Law Offices of John P. Connell, P.C.: Buying wine over the Internet from nationally known websites, such as wine.com or WSJwine.com, is a complicated process. Massachusetts laws prohibit consumers from purchasing wine directly from wholesalers, out-of-state retailers, and out-of-state wineries not in possession of a Massachusetts Winery Shipment License, issued pursuant to M.G.L. c. 138, § 19F. Indeed, Massachusetts consumers that appear to be purchasing alcoholic beverages through online retail websites actually do so through licensed, in-state retailers. In BAA Mass., Inc. v. Alcoholic Beverages Control Commission, 49 Mass. App. Ct. 839, 840 (2000), for example, the Massachusetts Appeals Court upheld a decision made by the Massachusetts Alcoholic Beverages Control Commission (ABCC), ruling that an out-of-state mail order beer/wine club (“BAA Illinois”) could only do business within the Commonwealth provided it did not deviate from an ABCC-stipulated “Agreement and Approval” permitting the beer/wine club’s operations.
In BAA Mass., Inc., the ABCC provided the following business structure was allowed under Massachusetts law: (1) “BAA Illinois” a non-licensed entity, could provide marketing services for the business; (2) “Lionstone,” the holder of a § 18B Certificate of Compliance license, could be the supplier, exporting alcoholic beverages from Illinois into the Commonwealth; (3) the §18 Massachusetts wholesaler/importer could be “International Beverage, Inc.;” (4) the retail package store receiving beverages from “International Beverage, Inc.” would be “BAA Massachusetts,” the holder of a package store license under §15; and (5) the transportation company which would deliver the alcoholic beverages to Massachusetts consumers would be “Adcom,” the holder of a Massachusetts license to transport and deliver alcoholic beverages under §22. This structure required that the parties apply for and obtain a retail package store license, and because retail licenses can only be held by Massachusetts corporations, the parties were required to incorporate “BAA Massachusetts,” a Massachusetts liquor store licensed pursuant to §15 of G.L. c. 138 to fulfill the purchases.
Similarly, in eVineyard Retail Sales, Massachusetts, Inc., v. Alcoholic Beverage Control Commission, 450 Mass. 825, 826, n. 1 (2008), the ABCC allowed Wine.com, Inc., “a corporation in the business of selling wine directly to consumers throughout the country” to do business in Massachusetts only through eVineyard Retail Sales- Massachusetts, Inc., “a wholly owned subsidiary of Wine.com, Inc.,” through which it sold wine to customers in Massachusetts, licensed by G.L. c. 138, §15.
These cases illustrate that purchasing wine from nationally operated websites “third-party providers” (or “TPPs”) requires the website operator to use a retail liquor store licensed in Massachusetts to complete the purchase instead of using a central or regional warehouse, as is allowable with most states. The TPP is allowed to host and maintain online sales portals on behalf of, and under the control of, the Massachusetts licensed retailer. Generally, the TPP is an unlicensed entity that is not able to sell alcoholic beverages within the Commonwealth and cannot have an interest in the actual sale of alcoholic beverages; rather the TPP may only facilitate online sales of alcoholic beverages for those entities properly licensed within each of the three-tier distribution system for a fee to be paid by the Massachusetts licensed retailer.
A key feature of these online sales portals is that they are branded with well-known and properly licensed trademarks, namely those of WSJwine.com, Zagatwine.com, Virginwine.com, and Laithwaiteswine.com. The website addresses for the sales portals bears the names of the trademarks rather than that of the licensed wine retailer. For example, a Massachusetts consumer may visit a well known website address such as www.WSJWine.com looking to purchase wine online for home delivery. Upon selecting the consumer’s home state of Massachusetts, the website redirects them to a specific page identifying the licensed Massachusetts retailer that has contracted with the TPP as the party fulfilling the online order to avoid any confusion as to the identity of the retail seller.
The TPP is able to offer national marketing strategies for promoting internet wine sales through the “co-branding” of the online sales portals of licensed retailers with well-known trademarks. The TPP often negotiates licensing arrangements with well known companies such as Dow Jones, Zagat, Virgin and Laithwaites Wines to use their trademarks in connection with the promotion and sale of wine products and pays the trademark holders a licensing fee for the use of their trademarks. The licensed retailer is generally not a party to any of these licensing agreements but the right to use the trademark is still part of the marketing service that the TPP provides to the licensed retailer and is included in the flat fee that the retailer pays to the TPP for their services.
Generally, the TPP will design, host, market and maintain the online sales portals, where the consumer can browse the products offered for sale, make selections and pay for their purchases of wine from the licensed retailer. The customer will attempt to purchase through websites such as WSJwine.com and the website will then ask the customer to verify that they are located in Massachsuetts and that they are at least twenty-one years of age. Once the customer confirms Massachusetts as the delivery state, the website will then redirect the consumer to the licensed Massachusetts retailer who can legally accept, fulfill and ship the order in the Commonwealth.
After a customer places an online order, the TPP will facilitate the payment authorization from the customer’s credit card and, after the licensed retailer formally accepts the customer’s order, the TPP will coordinate the collection and remittance of payment into an account that is controlled solely by the licensed retailer. Should the licensed retailer reject an order, the TPP will coordinate the credit back to the customer’s account. It is the Massachusetts licensed retailer, however, that sells the wine ordered over the internet and uses a common carrier, such as FedEx, to deliver the wine to the consumer’s address where the delivery person must check the receiving consumer’s identification to confirm that they are in fact of legal age.
CONTRIBUTED BY LESLIE A. BUCKLER
© Law Offices of John P. Connell, P.C., 2014.