Napa Wine From Lodi?

Yes, it is true, wine sold under the NAPA RIDGE label is made primarily from grapes grown in Lodi. But this may have ended on March 21, 2005 when the United States Supreme Court denied review of Bronco Wine Company’s (owner of the NAPA RIDGE® label) challenge to California’s ‘Napa” labeling law.

The relatively new labeling law (found in Section 25241 of the California Business and Professions Code) requires that “when the word ‘Napa’ (or any federally recognized viticultural region within Napa County) appears on a brand label, at least 75 percent of the grapes used to make that wine must be from Napa County.”[1]

Bronco Wine Company (“Bronco”), which is perhaps best known for its Charles Shaw brand, also markets wines under brands NAPA RIDGE, NAPA CREEK WINERY, and RUTHERFORD VINTNERS. Wines sold under these three labels are made from grapes grown in lower cost wine growing areas such as Stanislaus County, rather from grapes grown in the pricier Napa County.

Like Section 25241, 1986 federal regulations adopted by the federal Bureau of Alcohol, Tobacco and Firearms also require that at least 75 percent of grapes in a wine must come from the geographical area named on the label. But the federal government included a “grandfather clause” in the regulations exempting this prohibition for brands used prior to July 7, 1986. The only requirement for this exemption is a disclosure on the front label of the true geographic source of the grapes. The NAPA RIDGE label illustrated above met the federal labeling guidelines because this brand has been used since the early 1980s and this front label clearly discloses “Lodi” as the source of the grapes.

Signed on September 29, 2000 by then California Governor Gray Davis, Section 25241 was designed to close the federal loophole.

From the numerous comments and hearings held by the California Legislature on this issue, it found that:

“[f]or more than a century, Napa Valley and Napa County have been widely recognized for producing grapes and wine of the highest quality. Both consumers and the wine industry understand the name Napa County and the viticultural area appellations of origin contained within Napa County (collectively ‘Napa appellations’) as denoting that the wine was created with the distinctive grapes grown in Napa County.

“certain producers are using Napa appellations on labels, on packaging materials, and
in advertising for wines that are not made from grapes grown in Napa County, and that consumers are confused and deceived by these practices.

“legislation is necessary to eliminate these misleading practices.”

The California Supreme Court recognized that the Legislature expressed its intent in passing this law, namely “to assure consumers that the wines produced or sold in the state with brand names, packaging materials, or advertising referring to Napa appellations in fact qualify for the Napa County appellation of origin.”

Since Bronco’s Napa-related brands contained less than 75% Napa Valley grown-grapes and were adversely affected by this new law, the company filed an action with a California Court of Appeals seeking to prohibit the California Department of Alcohol Beverage Control (“ABC”) and its director, Jerry Jolly, from enforcing Section 25241. Bronco argued that the federal labeling law and regulations, notably the grandfather clause exemption it enjoyed, preempted or “trumped” the new state law. The Court of Appeals agreed with Bronco, concluding that the new state law is preempted by federal law, and stayed its enforcement.

The California Attorney General, representing ABC, and the Napa Valley Vintner’s Association (“NVVA”), as an intervener, appealed the matter to the California Supreme Court. Granting review, the California Supreme Court considered the question of whether federal law preempted California’s new labeling law under the supremacy clause of the United States Constitution (Article VI, Clause 2). To determine whether federal law preempts state law, courts must examine whether United States Congress, in passing the federal law, intended to trump state law. The California Supreme Court found Congress has not expressed its intent to preempt state authority with respect to regulating wine in general.

In cases where Congress did not express its intent, courts have still ruled that federal law preempts state law under the doctrine of “implied preemption,” which is found when: (1) it is clear that Congress intended to occupy the entire field of regulation by passing federal laws so comprehensive that they leave very little room for the states to supplement federal law, (2) when compliance with both federal and state law is impossible, and (3) when state law stands as an obstacle to accomplishing the purpose of federal legislation. Bronco’s only preemption argument was that Section 25241 stood as an obstacle to federal wine labeling laws. After a thorough and lengthy analysis of the legislative and legal history of federal and state wine labeling regulations, the California Supreme Court concluded that federal law does not preempt California’s labeling rule. The Court made two points that appear to have influenced its decision. First, that Congress’ intent in passing federal wine labeling laws was to insure that consumers should get what they thought they paid for and that representations should be honest, truthful and straightforward. California’s wine labeling rule appeared to the Court to be consistent with this purpose. Second, by passing only minimum standards Congress did not intend to “foreclose a state with particular expertise and interest [like California] from providing stricter protection for consumers in order to ensure the integrity of its wine industry.”[2]

Although the issues of this case involved Constitutional Law, the underlying facts and law relating to this case illustrate the tension between the two primary purposes of trademark law, which are (1) to prevent consumer confusion and (2) to protect the investment and goodwill of trademark owners. The California labeling rule is justified by the need to prevent consumer confusion as to whether Napa branded wines contain grapes from Napa Valley. But, as Bronco argued, isn’t the California State Legislature improperly taking away the goodwill of well known “Napa” brands? Bronco apparently acquired the NAPA RIDGE® brand from Beringer Wine Estates for more than $40 million. The goodwill in Napa brands is essentially built from the well-known reputation of Napa Valley and those companies who use non-Napa Valley grapes in their “Napa” branded wine are essentially deriving their goodwill from public confusion. The California Supreme Court’s Bronco decision, and the U.S. Supreme Court’s refusal to review this decision, may be a sign that law makers and courts are more willing to prevent consumer confusion than protect the goodwill in established brands.

[1] Cited from the California Supreme Court decision Bronco Wine Co. v. Jolly (Cal. 2004) 33 Cal.4th 943, 950.

[2] Bronco Wine Co. v. Jolly, (Cal. 2004) 33 Cal.4th 943, 950.