Nguyen: Pay to Play Investigation of Craft Beer Industry Comes to a Head

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Wednesday, May 13, 2015

AiVi Nguyen, GoLocal Worcester MINDSETTER™

Even if you are only a casual beer drinker and not a self-identified beer nerd or craft beer attorney like myself, the recent investigation of how the craft beer industry conducts business in Massachusetts should pique your interest because it may ultimately affect your access to certain beers.

Have you ever wondered why some beers always seem to be on tap at every bar you go to while your favorite craft beer from that small awesome brewery can only be found in hipster dive bars in rotation once a quarter?

There are a number of reasons why specialized craft beers aren’t found in most bars or restaurants. Some of it has to do with the bar owner’s determination that their customer base just doesn’t want non-mainstream beers. Some of it has to do with the financial limitations of the breweries and whether they have the means to distribute their beer. And sometimes it’s the preferences of the brewers that dictate where their beer is served – only places where the beer is truly appreciated – usually hipster dive bars.

What absolutely cannot be a factor in whether a certain craft beer has a draft line at a bar is whether the bar owner receives a payment or kickback, a practice commonly known as “pay to play.”  In Massachusetts there are laws against price discrimination and inducement when it comes to the sale of alcoholic beverages. Prices for beer are set on a monthly basis and must apply consistently to all retailers. A brewery, its licensed resellers or its distributors cannot sell its beer at discounted prices or quantities between different bars and cannot offer any perks to bar owners for putting the beer on tap.

That’s how it’s supposed to work.

Up until very recently, it appears these laws were not enforced by the Alcoholic Beverages Control Commission. That is, until after one late October night last year, when Dann Paquette, co-owner of the Somerville craft brewery Pretty Things Beer & Ale Project, launched a Twitter indictment against the pay to play practice in Boston, naming names, like Bukowski’s Tavern and The Lower Depths, accusing them of accepting perks for serving certain beers. Ambiguous, Paquette’s Tweets were not. Here are just some examples:

“Can anyone guess why we’re not served @bukowskiboston or @LowerDepthsBOS and other (sic) from that group? Correct, we won’t illegally buy lines”

“Boston is a pay to play town and we’re often shut out for draft lines along with many beers you may love.”

“Ever heard the term ‘committed lines’? This is what it means. Breweries buy draft lines so their lame beers aren’t irrelevant.”

“But seriously, someone walks into your bar and offers you $10k a year to pour their beer?”

The accusation is that the pay to play practice is pervasive and includes activities like selling kegs to bars at discounted prices, making cash payments to bar owners and providing bars with expensive equipment in exchange for guaranteed draft lines.

Well, apparently, the ABCC heard Paquette’s cry for justice and launched an investigation soon after, conducting interviews and issuing subpoenas to breweries.

The investigation has been largely quiet for the last 6 months, until a few weeks ago when the ABCC issued a hearing notice to Craft Beer Guild, LLC, one of the Commonwealth’s most prominent craft beer distributors. Craft Beer Guild, which distributes many high profile beers in Massachusetts, like Yuengling, Brooklyn Beer Co., Allagash, Mayflower, Abita, Sierra Nevada and Lagunitas, is accused of offering incentives of “substantial value” and charging different prices for the same product to induce some retailers to sell the beer that Craft Beer Guild distributes.

Ironically, Craft Beer Guild is the distributor for Pretty Things Beer & Ale Project.

The hearing is scheduled for June 23, from 11:30am – 3:30pm. Hearings before administrative agencies follow different procedures, have different standards and agencies do not have to follow the same rules of evidence as the courts. At the hearing, the ABCC and Craft Beer Guild will be allowed to present documentary evidence and witness testimony to support their positions.

After the hearing, the ABCC will issue a written decision. If a violation is found, the ABCC will impose a penalty which could be suspension, revocation, cancellation or modification of Craft Beer Guild’s license. Craft Beer Guild would then have 30 days to appeal the decision to the Superior Court. If the penalty is suspension, Craft Beer Guild may petition to the ABCC to pay a fine in lieu of suspension. Decisions of whether to accept a fine in lieu of suspension are totally up to the ABCC.

The decision will likely determine the future of how the craft beer industry conducts business in the Commonwealth and may affect how beer is experienced by everyone, from casual drinker to beer nerd alike.

Aivi Nguyen is a trial lawyer with the Law Firm of Bowditch & Dewey, LLP in Worcester.

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