Page 9 - Beverage Master February March 2020

Craft Beverage

that the first distributor has the right to all brands
of the manufacturer in a given territory. In fact,
that very’ issue was litigated in the 1985 case of
Erwin and Shafer, Inc. v. Pabst Brewing Co., Inc. and
Judge Couch, writing for the panel of The Court of
Appeal of Maryland, disagreed. The court held that
if a brewery retained a distributor to handle one or
more of its brands within a territory, it could not
then contract with a second distributor within the
territory for those same brands. It could, however,
contract with a second distributor to carry a differ-
ent set of brands.

How far the court would take its interpretation of
what is a “brand” is unclear, however. In the Pabst
case, the first distributor was given the right to dis-
tribute Pabst brand beers, but Pabst later merged
with Olympia Brewing Company and gave the sec-
ond distributor the right to sell its newly acquired
Hamm’s brand beers. Whether the court would
have allowed the brewery to contract with one dis-
tributor for Pabst and another for Pabst Extra Light
it did not say.

Exclusivity

Even if rights under a distribution agreement
cannot be divided by brand (as in the case of the cause. Accordingly, thorough documentation is
beer franchise law in Maryland), some states may essential. If a distributor is not meeting sales goals,
nevertheless allow a supplier to contract with more mishandling product, or failing to provide adequate
than one distributor within a territory. If permitted reports, they must be given written notice of those
in their state, a brewery should ideally enter into all deficiencies each time they occur.
of its distribution agreements for a given territory
simultaneously, providing notice to each distribu- There are great distributors out there who
tor. At a minimum, the brewery should ensure that become essential partners in a brewery’s business.
the first agreement entered into is explicitly desig- But, sometimes those relationships can sour and
nated as non-exclusive. Otherwise, the distributor signing an agreement without anticipating compli-
may view the agreement as giving it exclusive rights cations down the line can make it virtually impos-
to the territory and could sue the brewery for sible to sever those ties. A little forethought and
diminishing the distributor’s business if it were to planning and a lot of diligence will go a long way
engage a second distributor in that territory. toward a successful termination of a bad relation-
ship.
Final Thoughts
Brian Kaider is a principal of KaiderLaw, an intel-
Whether a brewery is in a franchise state or not, lectual property law firm with extensive experience
it is critical that it review and negotiate its distri- in the craft beverage industry. He has represent-
bution agreements carefully, with the assistance ed clients from the smallest of start-up breweries
of an experienced attorney. It is also important to to Fortune 500 corporations in the navigation of
remember that the supplier’s diligence does not regulatory requirements, drafting and negotiating
end when the agreement is signed. No matter how contracts, prosecuting trademark and patent appli-
well the terms of the distribution agreement are cations, and complex commercial litigation.
negotiated and drafted, they are effectively useless
if the supplier cannot back up its claims for good

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