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The Sparkling Wine War
Pitting Trademark Rights Against Geographic Indications
By Carol Robertson
"Masquerading as Champagne might be legal, but it isn't fair," reads a recent ad sponsored by the Office of Champagne, USA, a trade group dedicated to the promotion of the interests of French champagne producers. What is their complaint?—that certain U.S. winemakers are legally entitled to produce sparkling wine in this country and label it "champagne."

The Historic Mystique of Champagne
Champagne (in French "le champagne") is a beverage produced in La Champagne. This region of Northeastern France is known for its chalky soil, which contributes to the unique flavor of a sparkling wine that has long been a favorite celebration beverage—at marriages, births, and, of course, the New Year. Since the early nineteenth century, American vintners have attempted to produce a sparkling wine that would rival champagne. In 1842, Louis Longworth of Cincinnati (known as the father of the American wine industry) produced a bubbly wine from the native Catawba grape that was compared favorably to the French product. In 1876, a New York Times correspondent encountered a sparkling wine called "Eclipse" at Buena Vista Winery in California. By the end of the nineteenth century, a number of U.S. producers were making sparkling wine and were not hesitant to call their products "champagne." Among these were the Korbel brothers, who began producing a sparkling wine called "champagne" in California in 1882.

The misuse of place names to sell wine is as old as the American wine industry. Borrowing the name of a well-regarded wine was a shorthand way for new winemakers to impart some of the cachet of a better-known beverage to a new American product. Ironically, Prohibition facilitated the willingness of the American consumer to substitute an inferior locally produced sparkling wine for the higher-quality French product that only remained accessible to the wealthy. The weekly "Talk of the Town" feature in the New Yorker from the late 1920s had numerous items about these connoisseurs. For example, bon voyage gifts of legal champagne were presented to travelers heading abroad once the ships were safely out of the United States' territorial waters. The less well-off contented themselves with less than authentic "champagne" more likely produced in a nearby warehouse from cheap grapes or with so-called medicinal champagne that could still legally be sold under the Volstead Act. And when Repeal enabled Americans to once again legally toast their special events, their inexperienced palates could not appreciate the difference between French champagne and an American sparkling wine bearing the same name.

To them, the word "champagne" had become synonymous with any sparkling wine. This was the situation during much of the twentieth century. Sparkling wine was inexpensive to make, particularly if the producer selected a method of production that was less costly and time intensive than the m&éthode champenoise used in Champagne, such as by injecting finished wines with carbon dioxide or inducing secondary fermentation in large tanks of still white wine made from inexpensive grapes. If anything, the word "champagne" usually connoted a higher-quality wine and thus was a desirable addition to a sparkling wine label. For example, when Jack and Jamie Davies acquired the old Schramsberg winery in 1965, they produced a well-regarded sparkling wine using the méthode champenoise that was first served at state dinners at the White House during the Nixon administration. They called it "Schramsberg Sparkling Champagne." (The word "champagne" has since been dropped from the Schramsberg label.)

Place Name Versus Trademark
There is a conflict between European wine producers and American wine producers over whether greater importance should be placed on the name of a place where a wine is produced or the brand under which it is sold. In America, historically, the trademark has been the most important feature, not the provenance of the wine. But European producers have long recognized the importance of "terroir"—that wine made from grapes grown in a particular location will have a unique taste. The word "terroir" has no English translation. It means place, certainly, but also it implies soil characteristics, climate, and altitude, for example. It represents also the learnings about wine production passed on from an earlier generation of winemakers to their followers, that is, the craft of the winemaker. France's first laws designed to protect geographic areas were enacted in the nineteenth century, as a means to deter fraudulent indication of origin. In 1919, the French created the Appellation D'Origine Contrôl&ée (AOC), which required that the true geographic origin of a wine be accurately represented and which remains in effect to this day. Starting in 1989, the European Union (EU) passed a number of regulations governing wine products with a goal of preventing descriptions that were incorrect or were likely to cause confusion or to mislead consumers. These regulations were intended to apply not only to wines produced in Europe but also to wines originating in other countries. They specifically prohibit the use of the name of a given region in the EU to describe an imported wine.

American View: Primacy of Trademark
As noted, American law has given primacy to protection of trademarks over geographic location; it is a brand-driven economy. Since the early days of wine production in the United States, wineries have gone to great lengths to protect their trademarks. As early as 1910, Italian Swiss Colony sued another wine producer in an attempt to protect its trademark for its Chianti-style wine. As the wine economy has become more global over the past 20 years, producers have grown more and more conscious of the importance of their brands and have gone to greater and greater lengths to protect them. The goodwill associated with a well-known wine label can translate into a premium price and substantial profits.

Europe's Stance: Geography Controls
For comparable reasons, Europeans wish to protect their place names. The French have long railed against the common practice of U.S. winemakers to indiscriminately borrow French place names—such as Champagne, Burgundy, or Chablis—to label wines that do not come from these specific regions and that do not even closely resemble them. Lawsuits against this practice in the United States date back to the early days of wine production and establish that these European place names have become, at least in part, generic or semi-generic terms for wine types on American wines. The Europeans want to reclaim these semi-generic names for use only on wines grown and produced in the original appellations. What the Americans perceive as long-established trademarks related to generic names, the French view as deceptive. While American law, accordingly, has established a wine labeling system that seeks to protect these trademarks, countries forming the EU have developed a regulatory framework separate and apart from trademark designations, designed to identify and protect the geographic regions historically recognizable as sources of well-established and well-regarded products—such as champagne (so-called geographic indications).

A Case for Geographic Indications
It is only recently that geographic areas, such as the Napa Valley, evoke any particular qualities in an American's mind. With respect to the identification of geographic origin, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the federal agency responsible for wine regulation (the ATF), first established a formal appellation program for wine in the United States in 1978. Current regulations separate place names into three different classes: generic, semi-generic, and nongeneric. A geographic indication is deemed generic if the name, while "originally having geographical significance," now merely designates a "class or type of wine." (An example of a generic name is vermouth.) Nongeneric names are those that can only be used "to designate wines of the origin indicated by such name," such as Californian or French, or that become "distinctive designations" when they are "known to the consumer and to the trade as the designation of a specific wine of a particular place or region, distinguishable from all other wines." These include Bordeaux Rouge and Médoc. Semi-generic names are those that currently have "geographical significance" but also designate "a class or type of wine." If a semi-generic name is used for a wine that is from a region other than that indicated by the name—such as a sparkling wine produced in California—the label must designate the wine's true place of origin, and the wine itself must reflect the qualities typically associated with the semi-generic name. Under these regulations, a California wine producer, if using a semi-generic name such as "champagne," would also have to identify California as the place of origin—thus "California Champagne."

Because geographic indications can—much as trademarks—create value, and also because they are a means for European winemakers to continue their historic dominance in an industry that has become increasingly globalized, a conflict has developed between those who seek to protect their established brands, such as Korbel (which has called its California sparkling wine "champagne" since the late 1800s), and those who want to protect the image of traditional place names against interloping products that weaken their prestige. The regulations of the EU would bar from the market a California sparkling wine that bears the word "champagne" in its label on the grounds that this label would mislead the customer. According to this view, "champagne" describes not any sparkling white wine, but only sparkling white wine produced in the traditional manner in the Champagne region of France from grapes grown there.

International Protection of IP
This conflict came to the forefront in negotiations in December 1993 for the International Agreement of Trade-Related Aspects of Intellectual Property Rights (or TRIPS). Recognizing wine appellations as valuable intellectual property rights, article 23 of this agreement provides an enhanced level of protection for geographic indications for wines and spirits. The principal aim of this section is to prevent geographic indications identifying wines from becoming generic terms. Under provisions that took effect in 1996, all signatory countries, which include the United States and member countries of the EU, agreed to protect under their laws geographic indications. The major thrust of TRIPS is to ensure that consumers are not deceived by misdescriptive geographic references on wine labels. Accordingly, TRIPS absolutely prohibits the registration of any trademark containing a false geographic indication as a source of wine. However, article 24 of TRIPS built in certain exceptions, and those exceptions protect the continued use of geographic indications that were in trademarks in actual use before TRIPS became effective—such as Korbel's "California Champagne."

2006 Agreement on Trade in Wine
Because of these exceptions to TRIPS, European producers have not believed that the United States is serious about protecting geographic indications, despite the fact that bilateral discussions between the United States and the EU to establish mutually acceptable guidelines to protect the rights of European wine producers—but also to protect U.S. trademark owners—continued over the decade following the signing of TRIPS. Finally, on March 10, 2006, the United States and the European Union entered into an agreement intended to resolve this "wine war" (Agreement on Trade in Wine). This agreement attempts to settle differences concerning winemaking practices and the labeling of a wine's place of origin. The first substantive portion of the agreement prevents either party from blocking the importation of wine on the basis of the other's winemaking practices. This section is viewed as benefiting American wine producers who may export wine produced by techniques that are banned in Europe, such as adding wood chips to give the product an enhanced oak flavor. In addition, however, the United States pledged to seek a change in legal status for a set of 17 semi-generic terms to restrict their use solely to wines originating in the applicable EU member state and to ensure that these terms are only used on wines produced in the EU. These terms are Burgundy, Claret, Chablis, Champagne, Chianti, Malaga, Marsala, Madeira, Moselle, Port, Retsina, Rhine Wine, Hock, Sauterne, Haut Sauterne, Sherry, and Tokay.Nonconforming wine labels are to be blocked from the market.

However, there are certain exceptions in the agreement, most notably a grandfather clause to protect winemakers who used an otherwise prohibited semi-generic term if the use occurred only on labels for wine bearing the brand name for which the applicable Certificate of Label Approval (COLA) was issued by the secretary of the treasury before the date of signing of the agreement. Congress codified these provisions as part of the Tax Relief and Health Care Act of 2006. In return, the EU promised reciprocal treatment for "names of viticultural significance" in the United States, such as "Napa," and in May 2007 Napa became the first U.S. wine region to receive geographic indication status within the European Union.

Not surprisingly, European wine producers reacted with outrage to the terms of this agreement. In their view, the EU made a bad deal in accepting American production practices and agreeing to a grandfather clause that sanctions the continued use of semi-generic terms by the larger American wine producers. By some accounts, as much as 50 percent of bottles of sparkling wine sold in the United States carry the word "champagne" on their labels. The legal position taken by American producers is that this term has become generic for a quality sparkling wine and that they have long-established valuable trademark rights to those names that they should be allowed to keep. As the wine economy becomes more global and grows more competitive, however, there is a real risk that the names of popular U.S. wine-producing regions such as Napa will be increasingly used on bottles of wine produced outside of the United States. Therefore, at least a few U.S. winemakers have joined in a call to protect geographic indications.

And the Controversy Continues
While they continue to work out their legal differences in continued trade negotiations, French champagne producers are escalating their public relations campaign—called "Unmask the Truth." Besides placing high-profile advertising in national publications, the Office of Champagne, USA, has issued press releases and has engaged consumers in a high-profile movement, including sponsoring an online petition, to put pressure on U.S. lawmakers in support of a law prohibiting misleading labels. They have learned that pressing their message solely through trade negotiations has not been effective and that other methods, such as developing allies among U.S. winemakers, implementing consumer advocacy, and high-profile media messaging, may be a more effective way to achieve their goal of limiting the use of the term "champagne" to the sparkling wine produced in La Champagne.

Robertson is corporate counsel at the Clorox Company in Oakland, California. Her e-mail is carol.robertson@clorox.com.

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