You Need an Approved COLA Before You Have a Valid Trademark?

I’d say it goes without saying, but the recent expansion of wineries, breweries and distilleries and the coinciding increase in trademark disputes is evincing a contrary trend, so I guess I’ll say it, you need label approval (or recognized exemption) to have lawful sales that can count as your first use in commerce.

And a federal court in North Carolina recently said it too.

In Tassel Ridge v. Woodmill Winery (Case No. 11c66), an Iowa winery, Tassel Ridge
Winery sued a North Carolina winery, WoodmillWinery, claiming trademark infringement and a host of other trademark related claims over sales of a wine called Red White and Blue claiming it infringed on Tassel’s Red Whit & Blue wine mark.  The basic premise was that these two marks were similar enough to create confusion:

The parties moved for summary judgment and in reaching the decision to not grant summary judgment to either party, the court made an incredibly important determination – that the sale of wine before label approval was unlawful and that since unlawful sales cannot count towards the “first use in commerce” – here, even though the defendant’s sales and use happened before the plaintiff’s, because the plaintiff’s use was the first “lawful” use, the plaintiff had the valid mark, not the defendant.

Let’s be clear about this.  The defendant actually had the first use and might otherwise have won here, but it didn’t have label approval until October of 2006 – a date after Plaintiff’s first lawful use and application.

You can read the opinion in this case here.
The court noted that the requirement for lawful sales was a prerequisite to having a valid trademark:

“Defendant also offered evidence showing that it first sold wine under the “Red, White, and Blue” label on July 3, 2006. However, Defendant was not issued an approved COLA until October 5, 2006. In order to lawfully sell wine pursuant to the Federal Alcohol Administration Act, 27 U.S.C. § 201 et seq., a party must appropriately package, mark, brand, and label the wine. According to 27 C.F.R. § 4.50, an approved COLA, TTB Form 5100.31, must be issued before wine can be lawfully bottled or sold. Therefore, any sale of Defendant’s “Red, White, and Blue” wine prior to October 5, 2006, was not lawful for purposes of determining priority.”

The decision leads to some interesting, if not entirely complicated, questions:

1.         What if it’s not sold in interstate or foreign commerce you ask?  Good
question.  But  27 CFR § 4.50 (b) makes it pretty clear that even if you don’t plan on out-of-state sales, you need to apply for and be granted an exemption:

§ 4.50 Certificates of label approval.

(a) No person shall bottle or pack wine, other than wine bottled or packed in U.S. Customs custody, or remove such wine from the plant where bottled or packed, unless by the appropriate TTB officer an approved certificate of label approval, TTB Form 5100.31, is issued.

(b) Any bottler or packer of wine shall be exempt from the requirements of this section if upon application the bottler or packer shows to the satisfaction of the appropriate TTB officer that the wine to be bottled or packed is not to be sold, offered for sale, or shipped or delivered for shipment, or otherwise introduced in interstate or foreign commerce. Application for exemption shall be made on TTB Form 5100.31 in accordance with instructions on the form. If the application is approved, a certificate of exemption will be issued on the same form.

2.         Could this determination apply to other portions of the regulations that come with
similar prohibitive language?  Likely yes.  While not specifically mentioned, because 27 CFR §4.30 requires appropriate, packaging, marking, branding, and labeling, any regulation requiring some form of approval in any of these activities  could be considered necessary to lawful sale/use in commerce.  Take for instance, formula approval under 27 CFR § 24.80 that requires:

§ 24.80 General.

The proprietor shall, before production, obtain approval of the formula and process by which special natural wine, agricultural wine, and other than standard wine (except distilling material or vinegar stock) are to be made. The formula must be prepared and filed on TTB F 5120.29, Formula and Process for Wine, in accordance with the instructions on the form. … Except for research, development, and testing, no special natural wine, agricultural wine, or, if required to be covered by an approved formula, wine other than standard wine may be produced prior to approval by the appropriate TTB officer of a formula covering each ingredient and process (if the process requires approval) used in the production of the product.

The real issue to be aware of, both for those trying to protect or make certain they’ve got validity and for those looking to potentially challenge another’s validity is that of complying with the regulation’s requirements – if you are required to have, and don’t get, regulatory approval for some act, you’re guilty of a per se violation of the statute and thereby aren’t acting lawfully.