74
BEVERAGE MEDIA
June 2013
KNOW
THE
LAW
O
n April 9, 2013 the New York
State Liquor Authority (SLA)
issued Declaratory Ruling 2013-
01006A in response to a request
from an unlicensed technology compli-
ance service company (“Tech Company”)
seeking guidance on the issue of Internet
sales of wine through third party advertis-
ers. Specifically, the Tech Company asked
the Authority to approve its business
model for a compliance system intended
for use by unlicensed Internet advertisers
working with New York licensed whole-
salers, retailers, warehousers and fulfill-
ment companies.
The Tech Company described a model
that would allow a licensed retailer to utilize
an unlicensed advertiser’s website to display
products to consumers. According to the
request the licensed seller had the author-
ity to “accept or reject the order request”
and upon acceptance, the licensed retailer
would direct the fulfillment of the order. In
consideration for its services the advertiser
and the Tech Company would receive a fee
from the licensed seller for each sale.
Although the request for declaratory
ruling was made by the Tech Company,
the SLA’s ruling concentrated upon the
relationship between the unlicensed ad-
vertiser and licensed retailer. Before issu-
ing its declaratory ruling, the Authority
held a full board meeting at which the
participating Tech Company, wholesaler,
retailer, and Internet advertiser were in-
vited to address concerns of the Authority
and Industry members. Of primary con-
cern is whether the proposed relationship
between the non-licensed advertiser and
the retail licensee would violate ABCL
§111, which prohibits a licensee from
making its license available to persons or
entities who are not on the license. Such
a violation is known as “availing.”
The Passive Problem
The Authority did not confine itself to
the language in the request for a declara-
tory ruling. It conducted an independent
investigation into the actual practice and
procedures being used by the participants
who were already operating in New York
State. SLA investigators found that in
practice the retail licensee was relegated
to a completely passive role. In addition,
the Authority noticed the advertiser had
an agreement with the warehouse to hold
and ship the wine. The retailer appeared
not to have any knowledge of what ware-
house it was using to fulfill these sales.
The SLA noted that even the retail-
er’s acceptance or rejection of a sale was
perfunctory. At first, the licensed retailer
would “accept” an “order request” made
by a consumer by doing nothing. Its fail-
ure to reject the order within a stated
amount of time was deemed an accep-
tance. This was later changed to require
a keystroke by the retailer when the order
was accepted. The retailer did not reject
a single offer.
As the SLA noted problems, the ad-
vertising company made adjustments to
the method of operation. However, the
SLA found that these adjustments were
cosmetic rather than meaningful. For in-
stance a change from a standard bottle fee
paid to the retailer to monthly advertising
bills had almost no effect on the amount
the retailer netted from each sale. The
SLA concluded that the licensed retailer
played “little, if any, role” in the sale of
wine through the model platform and
consequently the platform encouraged
availing in violation of ABCL § 111.
Guidance Yet to Come
In its declaratory ruling the SLA ac-
knowledged that the sale of wine over
the Internet is a growing trend and ex-
pressed its intention to provide com-
prehensive guidance to the industry
on related issues. While the industry
awaits a more complete statement, the
Authority warned that a licensee must
maintain complete control over every
sale made under its license. It must be
responsible to determine what prod-
ucts will be sold and at what price and
it must actively decide whether to ac-
cept or reject a sale. The licensee must
not allow unlicensed third parties to be
compensated based on a portion of the
sale made.
In determining when an arrange-
ment between a licensed entity and
third party advertiser violates New York
beverage alcohol laws, the SLA will not
look only at the written agreements be-
tween parties but also will consider the
actual day-to-day functions to ensure
more than facial compliance.
Until as the Authority issues further
guidelines, licensees would be wise to
examine every proposed agreement with
a third party advertiser to see if it com-
piles with the law both on paper and
in practice. The Authority will view as
evidence of availing any arrangement
that shifts the risks and rewards related
to the sale from the licensee to a non-
licensed third person.
Link to the full SLA ruling
online at:
BevNetwork.com
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 3703744). Arielle
Albert is a law clerk with the firm and will be graduating
from Hofstra University School of Law this year. Danow,
McMullan & Panoff, P.C.: Website: dmppc.com; email:
. 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.
The Online Conundrum
SLA Ruling Clear: Retailers Must Control Internet Sales of Wine
BY KEVEN DANOW & ARIELLE ALBERT
See
more
online
1...,64,65,66,67,68,69,70,71,72,73 75,76,77,78,79,80,81,82,83,84,...110