Imagine you run the biggest widget company in the world, American Widgets Incorporated (AWI). To consolidate your hold on the international widget business and offset the slowing demand for widgets in your core operating regions, in 2013 you acquire a Mexican widget firm, Grupo Widgeto. Smart move! This gives you a portfolio of compelling widget brands, and built-in access to emerging markets with less stringent regulations over their distribution and sale. Naturally, the flunkies at the Department of Justice will be concerned over how your dominance of the global widget trade will affect competitiveness in the American widget market, and want you to divest Grupo Widgeto’s American portfolio and operations to a competitor before they’ll greenlight the deal. This is weird to you, as a Brazilian — oh by the way, Brazilians run this storied American widget company, just go with it — but you’ve got a workaround. You find a midsize U.S. firm that makes doo-dads that AWI doesn’t really compete with, Celestial Brands, and you give them the rights to sell Grupo Widgeto’s widgets in the United States. Boom, deal approved. AWI gets its deal done, Celestial gets a widget portfolio. Everybody’s happy, right?
Wrong. A few years later, thingamajigs get popular. Really popular. Obviously, AWI rolls out its own line of them. But in 2020, you notice that Celestial is selling its Crown Thingamajigs — Crown being one of the most valuable Grupo Widgeto brands whose U.S. rights you’d spun off to it a few years ago. Naturally, you sue the bejesus out of them, because you only spun off the widget rights, not the thingamajig rights. Any first-year law student would understand the difference! Celestial (which in the intervening years has become a much more legitimate competitor, thanks to the remarkably durable popularity of Grupo Widgeto’s brands in the U.S., oops!) sues back. Their attorneys argue that thingamajigs and widgets are basically synonymous because they’re made with similar inputs and processes, so actually, you’re shit outta luck. Shocking everyone, and maybe even yourself, neither of you settles out of court, and this dispute winds its way through the American judicial system. At the end of 2022, a judge tells you that you’re going to have to argue this thing before a federal jury. The case is AWI vs. Celestial, and the question at its core is deceptively simple: What is a “widget”?
Allowing a jury with no widget experience to come up with the legal definition of a widget seems potentially pretty terrible for the whole widget industry, you are probably thinking to yourself. I’m glad none of this actually happened, and I don’t actually run AWI, because this would all be pretty embarrassing!
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Anyway. Last week, the Hon. Lewis A. Kaplan, a district court judge on the U.S. District Court for the Southern District of New York (SDNY), rejected a motion from the Anheuser-Busch InBev (ABI) subsidiary Grupo Modelo for a partial summary judgment in its lawsuit against Constellation Brands (CBI) over the latter’s 2020 launch of Corona Hard Seltzer. The suit, filed in early 2021, turns on the legal definition of “beer.” If hard seltzer is beer, Constellation’s in the clear, but if not, ABI wins a lot. The court “recognizes that Modelo has more dictionaries on its side of this debate over the meaning of ‘beer’ than does CBI,” Judge Kaplan wrote, rebuffing ABI/Grupo Modelo’s latest attempt to preempt further deliberations. “But the fact remains that dictionaries, however important, do not resolve this case.” Having slapped down a similar motion from Constellation last month, hizzoner last Tuesday instructed both parties to prepare to argue the case in front of a New York jury.
Can you imagine! I’ve written about this suit a few times before, and every time I do, it gets funnier. This latest development, which has two of the biggest widg— er, beer companies staring down the prospects of a high-profile trial where they’ll have to compare and contrast the characteristics of their various fizzy booze waters on the record, is no exception. God! Some things to keep in mind as we wait for the Kaplan court’s next move:
- Legally, there’s no such thing as hard seltzer in the U.S. The Alcohol and Tobacco Tax and Trade Bureau (TTB) doesn’t define the term, though its regulatory reach covered flavored malt beverages. Neither does the Food and Drug Administration (FDA), which publishes guidelines for marketing fermented alcoholic beverages made with sugar, known colloquially as Internal Revenue Code (I.R.C.) beer. In practice, everybody — retailers, distributors, statehouses — has mostly just treated it as beer and called it a day. You can see why this is a problem for ABI and Constellation.
- Before the Brazilians, A-B had its eye on Grupo Modelo. Last decade, as Carlos Brito & co. mounted InBev’s successful hostile takeover of the Busch family’s meal ticket, there was semi-serious talk in St. Louis of scraping together the cash to buy the Mexican firm. Such an acquisition would’ve given Anheuser-Busch the same strong brands, South of the Border footholds, and shareholder-soothing #synergies that made this very same move attractive to Anheuser-Busch InBev four years later — and crucially, it might’ve made the existing family-led firm too big for the Brazilians to bear-hug. That deal never came to fruition, so a decade later, the Busch family has reality TV shows and failed Senate campaigns, the Brazilians have the world’s biggest beer company, and we have this bizarre bit of cross-portfolio licensing drama.
- Corona hard seltzer is, like, fine? This trial — which, again, will require a bunch of randos who have never brewed beer or hard seltzer in their lives to define both, hell yes — is only happening because ABI wants the U.S. rights to Corona hard seltzer. On one hand, this makes sense: The company’s owned-and-operated hard seltzers are also-rans or outright failures, and its in-house launches are more or less the same (looking at you, Bud Light Next!) But on the other hand, Corona hard seltzer is hardly a golden calf! Its national “debut” in 2021, primed by a select-market rollout the previous year, showed some promise, but last October, before the overall segment hit its present plateau in earnest, Constellation had to destroy about $66 million worth of hard seltzer that it couldn’t sell, and announced plans to reformulate the liquid.
- Trials reveal lots of info big brewers would prefer not to. Open litigation between massive corporations is rare, because it forces them to publicly discuss trade practices and institutional wisdom that they’d really rather keep under wraps. For example, as this thing was first heating up last fall, ABI/Modelo tried to force Constellation to turn over internal records from focus groups where it tasted drinkers on Corona hard seltzer, in order to see how the firm’s own research defined the product. At trial, this sort of clandestine detail can have explosive effect on both the jury deciding the case, and in the court of public opinion. Just ask Molson Coors, which spent three weeks in court earlier this year unsuccessfully defending its Keystone brand against a trademark infringement suit from Stone Brewing Company. That absolute banger featured the lawyers and executives arguing, variously, that Keystone drinkers were broke as hell, that Keystone Light was brewed with the aftermath of Coors Light, that Stone’s sales were taking a beating and it owed its investors nearly half a billion dollars… oh man, you name it. SDNY forcing ABI and Constellation to hash their beef out in similar sunlight would be just *chef’s kiss*.
- Juries gonna jury, but who knows which direction. Speaking of Stone’s half-a-decade-long suit against Molson-Coors — the jury ultimately awarded the San Diego craft beer pioneer $56 million in damages in a verdict that surprised a lot of people (me included!). The massive victory, which didn’t save Stone from its soon-to-follow sale to Sapporo, is a good reminder that you never know what a jury is going to do, even in situations that seem pretty black and white — which the definition of hard seltzer absolutely is not.
No trial date has been set, and there’s still a chance ABI and Constellation come to their senses and settle this thing out of court and outside the public’s gaze. But that hasn’t stopped me from furiously googling “how to get selected for SDNY juries from out of state.” After all, it’s the holiday season, and I’ve been a good columnist. Here’s hoping 2023 is filled with good health, good cheer, and a big, juicy, potentially cataclysmic beer business trial with an astonishing, unexpected verdict that affects billions of dollars in sales revenues across multiple product segments. I think we deserve it, and I’m absolutely certain ABI and Constellation do, too.
🤯 Hop-ocalypse Now
Bad news, brewers. Not only do you need to worry about spirits stealing share from beer and liquor lobbyists pushing tax equivalency proposals at statehouses across the country. You’re also losing the war for the hearts, minds, and interior decorating budgets of America’s tasteless landed gentry. For its “Mansions” issue, The Wall Street Journal reports that the standard wine cellar no longer cuts the Grey Poupon with today’s wealth tax deservers. No, now they’re installing in-house whiskey lounges and tequila tasting rooms to showcase their illiquid liquid assets. Missing from this vital, several-thousand- word dispatch: even one mention of “beer.” Sure, this is what happens to the working man’s drink in a nation ruled by those who hate workers. But it’s also press you’re not getting, dammit! There’s only one solution: Convince the white bourgeoisie that it’s normal to drink malt liquor out of coupe glasses. It almost worked last time!
With Dry January around the corner, double-zero darling Hoplark announces spinoff of R&D lab… Wash. court yet again blocks $4B giveaway to shareholders in potential Kroger/Albertsons tie-up… The Little Lion World/New Belgium Brewery era at Bell’s Brewing Company is fully underway, which means a post-Larry line extension for its Hearted brand IPA family… Malt-based ranch waters masquerading as tequila-based cocktails face class-action pressure, fun!…
📉 …and downs
“Won’t somebody think of the wholesalers?!” cry wholesalers to TTB, gesturing in the general direction of PepsiCo’s Blue Cloud division… End of an era as Goose Island Beer Company abandons its original Clybourn Ave. location… Some upsides for craft breweries in 2023, according to Brewers Association chief economist Bart Watson, but “long and unsteady” pandemic recovery continues… Miller Lite did a holiday callback to its “Meta Lite” Web3 campaign and it was ho-ho-horrible… Another era ends as food-and-beer pairing fest Savor shuts down, citing costs…