OF VALUE REGULATION

The Illinois Secretary of State published the “Of Value” regulation for first notice on May 4, 2018. There is a 45-day period till June 18th to comment on the regulation. Attached is a copy of the regulation.

Of Value Regulation

 

  1. IMPORTANCE OF THIS REGULATION

“Of value” issues became heightened in Illinois when it was announced that the Alcohol and Tobacco Tax and Trade Bureau (TTB) TTB and the Illinois Liquor Control Commission (ILCC) conducted a joint operation into pay to play schemes in the liquor industry.

Illinois became the land of the wild west because even though there is an “of value” statute, the ILCC never promulgated regulations to add clarity to the issue.

In this blog post, I want to provide some stream of consciousness thoughts on the regulation.

My thoughts don’t cover every area, so they are not all inclusive.

Your comments and questions are welcome, please do not hesitate to contact me.

 

  1. SCOPE

The regulation widens the base of punishable activities that constitute “of value” violations. Typically, a distributor or manufacturer (industry member) can’t offer or give anything “of value” and the retailer can’t receive anything “of value”. The regulation widens the net by punishing a retailer that request anything “of value”.

 

  1. DO WE NEED A TREASURE MAP TO DISCOVER WHAT THIS REGULATION IS ALL ABOUT?

A major premise of the regulation is that programs and discounts must be offered to all similarly situated retailers. Problematically, there is no clarity to this term and industry members may unwittingly violate the rule without knowing so. For example, if something is offered to A and not to B, then a potential “of value” violation exist. Or conversely, A and B may not be similarly situated and the violation does not exist. It is a chicken and the egg scenario, without the benefits of the chicken or the egg.

 

  1. IMPORTANCE OF INVOICING

4.1. Through the language of the regulation it is highly recommended that any transaction be invoiced in detail. For example, if an industry member wants to provide t-shirts to give away to a retailer’s customers, make sure it is noted on the invoice. Further, make sure these invoices list that these materials are meant to be given away to customers and not a gift to the retailers.

4.2. The regulation fails to address certain gray areas. For example, what if the industry member left “Spuds Mckenzie” shirts at the retailer and 2 years later they are still there? Who is the onus on, the industry member who provided these items free of charge or the retailer who failed to pass them out to customers. A detailed invoice may tell the story of who bears responsibility. Or maybe a case could be made that forgotten “Spuds McKenzie” shirts have no intrinsic value!

4.3. If an industry member gives something away that is beyond nominal value, like a grill that is meant to be given away to a customer (maybe through a raffle drawing), and the item is not given away and remains at the retailer’s location, both parties usually share the burden of punishment.

 

  1. SOCIAL MEDIA AND ADVERTISING

5.1. Social media- The regulation provides two restrictions: 1) An industry member can’t pay for the retailer’s social media; and 2) the social media needs to focus on the event or the product and not the retailer’s location.

5.2. Ditto for advertising rules.

 

  1. PROMOTIONAL EVENTS

Promotional events-A promotional event held at a retailer’s place of business must highlight the product and not the retailer’s location. The simple question to ask is whether you are promoting the product or the retailer’s location more? Any advertising or promotions designed for promotional events should answer this important question.

 

  1. 3rd PARTIES

An industry member cannot utilize a conduit to commit “of value” violations and escape punishment. Utilizing a marketing company to provide monetary or non-monetary incentives violates the rules.

 

  1. QUANTITY DISCOUNTS

The main issue with quantity discount is not generally in the discounting practices but required purchases in order to receive something greater. Often times it seems certain retailers have access to a product like Pappy Van Winkle when others don’t. And often times retailers receive special product by choosing to buy a certain quota of something bad or buying two different types of liquor in combination. This regulation bans practices that may lead some retailers to obtain specialty liquor by agreeing to illegal deals.

 

  1. PRODUCT DISPLAYS

The regulation leaves out that not removing certain product displays after their usefulness can lead to sanction. I remember talking to a retailer who received a sanction for a Courvoisier cabinet that was over ten years old. Use common sense on this one, if you have a great St. Patrick’s Day product display made of solid material and it is still up on Halloween, well expect to be sanctioned.

 

  1. WILL THE REGULATION ENTITLE LARGER COMPANIES TO RUN THE STORE?

Under Section 17, Stocking, Rotating, Resetting, and Pricing Services, industry members are allowed to recommend to retailers the best way to arrange the alcoholic liquor on their shelves (better know as providing schematics). It begs the question, since the bigger players have the personnel and the resources that smaller players don’t, could it not lead to ideal placement of a bigger player’s product at the expense of a smaller player.

 

  1. THE SKY MUST BE FALLING SO THESE ITEMS MUST BE NECESSARY

This regulation waded into areas that are quite unnecessary and obvious written in for somebody, here are some examples: 1) The regulation provides industry members wide latitude to service draft lines but puts a hard and fast stop on cleaning coils; 2) Courtesy wagons, coil boxes, cold plates and pumps may be given away to a retailer one time a year. (Think of the harm to society if this exceeded one time); and 3) Stocking and rotating can only be done within 24 hours of a regular sales call (I don’t see the point in regulating this).

 

  1. PRODUCT DONATIONS

This regulation makes a mistake when it bans donations to a non-profit that holds a retail license. The illegal activity should not focus on the retailer but what happens to the product. For example, if you donate to a VFW hall and product stays there, the VFW hall receives product for free, violation. If you donate to a VFW hall and the product is returned after the event, no violation. If a third-party charity hosts an event at the VFW hall and leaves the product at the hall’s bar, violation. If the third party returns the product to the industry member, no violation. Hence my point, this section of the regulation focuses on the wrong thing!

 

CONCLUSION

The ILCC will take comments on its present draft until June 18th. After the 45-day comment period is over, the ILCC will take into account all comments and make potential changes based on these comments. Now is the time to make comments to the ILCC if this regulation impacts your business interests or clients.

In this blogpost I provided some of my insights on the regulation. Please let me know if you have any follow-up questions, thanks for reading and I hope you enjoyed it!

 

Best regards,

Irish Liquor Lawyer

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *