Santa Rita Hills Viticultural Area - Establishment and Judicial Challenge

By Robert Tobiassen (202) 927-7772

ATF issued a final regulation in T.D. ATF No. 454, that establishes the Santa Rita Hills American Viticultural Area (AVA) in California. Prior to the regulation becoming effective on July 30, 2001, Vina Santa Rita, a winery in Chile, filed suit in the United States District Court for the District of Columbia alleging that ATF was arbitrary and capricious in issuing the regulation and that the establishment of the Santa Rita Hills AVA infringed and diluted its trademark that employs "Santa Rita." (See, Sociedad Anonima Vina Santa Rita v. United States Department of the Treasury, et al, U.S. Dist Ct, DC, Civil Action No. 01-1573 (CKK).)

On August 13, 2001, in a lengthy memorandum opinion and order, the District Court denied the plaintiff's motion for a temporary restraining order (TRO) and preliminary injunction (PI) to enjoin the regulation from going into effect. The denial of the TRO and PI is only a preliminary ruling and is customarily followed by a ruling on the merits after a full hearing. However, subsequently the plaintiff voluntarily dismissed its lawsuit. In alleging that ATF was arbitrary and capricious in issuing the final regulation, Vina Santa Rita made three assertions: first, ATF was creating confusion among wine consumers in violation of the statutory mandate of the Federal Alcohol Administration Act by selecting the name "Santa Rita Hills;" second, that the ATF decision to select this name conflicts with the Lanham Act (the Federal trademark law); and third, ATF failed to consider alternative names. The memorandum opinion states that ATF articulated adequate reasons in the final rule to show that there is no confusion. Specifically, it notes that other wine labels bearing "Santa Rita" have been approved without any complaints or confusion and that other information on the wine label will inform the consumer about the origins of the wine from either Chile or California. Additionally, it notes that the evidence in the administrative record before the agency at the time it issued the regulation supported the application of the name Santa Rita Hills to this AVA. Regarding the allegation of conflict with the Lanham Act, the memorandum opinion states that some actual use is required before an infringement or dilution arises and that ATF has not used the name by merely establishing the AVA. Additionally, it observes that the Lanham Act recognizes an interplay between trademarks and geographical designation

and allows for the latter, and notes that the AVA is a designation that describes the geographic origin of the product. ATF is simply recognizing an existing geographic area. Finally, the memorandum opinion states that ATF has been consistent in its policy when establishing AVAs with names that include trademarks. ATF has rejected the name when confusion is present or has used modifiers such as "District", "Valley," or "Hills" to distinguish the AVA name. Regarding the allegation that ATF failed to consider alternative names, the memorandum opinion states that no alternative names had been seriously put forth during the notice and comment period, so there were no alternative names for ATF to have considered.

On the remaining counts alleging that by establishing the Santa Rita Hills AVA, ATF infringed and diluted the trademarks owned by Vina Santa Rita, the memorandum opinion states that these issues are not ripe for adjudication. Until a wine label is approved by ATF and used by a winery, the court cannot adjudicate whether a particular use results in an infringement or dilution. The court considered the remaining elements of harm and public interest and determined that they did not support a TRO and PI. p

Requirements for Paying Federal Excise Tax by Electronic Fund

By Phyllis St. Clair (513) 684-3334

Alcohol and Tobacco Excise taxpayers who are liable during any calendar year for a gross amount (tax due prior to decreasing adjustments) of $5 million or more in excise taxes must pay such taxes during the following year by Electronic Fund Transfer (EFT). This includes taxes imposed on distilled spirits, wines, or beer, or on tobacco products and cigarette papers and tubes. This requirement does not apply to taxpayers who are only liable for firearms and ammunition excise taxes, although they may voluntarily pay by EFT.

The term "taxpayer" includes a controlled group of business entities as defined in Title 28, United States Code, Sections 5061(e)(3) and 5703(b)(3). Examples of this type of business structure include, but are not limited to: parent-subsidiary controlled groups; brother-sister controlled groups, and combined groups. Fifty-one (51) percent stock ownership in a corporation need not be direct but may be acquired through an option to buy stock, attribution from partnerships, corporations, or estates and by family holdings. Therefore, if, in any calendar year, the combined liability of the controlled group is $5 million or more, then, during the following calendar (continued on Page 2)