Contract Brewing or Alternating Proprietorships For Your Operations? – Don’t Leave Out the Yeast

We’ve been getting so many requests to talk a little more about contract brewing and alternating proprietorships that we figured it’s probably time to dedicate a day to them.  So, here it is – Contract Brewing and Alt-Prop Tuesdays.

These arrangements are common in winemaking and brewing.  In a nutshell, contracting it out means that someone else is doing the brewing for you at their facility and you are taking the finished product as a wholesaler.  Alternating proprietorship (Alt-Prop) means that you’re leasing the excess capacity at someone else’s facility and taking legal possession as a tenant.

The main TTB circulars for contracting and Alt-Prop can be found here for wine and beer.  The agreements that govern these arrangements aren’t simple – despite what you’ll find with Google searches for sample contracts.  Not only are there a host of issues and concerns about obligations and liabilities – from product liability insurance and the indemnity obligations of the parties – there are also a slough of state regulations (or a lack of them) that you need to work through if you’ll be taking possession of produced alcohol or a winery or brewery.  These arrangements are great for start-ups and they’re also a wonderful source of income for established facilities with excess capacity.  So, yes, a day is merited to discuss these particular agreements and the issues that relate to them.

An important part of these agreements is the ownership of ingredients and intellectual property.  Handing your formula or recipe over to another brewer or making it on their premises should make you feel skittish unless you’ve got safeguards in your contract for confidentiality and addressing the legal ownership of these recipes and formulas.  One particular ingredient that usually merits its own contract section is our friend Saccharomyces cerevisiae.

Either you’re going to be using someone else’s yeast strains to make your brew or you’re going to be delivering a substantial amount of samples for maintenance and cultivation to a host facility for safekeeping… in any event, you’ll want to make sure that your contract addresses some important topics about the cultures:

• Which party is responsible for maintaining the yeast?
• Does maintenance include a guarantee that the yeast will be kept free from contamination?
• Which party is responsible for supplying the yeast?
• Are designations for particular strains necessary to ensure accurate brewing?
• Will a host facility be allowed to use a tenant or contractor’s yeast strains in other “non-tenant” productions?
• How long must cultures be kept if a contract terminates?
• Must cultures be returned upon termination?
• What assurances are there that the cultures are returned and haven’t been reproduced or kept after contract termination?

So, yes, there is plenty to think about when we’re talking about yeast, these issues are likely to result in two to three sentences of contract language that addresses these concerns – it’s always possible to make something simpler and reduce verbage when you’re dealing with lawyers.  What’s important is that these are all important issues to consider when drafting a contract brewing or Alt-Prop agreement.   And there’s plenty more to come as we continue with our weekly analysis of this topic.