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Know The Law: Proceeding With Caution

Posted on  | July 3, 2014   Bookmark and Share
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SLA gradually covering novel angles in modern e-commerce.

Recently, a group known as 21st Century Consumer, which claims to represent consumers in New York, accused the New York State Liquor Authority (“SLA” or the “Authority”) of failing to issue clear guidance to the industry regarding the sale of wine on the internet. A spokesperson for the group recently acknowledged that he had not read the SLA’s Declaratory Rulings on internet sales. Rather, he said he read the “Cliffs Notes.”

Apparently 21st Century Consumer does not know that New York retailers have been lawfully selling wine over the internet for years. To date, the Authority has issued three declaratory rulings addressing internet sales and the use of third party technology providers by licensed entities. Although more guidance may be necessary as new circumstances arise, the three advisories provide a great deal of guidance—to those who take the time to read them.

It is important to realize that in recent investigations, the Authority has found that the facts, as they relate to internet sales, often varied greatly from those set forth in the request for a ruling. For this reason, Members of the Authority have been careful to make certain they fully understood the facts before issuing these rulings; this entails considering both relevant written agreements and actual, practical, day-to-day functioning of those arrangements upon recent investigations.

In essence, the Authority has applied considerable attention to the real-world questions of internet-driven commerce. Here are a few of the main points for which the Authority has provided guidelines to so that licensees may know when they have stepped over the line:

THIRD PARTY HOSTING

It is a violation of Section 111 of the New York Alcohol Beverage Control (ABC) for a licensed person to make her license available to a non-licensed person, a practice known as “availing.” Operational issues can arise when the licensee wishes to contract with a third party provider that is not on his/her license. At what point does that relationship move from arm’s length to availing?

Agreements between a licensee and a third party provider are clearly legal. However, the third party should not directly participate in the profits from the sale of alcoholic beverages. If the third party is providing a trademark, such as Forbes Wine Club, the payment for the trademark should be based upon a flat fee and not on a percentage of sales. Also, websites must clearly indicate that the licensee is the selling party. (Use of a co-branded expression, such as, “Forbes Wine Club, by Lot 18,” is sufficient.)

CONTROL OF SALES

Every aspect in the chain of sale of beverage alcohol should be under the direct control of the licensee. Only the licensee may decide what products will be offered, at what prices; and whether the purchaser is qualified to purchase the product. All of the funds derived from the sale of beverage alcohol should go to the licensee. And only the licensees should oversee packing and delivery. It is evidence of availing for a third party to collects the funds from the sale, hold the funds in “escrow” and disburse the funds among “interested” parties. And the licensee should be responsible to pay any expenses associated with the sale of the beverage alcohol.

ALL GENERAL RULES APPLY

Under the law a license applies to the person and the premise. The licensee must have a bona fide brick and mortar store, before it can sell alcohol beverages over the internet. The hours of operation which apply to package stores also apply to sales over the internet. All sales must be made from the licensed premise. Required records must be maintained on the licensed premise. Licensees also must abide by all price posting rules.

THIRD PARTY APPS

Licensed retailers may participate in the use of third party applications (“apps”). The application provider must not be a licensed retailer. Again, all funds received from the sale of goods through an app must go to the licensed retailer, and the app provider should not be paid a percentage of the price or of the profits.

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Keven Danow is an attorney representing members of all three tiers of the Beverage Alcohol Industry and member of the firm of Danow, McMullan & Panoff, P.C. 275 Madison Ave, NY, NY. 10022. (212-370-3744). Website: dmppc.com; email: kdanow@dmppc.com. Arielle Albert is an associate in the firm of Danow, McMullan & Panoff, P.C. and is admitted in New York and New Jersey. This article is not intended to give specific legal advice. Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.


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