Update, March 15, 2023: Today, a jury ruled that hard seltzer is beer—at least for the purposes of Anheuser-Busch InBev (ABI)’s lawsuit against Constellation Brands over Constellation’s right to sell Corona Hard Seltzer in the U.S.
Beer Marketer’s Insights reports that an eight-person jury in the Southern District of New York found that Constellation’s Corona Hard Seltzer (and Modelo Ranch Water) followed the definition of “beer” in a 2013 sublicense agreement between ABI and Constellation, which allows Constellation to sell the Corona and Modelo brands of beer in the U.S.
Similarly, Reuters reports that the jury “accepted Constellation's argument that its license to distribute beer bearing Modelo's brand names also allows it to sell alcoholic drinks like Corona Hard Seltzer and Modelo Ranch Water.”
ABI argued, unsuccessfully, that hard seltzers and malt-based products like ranch water do not fall under the definition of “beer” in the agreement between the companies and thus Constellation did not have the right to sell them in the U.S. under the 2013 contract.
Corona Hard Seltzer’s star has fallen since the lawsuit was filed in February 2021: Volume sales of the brand in chain retail ended 2022 at roughly half of what they’d tallied the year prior, shedding -2.4 million cases, equivalent to about 172,000 barrels, which is more than what Allagash Brewing or Great Lakes Brewing produces. However, the verdict still has important consequences for the trademarking and licensing of alcohol products across increasingly blurry category lines.
The original story follows.
THE GIST
Two of the largest beer companies in the U.S. are locked in a trademark lawsuit over Corona Hard Seltzer, and the outcome will have high stakes not only for the lucrative seltzer brand, but for how companies classify and sell alcoholic beverages in an increasingly complex marketplace.
Corona’s hard seltzer is on pace to sell more than $150 million in U.S. chain retail stores as tracked by market research company IRI, making it the fourth-largest hard seltzer brand family in the U.S. behind White Claw, Truly, and Bud Light hard seltzers. Both parties in the case—Anheuser-Busch InBev (ABI), which filed the lawsuit in the Southern District of New York in February, and Constellation Brands, the defendant—are eager to have the hard seltzer in their respective portfolios, as seltzer continues to be one of the most important alcohol products in the country. Stock prices also hang in the balance: Constellation’s stock fell roughly 5% in the two days following news that the lawsuit would go forward.
At the heart of the lawsuit is whether Constellation has the right to sell Corona Hard Seltzer under its 2013 licensing agreement with ABI subsidiary Grupo Modelo, which allows Constellation to sell the Corona brand of beer in the U.S. In its suit, ABI alleges hard seltzer is not beer, thus the licensing agreement does not extend to Corona Hard Seltzer. Hard seltzer is legally classified as a flavored malt beverage (FMB), which is within the broader beer category, and thus is also taxed at the same rate as beer.
A Manhattan federal judge’s refusal to dismiss the case this summer means a trial is likely to begin early next year.
WHY IT MATTERS
Corona Hard Seltzer alone is worth hundreds of millions of dollars in sales, but there are even greater implications for how companies protect trademarks and market alcoholic beverages.
Whether it’s hard seltzers, non-alcoholic beers, CBD beverages, or ready-to-drink (RTD) cocktails, the lines between traditional categories in alcohol have become blurred to an unprecedented degree. As the ABI-Constellation case indicates, this raises fundamental questions for trademark law. Whereas 20 years ago, most beer was easily distinguished from spirits or wine products, there are now crossover products like ranch water hard seltzers (hard seltzer mimicking a tequila-based cocktail), vodka-based drinks that call themselves seltzers, and wine-based canned “cocktails” that don’t contain spirits at all.
How should those products be trademarked? Do trademark protections in one alcohol category apply to others? Some analysts even believe the case could have bearing on how hard seltzers are taxed; currently, the government taxes them as beer (at a lower rate than wine or spirits), but Goldman Sachs analyst Bonnie Herzog tells Barron’s that a ruling that hard seltzer is not beer could negatively affect hard seltzer from a tax perspective, should the government decide to change such a definition. In New Jersey, where legislation was introduced to tax RTD cocktails as beer, more than $1.5 million in tax revenue hung in the balance; the legislation was tabled earlier this summer.
There’s much that the Corona Hard Seltzer case has the potential to fundamentally change—in fact, it may have already done so.
“The existence of the litigation itself, regardless of the outcome, will cause alcoholic-beverage trademark owners to be more cautious—and, in turn, more precise—in licenses, coexistence agreements, and settlement agreements,” says Joel Feldman, vice chair of the trademark and brand management group at the law firm Greenberg Traurig.
Feldman dissected some of the issues this case raises as they relate to trademark law in an analysis for Reuters.
“While the litigation is ongoing and will certainly have implications with respect to alcoholic-beverage trademarks, it is also an important reminder that branding is in a constant state of growth,” he wrote.
The lawsuit is critical not only for the two companies involved, but for other alcoholic beverage companies whose trademarked products straddle traditional category lines. Not only are those blurred lines sometimes confusing to consumers, they’re a test of how the U.S. Patent and Trademark Office (USPTO) classifies beverages.
The USPTO uses an international classification system, called Nice Classification, to indicate which general fields goods or services belong to. This is foundational to trademark law, because trademark applications need to specify which category they intend to live in. (A trademark could exist for, say, “Anderson’s Soda” and that would also allow for a trademark from an entirely different company to exist for “Anderson’s Tires,” because the two are in unrelated categories.)
Since the USPTO adopted the Nice Classification system in 1973, beer has generally been classified in Class 32, “light beverages,” along with energy drinks and soda. Class 33 is called “wines and spirits,” but has become a catch-all category for any non-beer alcoholic beverage, including hard cider, RTD cocktails, and more.
Where these categories become less clear is when companies apply for a trademark in both, an unusual step that Mark Anthony Brands took in 2016 when registering its White Claw trademarks in light beverages and wine and spirits. Feldman notes that several brands followed suit, registering hard seltzers in both beer and wine and spirits categories. Now, the ABI-Constellation case will put to the test whether Constellation’s trademark (via a licensing agreement) for Corona beer in the U.S. extends to hard seltzer.
This may finally be the case that settles, at least for trademark purposes, whether hard seltzer is beer. Those very definitions form the basis of the arguments in this case, to near-comical effect. Constellation’s lawyers argued in June (during a failed attempt to have the suit dismissed) that the company’s licensing agreement to sell Corona beer in the U.S. includes not only “beer” and “malt beverages” but “other versions of them.” The judge, Lewis A. Kaplan, attempted to tease out what “other versions” could potentially include, proposing that Chardonnay could theoretically be considered an “other version” of beer because it is a clear-ish alcoholic liquid.
The judge told lawyers for both sides that they’d proven the veracity of the quote that words are merely “empty vessels into which one can pour anything you will."
“You have both not only poured an awful lot into these words, but you've raised quite a head on the glass,” the judge said.
While splitting hairs over what precisely defines beer, or hard seltzer, or “other versions” of malt beverages sounds almost silly in some of these arguments, those definitions are at the core of not just this case, but alcohol trademark law going forward.
Billions of dollars of products are protected by the trademark categories now in question. Hard seltzer was more than a $4 billion industry last year, and it could overtake craft beer in terms of sales this year. Beer Marketer’s Insights reported this month that hard seltzer sales in chain retailers are now larger than (IRI-defined) craft beer sales for the 12-week period ending June 13. (IRI-defined craft beer includes brands owned by ABI and Molson Coors Beverage Company, such as Blue Moon, Leinenkugel’s, and Shock Top.)
Elsewhere in alcohol, categories get even fuzzier—and more lucrative. Flavored malt beverages like hard seltzer, hard tea, hard kombucha, etc., often share a permeable barrier with RTD cocktails like canned margaritas or spritzes. Combined, FMBs and RTDs are projected to make up a quarter of all U.S. alcoholic beverage sales by 2025, according to market analysis firm IWSR.
Given the popularity of products in alcohol categories with questionable trademark definitions, it’s safe to say there are billions of dollars of sales potentially affected, indirectly, by the outcome of the lawsuit ABI has brought.
Feldman anticipates more products that would have traditionally fallen into one category to file for protections in the other, and for beverage companies to potentially be more litigious in protecting their trademarks in the future.
“Trademark lawyers are always looking for ways to future-proof, and the lines between Classes 32 and 33 are getting more blurry, not less blurry,” he says.
Alcohol companies’ eyes will be on the federal courtroom where the ABI-Constellation case is expected to play out early next year. Its outcome has much riding on it, not least of which may be a long-awaited answer to the question: Is hard seltzer beer?
Words by Kate Bernot