Will Tequila Regulations Drive Us Loco? Luxco Thought So

[Julie Kappelman, Cite Checker 2017-2018]

In January 2017, the Trademark Trial and Appeal Board (“TTAB”) issued a ruling that rejected the argument that “tequila” was generic and permitted the applicant to register “TEQUILA” as a certification mark.[1] The certification mark for “TEQUILA” was issued on June 20, 2017, with the registration number 5225126 to the applicant, Consejo Regulador del Tequila (CRT),[2] a Mexican nongovernmental entity entrusted with authority to monitor, regulate, and control tequila from the Mexican government. This decision in the context of international agreements shows how intellectual property rights and international trade agreements can conflict, as well as how different federal agencies view one another’s jurisdictions.

BACKGROUND

Factual History

Tequila is a distilled alcoholic beverage made from a cultivar of blue agave (Agave tequilana), also known as blue tequila Weber agave. The plant has certain specific requirements to survive: the plant grows in specific high-altitude climates, and a native bat pollinates the agave flowers. Tequila is made by removing the piña of the agave plant (heart), processing and roasting it, and collecting a sugary clear liquid that is fermented and distilled into alcohol. The beverage’s name comes from the city of Tequila. A pre-Columbian fermented beverage known as pulque was made from the agave plant. Tequila was first produced in the sixteenth century by Spanish conquistadors. As their brandy supply dwindled, Spanish conquistadors used the Agave tequilana. Tequila is traditionally drunk “neat.” In 1978, Mexico registered the Appellation of Origin of Tequila in accordance with the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.[3]

The regulations regarding tequila are an Official Mexican Standard (Norma Oficial Mexicana, or NOM).[4] NOM’s in Mexico are propagated by the Dirección General de Normas (DGN), a department of the Secretary of the Economy. Mexican law today states that tequila can only be produced in the state of Jalisco and limited municipalities in Guanajuato, Michoacan, Nayarit, and Tamaulipas.[5]  The Mexican federal government accredited and authorized CRT, a private, nonprofit entity, to exercise exclusive authority to regulate the use of the term “tequila,” which it has done since 1994. A NOM identifier is a number on a tequila bottle label indicating that the tequila meets government standards. Members of the CRT include tequila producers, agave growers, bottlers and marketers, and members of the Mexican government (Secretary of Economy, Ministry of Health, Ministry of Agriculture and Rural Development, and Bureau of Consumer Protection).

Procedural History

In 2003, CRT submitted an application to the USPTO to register “Tequila” as a certification mark for “spirits distilled from the blue tequilana weber variety of the agave plant.” Owned by one party and used by others, a certification mark denotes specific characteristics may pertain to the “regional or other origin, material, mode of manufacture, quality, [or] accuracy”[6] of a product. The mark was published in the Official Gazette in December 2008.[7] CRT amended its certification statement on June 26, 2009.

Four potential opposers responded to the application’s publication.[8] Luxco, Inc.—a St. Louis-based alcohol supplier—opposed the registration on several grounds.[9] In the resulting lawsuit, Luxco, Inc. v. Consejo Regular del Tequila, the primary residual issue was whether “tequila” was a generic term. The other claims had been waived over the course of proceedings. CRT maintained its argument that Luxco lacked standing to bring the opposition, but TTAB held that Luxco satisfied the requirement for standing related to an allegedly generic mark.[10]

Luxco bore the burden to show, by a preponderance of the evidence, that “tequila” was a generic term. TTAB undertook the two-part test in determining whether “tequila” was generic and thus ineligible as a certification mark: (1) what is the genus of the goods at issue?, and (2) does the relevant public understand that term to refer to the genus of goods?[11] For the latter inquiry, TTAB stated that geographic origin need not be the primary meaning to consumers, but it must be a significant component.[12]

TTAB classified tequila within the genus of spirits distilled from blue Weber variety of agave,[13] and stated that the relevant public was the purchasing (or consuming) public. Luxco attempted to broadly define the relevant public to hard liquor purchaser; TTAB determined that the relevant public was not all hard liquor purchasers, but those who purchased and consumed tequila.[14] TTAB expressed that Luxco’s definition of public and its consumer survey methodology aimed to present data in their favor.[15] Rather than purchasers of hard liquor, the relevant public was defined as purchasers of tequila.[16] In its assessment of the public perception of tequila, TTAB reviewed federal regulations, dictionary definitions, website references, advertisements and tequila bottle labels, expert reports, and consumer survey results.[17] It concluded that the public perception connected tequila with Mexico. Consequently, CRT could hold a mark for tequila and have the associated rights to control public perception of the product and its quality.[18]

Effects of Luxco: Certification Marks and International Trade

In regard to the legal issues presented, the case decision conforms with precedent in many ways. The surviving argument evaluated upon appeal, that the term tequila is generic, was not well supported by the evidence. The newspapers, advertisements, and surveys considered all tended to show support for registering the mark. Although the United States, unlike other countries, does not have a specific designation for geographic indicators, the USPTO has recognized geographic origin within certification marks. The alcohol industry receives such recognition regularly.

In TTB’s Industry Circulars, a tequila-Mexico connection is like the locational associations for Scotch, Cognac, or Champagne. TTAB pointed out that parties did not show how the USPTO has treated other distilled spirits geographic designations, and whether tequila was treated differently than or similarly with Champagne, Cognac, Scotch, or other types of hard liquor with locational associations.[19] Once these products develop recognition, certification marks protect the quality associated with the product. Cheeses and other products likewise get such protection, where the original retains control over brand and consumer perception. Terroir of consumable products have been provided trademark protection to discourage and restrict others from claiming their products possess the same characteristics. “Burgundy in Burgundy, Chianti in Chianti”[20] are the affiliations that producers in these regions strive to protect. Likewise, Trappist beer, protected by the above-referenced International Trappist Association and frequently ranked among the top beers in the world[21], merits rights to exclude others from benefiting from product reputation and consumer goodwill. Additionally, Mexico’s prior endeavors to protect its association with tequila as a national product show motive for tequila to have similar locational associations. Mexican diplomats used international trade to prevent South Africans from calling their alcoholic beverage derived from agave “tequila”.[22] Annex 313 of NAFTA states that Canada and the United States shall recognize Tequila and Mezcal as products originating from Mexico and shall not permit the sale of any products as Tequila and/or Mezcal, unless they have been prepared in Mexico, in accordance with the laws and regulations of the nation.[23]

In these ways, the decision does not seem exceptionally novel—Tequila can be protected like Scotch or other alcoholic beverages, and associations may exercise power in monitoring, controlling, and setting the standard. Like the Scotch Whisky Association[24] or the International Trappist Association,[25] the CRT advocates and conducts itself to ensure the quality of an alcoholic beverage. The CRT has pursued these rights for tequila in recognition of the climate, soil, plant species, and human activity[26] associated with the beverage. Cases that have subsequently cited Luxco do not indicate a significant shift in the law in this regard.[27]

Attention to the Luxco decision arguably developed from factors other than its novelty. The time frame before decision (in this case, from a 2003 application to the 2017 decision) often engenders more interest. The fact that it’s tequila also seems to play a role in the special attention granted.[28] Additionally, United States regulations regarding alcohol seem to get extra attention, perhaps due to a residual impression of Prohibition-era rules.

However, the Luxco decision holds uncertainty in other ways that deserves attention. To understand how the Luxco decision could affect international trade agreements entered into by the United States, it is important to note international agreements signed between the United States and Mexico. The NAFTA Annex shows agreement between the two countries on how tequila will be treated in trade between Canada, the United States, and Mexico. Similarly, the United States Trade Representative had reached an agreement with Mexico specific to tequila. Mexico’s “initial position” in negotiating this agreement was to require all Mexican-made tequila to be bottled in Mexico.[29] Part of the United States’ opposition to this position was development by American companies to build bottling plants and develop brands in the United States. The United States is Mexico’s largest export market for the beverage tequila and accounts for approximately half of Mexico’s tequila production.[30] American demand for tequila has continued to grow since 2002.

By the end of negotiations—two years and 10 rounds of negotiations—, the nations reached agreement. The TTB and USTR developed a Memorandum of Understanding (MOU),[32] and the TTB shortly thereafter issued an Industrial Circular for Tequila,[33] as it had agreed to do in the MOU. The MOU notably required the USTR to notify the TTB of revisions to NOM and other relevant regulations and standards,[34] for the TTB to implement.

The timing of CRT’s registration application coincides with the initial negotiations for this agreement. While it is not a government entity, CRT acts with the authorization of the Mexican government in matters related to tequila. By securing protections under American law, CRT was able to obtain what Mexico wanted: exclusive rights to define tequila and, consequently, an ability to restrict it to Mexico.

In Luxco, TTAB concluded the registration of the certification mark was appropriate, because the mark was not generic. It seemed to stress the importance of CRT’s existing authority being, at least in part, coextensive with that of the certification mark: “Tequila may not be exported from Mexico unless Applicant issues a certificate of export.”[35] TTAB seemed to consider the extension of this recognition by American federal trademark law reasonable because CRT had legitimate control. However, the mark’s registration conflicts with the agreement reached between Mexico’s SE and the USTR. This decision may be particularly relevant as the United States participates in renegotiating NAFTA.

Luxco demonstrates the relationships between the USPTO, the TTB, and the USTR. These three federal agencies all deal with international alcohol products, although in different ways. The spheres of their influence overlap, but an agency cannot legitimately exercise control over another agency’s subject area. Institut National Des Appellations gave recognition to TTB’s sphere and limited itself to the trademark issues presented. It was held that “We deal here only with the issue of registrability and what may be registered in the PTO. It is not our concern or that of the PTO what [applicant][sic] must do to comply with the BATF [now TTB][sic] labelling requirements.”[36]

In Luxco, TTAB notes that the USPTO has flexibility in recognizing foreign law.[37] This flexibility introduces further likelihood that the agency’s decisions will have reverberating influence on agencies that are involved in alcohol regulation and in international trade. The Luxco decision makes the MOU between the TTB and USTR moot. By registering the mark ‘tequila’ to CRT, TTAB’s decision effectuated Mexico’s control over the tequila market, and allowed it to secure exclusive rights to define ‘tequila.’

The Luxco decision shows that trademark law can at times supersede international agreements to the contrary. After the decision, Luxco announced plans to construct a distillery in Mexico to produce its El Mayor and Exotico tequilas.[38] Luxco’s subsequent conduct demonstrates how rulings like this can directly affect international trade.

Trademark law is not required to consider the ramifications on international trade before it makes a decision. Nor would it necessarily be positive if it must take into account international trade implications; for instance, if TTAB denied CRT’s application to register “TEQUILA.” Yet the decision shows that TTAB, in determining whether to provide trademark protection to an international applicant, may to some degree determine the extent of other agencies’ authority. In Luxco, there is some overlap with TTB that is not considered. The Industry Circular from the TTB shows recognition for complying with applicable Mexican laws and regulations. Furthermore, 27 C.F.R. § 5.22(k)(2) provides that the appropriate TTB officer has the authority to determine whether something is generic or not; whether it still holds geographic significance.[39] In this case, TTAB has made that decision for them.

Conclusion

Attention to the Luxco decision is warranted, although not for the issues immediately presented in the case. The legal precedent, industrial practice, and common sense weighing in favor of TTAB’s decision that the registration of the mark “TEQUILA” could not be denied on the basis of genericness. The Luxco decision contributes to the understanding of international law and intellectual property because the actual decision in Luxco potentially set a precedent regarding trade and intellectual property.

For these reasons, the Luxco decision should be noted for the context of international trade. As the United States, Mexico, and Canada are renegotiating NAFTA, the decision from Luxco may have future repercussions for products or services associated with a particular place, material, quality, method of production, or other characteristic that a nation could use to trademark its products and thereby necessitate imports for purchasers and consumers constituting demand abroad.

[1] Luxco, Inc., v. Consejo Regulador del Tequila, A.C., Opposition No. 91190827, T.T.A.B. (Jan. 23, 2017).

[2] TEQUILA, Registration No. 5,225,126.

[3] TEQUILA, Registration No. 669, (Mar. 6, 1978), WIPO, available at https://bit.ly/2GMO3MB.

See also Lisbon Agreement for the Protection of Appellations of Origin and their International Registration, Oct. 31, 1958, 923 U.N.T.S. 189. Twenty-six member countries originally signed the Lisbon Agreement; neither the United States nor Canada were members of the treaty.

[4] Norma Oficial Mexicana, NOM-006-SCFI-2005, Bebidas Alcohólicas-Tequila-Especificaciones, Diario Oficial de la Federación [DOF] 06-01-2006 (Mex.); Norma Oficial Mexicana, NOM-006-SCFI-2012, Bebidas Alcohólicas-Tequila-Especificaciones, Diario Oficial de la Federación [DOF] 13-12-2012 (Mex.).

[5] Norma Oficial Mexicana, NOM-006-SCFI-2005, Bebidas Alcohólicas-Tequila-Especificaciones, Diario Oficial de la Federación [DOF] 06-01-2006 (Mex.);

[6] 15 U.S.C. § 1127. See also 15 U.S.C. § 1054(4) (stating that certification marks shall be registrable in the same manner and with the same effect as trademarks).

[7] Notice of Publication Under §12(a), Serial No. 78286762, Off. Gaz. Pat. & Trademark Office (USPTO Dec. 30, 2008).

[8] Potential opposers were Tequila Bulk Importers Alliance; Luxco, Inc.; Constellation Spirits Inc.; and Distilled Spirts Council of the United States, Inc.

First 90 Day Request for Extension of Time to Oppose for Good Cause, Reg. No. 78286762, T.T.A.B., (Jan. 5, 2009) (request by Luxco, Inc.); First 90 Day Request for Extension of Time to Oppose for Good Cause, Reg. No. 78286762, T.T.A.B., (Jan. 15, 2009) (request by Constellation Spirts Inc.); First 90 Day Request for Extension of Time to Oppose for Good Cause, Reg. No. 78286762, T.T.A.B., (Jan. 26, 2009) (request by Tequila Bulk Importers Alliance); First 90 Day Request for Extension of Time to Oppose for Good Cause, Reg. No. 78286762, T.T.A.B., (Jan. 26, 2009) (request by Distilled Spirits Council of the United States). Reviewing the prosecutorial history reveals that of these four opposers, Constellation Spirts Inc. is only one that did not submit a 60 Day Request for Extension of Time to Oppose Upon Consent.

[9] Notice of Opposition, Opposition No. 91190827, Serial No. 78286762, T.T.A.B., (June 29, 2009).

[10] Luxco, Inc., No. 91190827, supra note 1, at 6-9.

[11] Id. at 12.

[12] Id. at 13.

[13] Id. at 14.

[14] Id. at 40.

[15] Id. at 40-41 (applicant’s consumer survey expert quoted as saying it was too broad, “unless one would assume that anyone purchasing products with a certain percentage of alcohol would belikely to purchase any such products no matter the type.”).

[16] Id. at 15.

[17] Id. at 13-46.

[18] “[A]ny lack of focus on geographic origin in advertising could also be because the geographic origin is commonly known and does not serve to distinguish brands” and, moreover, several examples allude to a Mexican origin, such as by having a Spanish brand name, Spanish text in the advertisement, or having a Mexican theme.” Id. at 27.

[19] Id. at 23-24.

[20] Luxco, Inc., No. 91190827, supra note 1, at 33 (quoting New York Times news article from record).  

[21] Top Rated Beers, BeerAdvocate.com, https://www.beeradvocate.com/lists/top/ (last visited Sep. 27, 2017). These rankings were higher see e.g., Tagliabue John, Cult Beer Alters Town, but Not the Monks Who Make It, NYTimes.com, (Feb. 20, 2013) http://www.nytimes.com/2013/02/21/world/europe/cult-beer-westvleteren-12-gives-belgian-town-a-lift.html.

[22] Luxco, Inc., No. 91190827, supra note 1, at 33-4 (quoting Associated Press news article for “First tequila from outside Mexico” from November 2003, introduced into record by Trademark Examining Attorney).

[23] North American Free Trade Agreement, Annex 313, Can.-Mex.-U.S., Dec. 17, 1992, 32 I.L.M. 289 (1993) available at NAFTA Secretariat, https://www.nafta-sec-alena.org/Home/Texts-of-the-Agreement/North-American-Free-Trade-Agreement?mvid=2.

[24] Scotch Whisky Association, http://www.scotch-whisky.org.uk/ (last visited Sept. 27, 2017).

[25] International Trappist Association, http://www.trappist.be/en/pages/the-international-trappist-association (last visited Sept. 27, 2017).

[26] Designation of Origin, Crt.org, https://www.crt.org.mx/index.php?option=com_content&view=article&id=73&Itemid=321 (last visited Sept. 26, 2017).

[27] See e.g., In re ABK Betriebsgesellschaft der Aktienbrauerei Kaufbeuren GmbH, 2017 TTAB LEXIS 227 (July 7, 2017) (holding that “rose beer” was generic; the public does not have required associative understanding); In re Field Roast Grain Meat Co., 2017 TTAB LEXIS 352 (Sept. 6, 2017) (affirming Trademark Examining Attorney’s refusal of registration on basis it is generic or merely descriptive); In re Empire Tech. Dev. LLC, 2017 TTAB LEXIS 232, 123 U.S.P.Q.2d (BNA) 1544 (Aug. 3, 2017) (affirming refusal of registration).

[28] See e.g., David Kluft, Distilling the ‘Tequila’ Trademark Trial and Appeal Board Case, Law360 (July 21, 2017).

[29] Office of the United States Trade Representative, United States and Mexico Reach Agreement on Tequila, 20508 at 2 (Jan. 17, 2006).

[30] Id. at 2.

[31] Distilled Spirits Council, ¡Tequila Olé!, Distilled Spirits Council (updated February 2018), available at https://www.distilledspirits.org/wp-content/uploads/2018/02/Tequila-2017.pdf

(last visited April 9, 2018).

[32] Memorandum of Understanding Between the Office of the United States Trade Representative and the Alcohol and Tobacco Tax and Trade Bureau of the United States Department of Treasury with Respect to the Implementation of the Agreement between the Office of the United States Trade Representative and the Secretaría de Economía of Mexico on Trade in Tequila, (Dec. 16, 2005) [hereinafter Memorandum of Understanding], available at https://www.ttb.gov/pdf/tequila_mou_ttb_ustr.pdf.

[33] Alcohol and Tobacco Tax and Trade Bureau, Standards of Identity for Tequila, Industry Circular Number: 2006-3 (May 5, 2006).

[34] Memorandum of Understanding, supra note 32, at Part III(4)((a)).

[35] Id. at 56.

[36] Luxco, Inc., No. 91190827,supra note 1, at 49 (quoting Institut National Des Appellations D’Origine v. Vintners Int’l Co., 958 F.2d 1574, 22 USPQ2d 1190, 1197 (Fed. Cir. 1992).

[37] Id. at 74.

[38] Sam Coyne, “Luxco announces new tequila distillery plans,” The Drinks Report (last visited Sept. 24, 2017) available at http://www.thedrinksreport.com/news/2017/17084-luxco-announces-new-tequila-distillery-plans.html.

[39] 27 C.F.R. § 5.22(k)(2).

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