for sale in Australia by Beach Avenue Wholesalers during the supposed non-use period (2004-2007), at no "point of time after the wine was shipped from California to Germany in 2001, did Mr. Houlihan [or Barefoot Cellars] exercise any quality control over the wines."' 6 Put another way, Barefoot Cellars' argument that wine with their mark was being sold in Australia during the supposed non-use period is insufficient- according to the court, the owner of the mark must be aware of the fact that their goods are being offered for salel37 and must maintain a minimal level of involvement with the

32 1 Id. 134. 133 Estex Clothing Mfrs. Pty Ltd. v. Ellis & Goldstein Ltd. [1967] 116 CLR 254, 266-67 (Austrl. Fed. Ct.). 134 Gallo 2008, 1 140. 13 Id. 149. 3'6 Id. 158. 137 This requirement relates to Section 8(2) of the 1995 Trade Marks Act which states, "[t]he use of a trade mark by an authorized user of the trade mark is an authorized use of the trade mark to the extent only that the user uses the trade mark under the control of the owner of the trade mark." As Gallo was unaware of Beach Avenue Wholesalers activities, Protectingour Barefoots 865 mark.138 Following this conclusion, Barefoot urged the trial court judge to leave the Barefoot name on the Trade Mark Registry (per discretion afforded judges in Section 101(3) of the 1995 Trademark Act) so that, in the future, Barefoot Cellars would retain the exclusive rights to the Barefoot name and Barefoot Radler would be forced to change its own moniker.13 9 The judge did not defer to this request and stated his opinion, rather harshly in the mind of this Note's author, as follows:

Notwithstanding the commercial steps undertaken by Gallo Winery to first acquire Barefoot Cellars and thereafter develop the market for the sale of that wine, it is considered that there is little reason to exercise the discretion in the manner being urged by Gallo Winery [the discretion of not, pursuant to Section 101(3) of the 1995 Trademarks Act, of removing the "Barefoot" mark from the Trade Mark Registry]. That company acquired Barefoot Cellars in January 2005 and thereafter implemented a staged plan to market the wine world-wide. In its commercial judgment, the development of the Australian market was deliberately left until the end of 2007. It could have used its mark during the non-use period. It could have secured suitable wine and commenced selling at an earlier point of time. It did not do so. The consequences of its commercial judgment, it is considered, must now fall upon it-including an adverse exercise of the discretion conferred by s 101(3).'4

On appeal, Barefoot fared no better. In the subsequent decision, the Appellate Court held that "the conclusion of the primary judge was correct. The contention of Gallo that an owner of a registered trademark uses the mark in Australia simply because goods to which the owner (or an authorized user) has affixed the mark are traded in the ordinary course of trade in Australia should be

the court reasoned that Beach Avenue would not constitute an "authorized user" for purposes of trademark protection. 138 This requirement follows from Section 8(3) of the 1995 Trade Marks Act which reads as follows:

(3) If the owner of a trade mark exercises quality control over goods or services: (a) dealt with or provided in the course of trade by another person; and (b) in relation to which the trade mark is used; the other person is taken... to use the trade mark in relation to the goods or services under the control of the owner.

139 Gallo 2008, T 199. '4Id.T 206. 866 Arizona Journal ofInternational& ComparativeLaw Vol. 27. No.3 2010 rejected." 41 And, as a result, the Barefoot mark was removed from the Trade Mark Registry, and Barefoot Radler was able to continue to do business with the same name. Although this result may seem fair-it is certainly desirable that trademark owners utilize the marks that they have registeredl 42 -it discounts the peculiar structure of the American wine industry to the great detriment (following the Gallo decisions) of American winemakers. On January 1, 1920, national Prohibition was adopted in the United States through enactment of the Eighteenth Amendment to the U.S. Constitution. Section 1 of the now defunct amendment provided:

[T]he manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited.143

Though repealed by the Twenty-First Amendment just thirteen years later (in 1933),'" the effect of Prohibition on the American wine industry can still be felt to this day. Most importantly, following repeal, "most states . . . either created monopolies to handle all liquor sales, including wine and beer, or formed state agencies to issue licenses for the production, distribution, and sale of alcoholic beverages." 45 In effect, what has come to be known as the "three-tier" system was put in place. The system works as follows:

Manufacturers sell product to the distributors who, in turn, sell the product to the retailer. Each carries a separate license from the state, and a licensee in one tier, such as a winemaker, cannot also be licensed in the state in another of the tiers. Thus a winery cannot also establish retail wine shops separate from the

141 Gallo 2009, T 34. 142 Though it is beyond the scope of this Note, Australia is one of the few countries left that offers a "defensive registry" for trademarks. In short, such a registry allows the owner of a mark (assuming it meets certain threshold requirements of notoriety) to register the mark defensively against possible future brands whether they are of a similar product nature to the currently offered product of the mark holder. Thus, had Barefoot chosen to attempt a defensive registration of its mark, it could have barred the use of the word "Barefoot" in relation to everything from toothpaste to nuclear missiles, and this case would never have been possible. For an interesting and thorough discussion of this system, see Robert Burrell & Michael Handler, Dilution and Trademark Registration, 17 TRANSNAT'L L. & CONTEMP. PROBS. 713 (2008). 143 U.S. Const. amend. XVIII, § I (repealed 1933). 144 U.S. Const. amend. XXI. 145 ROBERTSON, supra note 21, at 116. Protectingour Barefoots 867

winery, and a distributor cannot obtain a license to make wine.'4

The justifications for this burdensome scheme involved the "perceived social ill of brewers operating their own bars or saloons (which had been one of the primary justifications for Prohibition in the first place)."' 47 Whether justified or not, the impact of these restrictions is enormous. First, the incentive structure that the three-tier system produces is entirely skewed. Winemakers cannot sell (other than in very restricted capacities carved out as exceptions to the general rule) directly to consumers. Thus, they actually make their money by selling to the wholesale distributors-not the drinking public. Certainly, wine producers attempt to create a demand for their product by advertising to the general public, but any successful advertising only serves to get wholesalers to stock more of the product in question. Put another way, wine lovers must harass their retail wine seller (whether it is a local shop or a Costco) to carry a certain product. The retail wine seller, then, must take it upon themselves to convince the wholesaler/distributor that there is a demand for the product in question. Finally, the wholesaler/distributor must work with the winery itself to establish the requisite contracts to start carrying their product so that, ultimately, consumers-far down the line, as this example hopefully illustrates-can have their needs met. Second, efficiency is not, to put it mildly, an achievable goal under such a regime. As the American beer industry is regulated according to the same set of laws (as the wine industry), a suitable example of this inefficiency can be seen at the Stone Brewery outside of San Diego, Cal. Because Stone was not allowed to sell its beer directly to consumers (other than at the Brewery itself) or, for that matter, to retailers, the company was faced with the somewhat impossible task of convincing wholesalers to carry its product. As an upstart company, there were few consumers who had tried its product and, as a result, the backward chain previously described (consumer tells the retailer who tells the wholesaler, etc.) was not in place. Further Stone, like many American craftbrewers, did not make the kind of product that most wholesalers considered profitable (e.g., they did not make Budweiser). Thankfully for beer aficionados, Stone worked out an ingenious -though ridiculously inefficient and expensive-method of getting its beer to consumers: they created their own distribution/wholesale company.'" Despite being housed under the same roof, Stone bifurcated itself into two distinct business entities. This process, however, involves more than just paperwork. In short, once Stone Brewery has bottled and packaged its beer, it has to sell it to itself (under the guise

'"Id.at 117. 147 id 148 Jacob McKean, Is 'Graft Beer' Limiting YOUR Choices?, THE STONE BLOG, http://blog.stonebrew.com/?p=2129. 868 Arizona Journal ofInternational& ComparativeLaw Yol. 27, No.3 2010 of Stone Distribution) so that, ultimately, the beer can finally end up in retail stores. Hopefully, this example vividly points out just how inefficient the current three-tier method is.149 Finally, while this system does not create any particular difficulty in respect to intellectual property under American law, it does create problems elsewhere. As Barefoot illustrates quite poignantly, many jurisdictions outside of the United States attach significance to who promotes a particular mark. Because of the three-tier method, it makes little economic sense for winemakers to devote valuable advertising budgets in attempting to promote their marks in foreign markets. Once they have sold their wares to a third-party distributor, the winemaker will not receive any more income from that wine actually being sold to consumers. Nevertheless, even if a distributor does attempt to promote the wine (as Beach Avenue Wholesalers apparently did through the use of flyers and a website)so the wine's mark will not be safe from non-use attacks if the winemaker does not oversee the promotion or perform ongoing quality control in relation to the product. Thus, for all but the wealthiest of American wine producers, exporting wine to markets such as Australia can be a perilous task because: (1) either substantial economic resources must be applied to quality, oversight, promotion, or the granting of a "defensive mark"s' or (2) winemakers must live with the fact that their product will receive very little protection in Australian courts.

C. Deceptively Similar Marks and Similar Products

Despite winning their cross-claim argument against Barefoot Cellars, Barefoot Radler was still required to prove that they did not infringe upon the Barefoot mark prior to the mark being struck from the Register (even though, theoretically, the mark was not in use). The trial court judge utilized "a 'side by side' comparison between the registered mark and Lion Nathan's mark, Barefoot Radler, in assessing whether it was substantially identical with the registered mark . . . [and] concluded the two marks were not identical." 52 Still, pursuant to

149 It should be noted, too, that it does not appear that the three-tier system is going away any time soon. The United States' largest "retailer" of wine, Costco, garnered all of its vast resources in 2008 in an attempt to take out the system. They could ultimately negotiate directly with winemakers, thus driving down the consumer-cost of wine and increasing their own sales and market share. The case, Costco Wholesale Corp. v. Hoen, 538 F.3d 1128 (9th Cir. 2008), was based on an antitrust theory and many industry insiders believed Costco would prevail. Nevertheless, the Ninth Circuit upheld seven of the nine liquor control laws Costco challenged and, as a result, the three-tiered system remained firmly entrenched. For a discussion of the case, see ROBERTSON, supra note 21, at 121-127. "s Gallo 2008, T 129. 151See Burrel & Handler, supra note 142. 152 Gallo 2009, T 14. Protectingour Barefoots 869

Section 10 of the 1995 Trade Marks Act, the judge needed to determine whether "the mark used by Lion Nathan so nearly resembled Gallo's registered mark that it would be 'likely to deceive or cause confusion' . . . in the 'mind[s] of persons of ordinary intelligence and memory." 53 The appellate court aptly delineated the trial judge's reasoning both for and against a conclusion that the two marks could cause confusion. On the pro side, the judge gave the following reasons:

* Lion Nathan's beer and Gallo's wine are types of alcoholic beverages, generally distributed by similar wholesale distributors. * Lion Nathan's Barefoot Radler beer was intended to appeal to "core" beer drinkers and "marginal" beer drinkers and it was developed "with the deliberate objective of enticing consumers who previously drank wine but not beer." * Both products were intended for consumption during the summer. * Both wine and beer are frequently distributed by the same retailers. * Corporations, which were once brewers, now seek to expand their business by acquiring wineries and can produce a range of alcoholic and non-alcoholic drinks. 154

Nevertheless, despite these sensible arguments, the trial judge concluded that Barefoot Wine and Barefoot Radler Beer were not goods of the same description and, as a result, no infringement took place. The rather fanciful arguments (in the opinion of this Note's author and, ultimately, in the opinion of the Appellate Court) used to justify this decision were as follows:

* Beer and wine have a different origin and are made by different processes. * The manner in which beer and wine is sold may differ. In retail outlets, wine is displayed by reference to categories and may be further organized into wine type and country of origin. It is usually stored on the shop floor. Beer is usually displayed in the coolroom and rarely sold by reference to where it is produced. * The manner in which beer is consumed was also seen to differ from wine, because it is "thirst quenching and refreshing," has a lower alcohol content, and may play a different social role than wine. * Although beer and wine may be produced by the same company, there is a separation of the two aspects of the business for production, marketing and sales. * The deliberate steps taken to "entice some wine drinkers into drinking beer" did not lead to a conclusion that beer and wine are goods of the same description.155

153 Id. 15. 154 Id 17. 870 Arizona Journal ofInternational& ComparativeLaw Vol. 27, No.3 2010

Fortunately for Gallo, the Appellate Court reversed this particular issue in the case and concluded that "Lion Nathan's radler beer constitutes goods of the same description as wine"' 56 and, as a result, infringement did occur. The Appellate Court made it a point to state that some of the trial judge's justifications for concluding the opposite involved considerations of "doubtful" relevance and points lacking "any real significance."' 57 Ultimately, then, the appellate decision represented a mixed blessing for Gallo. Although recognition was granted that their trademark had been infringed upon by Barefoot Radler (and monetary damages could be awarded for that period of infringement), Gallo lost its monopoly right to the Barefoot brand and, as a result, Barefoot Radler and Barefoot wine can both be purchased from Australian retailers-though one will likely be found in the "coolroom" while the other will be meticulously catalogued elsewhere according to style and country of origin. Thus, despite having successfully registered their mark nearly a decade earlier, despite a wholesaler actively promoting and selling their wine in Australia (albeit in limited quantity and without Barefoot Cellars direct knowledge), and despite an Appellate Court's conclusion that Barefoot Radler constituted a product similar enough in nature to Barefoot Wines to cause consumer confusion, Barefoot could not prevail.

VI. SOME CONCLUSIONS

The wine industry is, along with all other alcohol-related industries, one of the most heavily regulated. At times, pouring through domestic legislation-whether one looks at BATF regulations concerning names, 27 C.F.R. § 4.39 about grape origins, COLA regulations for labeling or the many and complex state laws controlling the three-tiered distribution system-it is easy to think that, perhaps, nuclear arms were being traded. And this, of course, is just the United States' own regulation. Couple this with multilateral treaties like NAFTA and the WTO, and bilateral treaties like the Wine Agreement the United States currently has with the European Community and the situation only becomes more muddled and complex. Nevertheless, as has been argued throughout this Note, important interests are at stake for American wine producers and, as a result, the American government should not shirk its responsibilities in attempting to secure the most favorable trading terms possible for American wine producers in foreign markets. Currently, the government has failed to do this. With the Doha round continuing to sit at a standstill, it does not look like the WTO will provide a quick and easy solution. If it could, the Barefoot case

'"Id. 18. ' 6 Id. 74. '" Id. 73. Protectingour Barefoots 871 would never have been possible (as the TRIPS Agreement would have dictated that Barefoot Radler could not utilize their mark while Barefoot Cellars had rights to it in Australia). Thus, as a result, the United States needs to take a page out of the European Community's playbook and create as many bilateral treaties as is necessary to ensure that the intellectual property rights of American winemakers will be afforded strong protection despite the fact that our own antiquated, Prohibition-era distribution system creates difficulties. If not, wine-lovers may soon see higher valued brands (like Clos du Val) go missing-as boutique wineries find themselves locked out of foreign markets-instead of a few cases of swill that few would miss.

ft~ 872 Arizona JournalofInternational & Comparative Law Vol. 27, No.3 2010