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Monday, April 25, 2011

Wine Trademarks: Rights Can Only be Established by "Lawful" Use

One of the basic tenets of U.S. trademark law is that trademark rights may only be established upon use of a trademark in commerce.  Whether the rights are established at common law, or whether a federal trademark application has been filed based on current use or intended use, trademark rights cannot attach until the trademark has actually been used in commerce on or in association with the goods.

However, it is not enough that the use of the trademark be in commerce, the use must also be a "lawful" use in commerce.  For the large majority of goods and services, "lawful" use is never really an issue; if you decide to sell t-shirts under a particular mark all you need to do is label the shirts with the trademark and start selling them.  However, for those goods subject to government regulation, such as wine, a mark can only be "lawfully" used in commerce once all of the regulatory hurdles for sale of the wine have been met.

Interestingly, although there is a long history of case law dealing with the "lawful" use of a mark, the goods at issue in such cases have been things such as pharmaceuticals, fresh meat and securities investment services, but never wine.  This recently changed when on March 31, 2011, the U.S. District Court for the Eastern District of California held valid a pleading that a winery's use of its trademark was not "lawful" because a Certificate of Label Approval ("COLA") for the wine label featuring the mark was not obtained prior to the use of the mark on a label.  While this is merely a ruling that allows the claim to go forward, it is important in that the Court held that, in relation to wine, "for purposes of trademark priority, lawful use may require compliance with labeling requirements."  Wine Group LLC v. L. & R. Wine Co.,10-cv-02204-MCE-KJN (E.D.Cal. 2011).

Accordingly, wineries should take heed and note that any actions they take (other than filing an intended use trademark application) prior to receiving a COLA and making sure all of their licensing and compliance requirements are in place, cannot establish trademark rights in a wine name or brand.  Additionally, any trademark applications for wine based on use, or allegations of use to perfect an intent-to-use trademark application, cannot rely upon use of a mark that is not "lawful" and in compliance with all labeling and licencing requirements for a wine.  Most wineries and trademark practitioners without experience with wine industry regulation will frequently make the mistake that simply mocking up a label and putting the wine in the tasting room without a COLA is sufficient to establish use of the mark in commerce, when in fact such use is not "lawful," and therefore not a valid trademark use in commerce,

For more information or assistance on trademark matters, contact Scott Gerien at sgerien@dpf-law.com

Thursday, April 21, 2011

Vineyard Property:The Not So Common Sense of Preventing Prescriptive Easments - Part II

This is the second part of a two part post discussing prescriptive easements.

Last time we talked about how one of two neighbors (“Joe”) should be careful not to compromise or lose his claim to a prescriptive easement to continue using a road on his neighbor’s (“Jane’s”) property by using not so common, common sense. This time we’ll talk about what Jane could do to protect her property from prescriptive easements.  

Readers will recall from the last blog (or may already know), that a prescriptive easement is a legal right of access that arises from longstanding (at least 5 consecutive years) open use of property, hostile to the property owner’s rights or under claim of right, including a claim based on a mistaken belief that a legal right already existed. What, you may ask, can an owner like Jane do to protect her property from the creation of such an easement if she doesn’t object to Joe’s use when it first began and doesn’t want to lock Joe out or sue him if he refuses to stop using the road on her property?

There are three ways to protect against prescriptive easements in a situation like this: first, Jane and her predecessor could have posted statutorily prescribed signage on their property (Cal. Civil Code section 1008); second, Jane and her predecessor could have recorded and served a statutorily prescribed Notice of Consent to Use of Land (Cal. Civil Code section 813); and/or third, Jane and her predecessor could have approached Joe when his use first began to confirm that his use was permissive, not hostile. It is important to note, however, that the two described statutory options offer only prospective protection against prescriptive easements. What that means is this: If the prescriptive easement had already come into being before the signs are posted or the notice is served and recorded, then the signs and notice will not defeat that easement. This caveat is the subject of the postscript at the end of this blog.

Posting signs: Under section 1008, a property owner may post signs at each entrance to his/her property or along the property boundary at intervals of not more than 200 feet.  The sign must read substantially as follows: “Right to pass by permission, and subject to control, of owner: Section 1008, Civil Code.”  These signs give notice to the world of permission to pass onto the property, which defeats any claim of adverse use.  (Aaron v. Dunham 41 Cal.Rptr.3d, at 36.)  The section 1008 signs must be posted by the property owner or his/her agent, not by a lessee.  (Aaron v. Dunham 41 Cal.Rptr.3d, at 37-38.) Section 1008 reads in full as follows:

No use by any person or persons, no matter how long continued, of any land, shall ever ripen into an easement by prescription, if the owner of such property posts at each entrance to the property or at intervals of not more than 200 feet along the boundary a sign reading substantially as follows: “Right to pass by permission, and subject to control, of owner: Section 1008, Civil Code.”

            The advantage of this procedure is that no direct communication needs to be given to known adverse users (which in some people’s view encourages further use). The disadvantage of this procedure relates to proof of compliance with the statute. In that regard, it is not uncommon for such signs to be removed (particularly in cases of acrimonious neighbor relations), thus making proof of compliance with the statute more difficult. For that reason, when clients elect to use this procedure to protect their properties, I recommend that they or someone working for them keep a written record (like a log book with dated photographs) beginning when the signs were first posted, and continuing through periodic inspections at regular intervals such as every month or every 6 months.

Notice of Consent: Section 813 allows a property owner to record and serve a Notice of Consent to Use of Property. Such a notice creates a conclusive presumption that any subsequent use of the property within the scope of the notice will be deemed to be permissive and will not give rise to a private prescriptive easement. The full text of that statute appears below:

The holder of record title to land may record in the office of the recorder of any county in which any part of the land is situated, a description of said land and a notice reading substantially as follows: “The right of the public or any person to make any use whatsoever of the above described land or any portion thereof (other than any use expressly allowed by a written or recorded map, agreement, deed or dedication) is by permission, and subject to control, of owner: Section 813, Civil Code.”

The recorded notice is conclusive evidence that subsequent use of the land during the time such notice is in effect by the public or any user for any purpose (other than any use expressly allowed by a written or recorded map, agreement, deed or dedication) is permissive and with consent in any judicial proceeding involving the issue as to whether all or any portion of such land has been dedicated to public use or whether any user has a prescriptive right in such land or any portion thereof. The notice may be revoked by the holder of record title by recording a notice of revocation in the office of the recorder wherein the notice is recorded. After recording a notice pursuant to this section, and prior to any revocation thereof, the owner shall not prevent any public use appropriate thereto by physical obstruction, notice or otherwise.

In the event of use by other than the general public, any such notices, to be effective, shall also be served by registered mail on the user.

The recording of a notice pursuant to this section shall not be deemed to affect rights vested at the time of recording.

The permission for public use of real property provided for in such a recorded notice may be conditioned upon reasonable restrictions on the time, place, and manner of such public use, and no use in violation of such restrictions shall be considered public use for purposes of a finding of implied dedication.

            The advantage of recording such a notice is that proof of compliance with the statute will always be possible since the notice will be a matter of public record. Care should be taken, however, to be sure to include a proof of service with the recorded notice (demonstrating compliance with the service requirements of the statute) so that such proof also remains a matter of public record. The disadvantages of this alternative are, in my opinion, that: (1) where the use is by persons other than the general public (i.e., repeated use by known individuals such as  neighbors) the notice must also be served by certified mail on those known adverse users, thereby telling them that they have permission to continue their use (which some property owners don’t like to do); and (2) the statute prohibits the landowner recording the notice from interfering with the permitted use “by physical obstruction, notice or otherwise” until the notice of consent is revoked. Although I have not found any appellate decision determining the effect of any such subsequent interference, I believe that if ever raised on appeal, California courts will hold that such interference eliminates the protection from prescription otherwise provided by the statute (it is also possible that a trial court would reach the same conclusion even in the absence of guiding precedent given the plain language of the statute, although I have seen at least one trial court refuse to do that).

Express permission: Express permission is the quickest, most effective and least expensive solution to the problem of a potential prescriptive easement, yet it is often the last option considered if it is considered at all. Simply put, if Joe in our example acknowledges in writing to Jane (or her predecessor) that his use is and has been permissive (and is thus not hostile or adverse), then Joe’s use will not ripen into a prescriptive easement so long as Joe does not later expressly repudiate that permission and begin and complete a new 5 year prescriptive cycle of use. A unilateral offer of permission, however, is not sufficient, unless it is extended pursuant to the recorded notice or posted sign statutes discussed above. Instead, the potential prescriptive user (Joe, in our example) must acknowledge and accept the permission for this alternative to be effective. Given that proof is the measure of success, the acknowledgment should be written, although the form of the writing can be as simple as a signed letter or as formal as a recorded license agreement including indemnity, insurance and hold harmless provisions.

            If the express permission route is followed, however, it is important to remember that permission will only be effective to defeat claims by the person acknowledging permission and not claims by other possible prescriptive users who might not be known, but whose use is sufficiently open and adverse to qualify as prescriptive use. Therefore, it is usually best for someone in Jane’s position to pursue more than one solution.

            Postscript: In the last blog I mentioned a principle called “vesting.” Simply put, once 5 years of the requisite hostile use has passed, a prescriptive easement will become fixed and enforceable (i.e., it will “vest”), such that any later statutory signs or recorded notice will not defeat that easement. However, an express agreement with the neighbor (“Joe” in our example) acknowledging that the present AND historic uses are and have been permissive can, if properly drafted, offer such protection. So what could Jane have done in our example to protect herself from a previously perfected prescriptive easement in Joe’s favor (remember, under our facts, Joe had been using the road for more than 5 years before Jane acquired her property)? Unfortunately, there is not much Jane could do except to spot the issue during the due diligence period under her contract to purchase the property, and then to either: (1) ask her seller to secure a written permissive use agreement from Joe, or quiet title against any claim Joe might make, either by court action or negotiated quitclaim deed; (2) ask her title company to insure against any such claim by Joe (hard to get, but possible); and/or (3) negotiate a reduction in the purchase price to offset the actual or potential existence of a prescriptive easement.

For more information or assistance on real property issues contact Paul Carey at pcarey@dpf-law.com

Tuesday, April 19, 2011

Vineyard Property: The Not So Common Sense of Prescriptive Easements

This is the first part of a two part post discussing prescriptive easements.

Common sense – that’s what guides most of us, most of the time, and that’s a good thing. However, when it comes to protecting property rights, common sense solutions can sometimes be dangerous. This is because some rules of property law are counterintuitive, such as the rules relating to prescriptive easements. (A prescriptive easement is a legal right of access that arises from longstanding open use of property, hostile to the property owner’s rights or under claim of right, including a claim based on a mistaken belief that a legal right already existed.)

Take, for example, the case of the property owner (we’ll call him Joe) whose neighbor (we’ll call her Jane) told him he could no longer use an access road that crossed Jane’s property because Jane intended to plant vineyard over the road and surrounding area. Joe, however, had been using that road for over 20 years to service a vineyard on his property. For the first 15 years Joe had been using the road, he believed he had a right to use it and he had never asked permission from Jane or her predecessor. In addition, for the whole time Joe had been using the road, neither Jane nor her predecessor had ever taken steps to protect their property from the creation of a prescriptive easement. (Those steps are a topic for a later blog.) Under the rules of law relating to prescriptive easements Joe could have protected his right to continue using the access road in dispute, but his lawyer’s ability to do that after the dispute arose was compromised by the fact that Joe had previously pursued what he believed to be a common sense solution to his problem a number of years before he sought legal advice.

Specifically, a few years before the dispute arose with Jane, Joe discovered that he did not have a deeded easement over the road in question. Common sense told Joe he should do something to confirm and preserve his right to use the road. As Joe put it when he later explained it to his lawyer: “Don’t worry, when I found out I didn’t have a deeded easement, I made sure I protected my right to use the road by contacting my neighbor (Jane’s predecessor) and confirming that I had his permission to use the road. I then documented that permission in a letter.” Pleased with his proactive approach to the problem, Joe proudly produced a copy of the letter for his attorney, and then watched in dismay while his attorney sadly shook his head and told Joe he should have seen an attorney before doing anything.

While common sense told Joe that getting his neighbor to acknowledge that Joe could continue using the road, the law did not. What Joe didn’t know was that a prescriptive easement cannot exist when the use relied on to support the creation of the easement was permissive! Put another way, permissive use CANNOT be hostile or under a claim of right and therefore will not support the existence of a prescriptive easement.

Although Joe could still assert his claim to a prescriptive easement based on (1) the rule that a prescriptive easement “vests” immediately after 5 consecutive years of adverse use (which in his case had occurred long before he secured permission), and (2) the fact that his more recent request for permission was based on a mistaken belief that it would preserve his right to use the road, his common sense self help effort made it more difficult for his attorney to protect Joe’s easement because Joe had inadvertently created evidence that his neighbor could use to try to prove that Joe never really did believe he had a right to continue using the easement (or else why would he have felt he needed to ask his neighbor’s permission?).

The moral of the story is this: When it comes to the law, particularly some of the more antiquated rules relating to real property, talk to an attorney with experience in the particular area of the law involved before you do what common sense tells you.

Coming up: Could Jane and her predecessor have done anything to protect against the creation of a prescriptive easement in Joe’s favor? Yes…

For more information or assistance on real property issues contact Paul Carey at pcarey@dpf-law.com

Monday, April 18, 2011

Brand Trends for Wine Revealed in Trademark Filings

Brand trends in an industry, or at least branding plans for a particular player in an industry, can often be seen before they actually debut in the market by watching trademark filings.  Under U.S. Trademark Law, a brand name, or trademark, can be protected before the brand name is ever used in the marketplace.  This is accomplished by the filing of an intended-use trademark application with the U.S. Patent and Trademark Office (USPTO).  An intended-use application allows the applicant to essentially lock up a name for a particular product or service for a period of time.  If the intended-use application is approved by the USPTO and not opposed by another party based upon some prior right, the applicant then only has to use the name on the identified goods or services in order to perfect the trademark registration, and the trademark rights in the name are then retroactive to the filing date of the trademark application.  After registration, the trademark registrant can then stop any intervening users who may have adopted the same or similar names between the filing date of the application and the date of registration (a period which may be several years long), even if such intervening user actually used the name before the trademark registrant used the name.

Because this process allows a party to secure national rights in a name before use has begun, it is one of the first steps many producers will take once they have decided to adopt a particular brand name.  Accordingly, watching trademark filings can reveal interesting market trends.

For instance, a review of filings for trademarks for wine in February of 2011 reveals the following interesting tidbits:
  • Paterno Wines International, aka Terlato Wines, appears to be pursuing a branding strategy involving text messaging abbreviations and acronyms including the following: BTW; BRB; BFF; FML; FYI; IDK; TLC; TMI; WTF; XOXO (extra credit for anyone who can identify the meanings for all of these abbreviations; do you think TTB will approve a COLA for WTF?)
  • The Wine Group appears intent on beating to death the "pastry" market it first exploited with its CUPCAKE brand with new trademark applications for the following names: SMALL CAKES; SWEET SHOPPE; JELLY DONUT; LEMON CHIFFON PIE (I wonder how Layer Cake feels about these new marks?)
  • Precept Wines also appears intent on jumping on this band wagon with applications for the following:
    CONFECTIONER’S CHOCOLATE; CONFECTIONER’S ANGEL CAKE; CHOCOLATE SHOP CRÈME DE COCOA (something just unappealing about wines named after bakery sweets).
We'll continue to bring you updates on these emerging brand trends as we conduct our monthly review of trademark applications filed with the USPTO for names for wine.

For more information or assistance on trademark matters contact Scott Gerien at sgerien@dpf-law.com

Tuesday, April 12, 2011

Canadian Wine Regulators: Control Freaks

The following blog post is from our friend, Bennett Lee, a Canadian wine lawyer located in Vancouver, British Columbia, working for the Boughton law firm.  Bennett may be contacted at blee@boughton.ca and you can learn more about Boughton at www.boughton.ca.

Vancouver, Canada may be one of the most livable cities in the world, but its wine culture is hobbled by archaic liquor laws and policies which drive its private wine merchants, importers, restaurants, wine lovers and most local provincial wineries slightly crazy.
The problem stems from the Prohibition era, when the Federal government ceded regulatory power over the purchase, distribution and sale of wine under The Importation of Intoxicating Liquors Act to provincial government liquor board monopolies which took control of the wine business and have never looked back.
The Liquor Distribution Branch (LDB) in British Columbia, for example, charges a markup of 123% on all wines imported into the province, which are sold through a mix of government-run stores and licensed private outlets.  Since the government is both regulator and competitor, the playing field is anything but level, slanting heavily in favour of the LDB. 
The service in government-run stores lags behind private sector wine sellers, who are generally more knowledgeable and passionate about wine, but make less than the average government store shelf stocker who can’t tell a Merlot from a malbec.
Wine can’t be sold through grocery or convenience stores, supermarkets, pharmacies, gas stations or warehouse club retail outlets.  Licensed private wine merchants have to source their product through the LDB.  The process can be painfully slow and arbitrary.  They have to pre-pay for orders and storage, but delivery from government-controlled warehouses can take months, and they can’t sell to restaurants, deliver wine to customers or store wine off site. 
Restaurants have to pay retail for wines from a single designated government-run store, which forces them to operate at higher cost margins.  The already inflated government price is then passed on to customers – e.g., a wine which sells for $10 in California will cost the restaurant over $20 and be priced on the wine list at $45-$60.  Corkage is officially banned.  Even splitting cases of special orders with other restaurants is a no-no. 
Sommeliers frustrated in their efforts to develop interesting wine programs are venting in the blogosphere and finding a very receptive audience: 
Vancouver consumers have far less selection in small production wines than in Seattle, Portland or San Francisco because the LDB is the final arbiter of what can be sold.  The 123% markup for all imported wines makes them expensive, often twice what they cost in Seattle, a two hour drive to the south.  However, you have to stay 48 hours and can only bring back two bottles duty-free - any more and the taxes will more than double the original price you paid.
B.C. wineries – 200+ at last count - can only sell through the LDB at a significant discount, so most rely on direct sales, an option not available to outside wineries.  But they can’t set up off site tasting rooms for promotion and that 1928 Act effectively prohibits shipping their wine directly to customers in other provinces or territories.  It’s illegal for tourists from Calgary or Toronto to buy a case from a winery in B.C. and bring or ship it home.
This anomaly has become a flashpoint for change. The provincial official who was in charge of enforcement has openly acknowledged that the law restricting interprovincial commerce is silly and unenforceable.  The outgoing premier agrees that it needs to change.  A member of Parliament from the Okanagan is lobbying to have the outdated Act amended. 
The natives are restless, but proponents of any significant change - read: privatization - face some formidable obstacles. 
The government has a cash cow – nearly $900 million in B.C. in 2010 – and is not about to give up control of retail distribution unless that revenue is maintained.  Government unions are opposed to privatization because it means a loss of jobs. Larger B.C. wineries would also prefer to let sleeping dogs lie since, if the provincial borders are opened up, other countries will push for similar application to their wines under international trade laws.
Trouble is already brewing over the preferential treatment given to local wineries:
The combination of consumer discontent and outside pressure will eventually bring about a more wine-friendly environment here, but the changes will probably be incremental: relaxing the rules on corkage, allowing the interprovincial shipment of wines for personal consumption, etc.
It may not sound like much, but it would certainly be progress to us here in the cool blue North.

Tuesday, April 5, 2011

The Producer's Lien: An Often Overlooked Legal Remedy in Grape Contract Disputes

In the wine industry, one of the most common legal disputes is breach of contract between grape growers and wineries.  Often times, grape growers are surprised to learn that, upon the delivery of grapes to a winery, they automatically have a statutory lien against any wine made from those grapes.  This lien, called a “producer’s lien,” means that the winery cannot lawfully sell the wine without paying the grower.  The lien can be found in California Food and Agricultural Code § 55631 et seq.  See following link for statute text:

  
Additionally, this lien takes priority over many other security interests.  (See Frazier Nuts, Inc. v. American Ag Credit (2006) 141 Cal. App. 4th 1263)


The amount of the lien is the amount the winery contractually owes the grape grower for the grapes or, if an amount is not specified in a contract, the value of the grapes upon their delivery to the winery.
                                                                
Sometimes, however, a grower inadvertently waives his or her right to this lien.  Often times, a contract between a grape grower and a winery includes a clause whereby a grower warrants that the grapes are not subject to any lien or other encumbrance.  The parties generally intend such a clause to ensure the winery that the grower has the legal right to sell the grapes.  Courts, however, may interpret this clause as the grower’s waiver of the producer’s lien.  If one wishes to avoid waiver of the right to the producer's lien, such a clause should warrant that the grapes are not subject to any lien or encumbrance other than the producer’s lien.

Enforcing a producer’s lien can be time-consuming.  If the winery has not paid the grower, the grower can initiate an action in court to foreclose on the lien.  Because actual foreclosure can take months, the grower may also immediately seek a preliminary injunction from the court to prevent the winery from selling or destroying the wine pending foreclosure.  Eventually, assuming the grower proves his or her case, the court will issue an order giving the grower the right to possess the wine.  The grower must then work with the sheriff’s department to obtain physical possession of the wine.  Even if the wine has been blended with other wine, a grower can still take possession of the wine.

One of the difficulties with a producer’s lien, however, is that a grower must then have the appropriate licenses to market and sell the foreclosed wine.  If the grower lacks such license, then the grower must work with a license broker or other authorized person to sell the wine.

If you have any questions about contract disputes, including contracts between grape growers and wineries, please contact John N. Heffner at jheffner@dpf-law.com