Judge Sides with Gallo, Proximo Appeals

FILED APRIL 20, 2012

Dear Client:

The case of the two tequilas continues. Proximo is appealing a decision made by a California District court that ultimately sided with E&J Gallo in a trademark infringement case involving 1800 Tequila and Familia Camarena. On January 30 the court granted Gallo's partial summary judgment motion, but they did not officially close the case until April 4 because Gallo and Proximo were trying to settle out of court. Here's what you need to know.

Both parties asked the judge for summary judgment on their fourth counterclaim at the end of 2011. Proximo as the counterclaimant asserted that Gallo falsely stated it was the "sole source" of Camarena tequila when applying for the trademarks, while knowing that Tequila Supremo manufactures the tequila. It also argued that Gallo cannot be the owner of the trademark because "it is not the manufacturer of the tequila."

SOLE SOURCE ARGUMENT. The court did not agree: "This Court finds that Gallo makes no representations in its applications that it is the 'sole source' of the tequila, manufacturers the tequila, or controls the quality of the tequila.. Rather than claim that it's the sole source or manufacturer of the tequila, Gallo represents that it is the owner of the mark."

Furthermore, "Counterclaimants' 'sole source' theory appears to be based on outdated trademark law.. Because of this changing rationale and growth in the practice of trademark licensing and franchising, a trademark is not necessarily an indicator of source."

TRADEMARK OWNERSHIP ARGUMENT. Proximo also argues that Gallo cannot be the owner of the trademark because "it is not the manufacturer of the tequila.. However, this argument does not establish that Gallo is not the owner of the mark as a matter of law. Gallo correctly points out that it may own trademark rights in the bottle design even though it is the distributor of the product," says the court.

Gallo and Tequila Supremo both signed a contract specifying "that Tequila Supremo owns the word marks associated with Camarena Tequila and Gallo owns the bottle designs and trade dress of the packaging. The Tequila Supply and Distribution Agreement between Gallo and Tequila Supremo provides, in relevant part, that Gallo shall have the right 'to use the Camarena family name in connection with [the] branding, marketing, and promotion of the tequila product and Gallo shall retain ownership of all 'design work' developed in connection with the tequila product, such as bottle design."

Gallo also notes that it does not directly control the day-to-day operations of Tequila Supremo, but points out that the two companies "work together to ensure the quality of Familia Camarena tequila" in accordance with their agreement.

The court's conclusion? Gallo does, in fact, own trademark rights to the brand and was not attempting to deceive the US Patent and Trademark Office in its applications.

THE DECISION. In all, the court finds that Proximo failed "to establish as a matter of fact and law that Gallo made false misrepresentations on its trademark applications."

So Proximo Wednesday (April 18) filed paperwork asking the Ninth Circuit Court of Appeals to hear their case. Stay tuned..

To read background on the case, click here: http://www.winespiritsdaily.com/publications_daily.php?id=1164

ISLANDS PROPOSE RUM COVER OVER EXTENSION

The US Virgin Islands and Puerto Rico have put aside their differences long enough to propose legislation to Congress that would extend the rum cover over for two years from $10.50 per proof gallon to $13.25, reports the Caribbean Journal. You'll recall the two territories have battled it out ever since Diageo decided to pull its Captain Morgan production from Puerto Rico and build a distillery in St. Croix. Puerto Rico's main beef is that USVI offers distilleries much bigger incentives, but they have so far been unsuccessful in capping the percentage of rum cover monies a US territory can give back to rum producers. "Despite our differences on other issues related to the cover-over, we stand together as the programmes undergo review before the Ways and Means Committee and re-authorization makes its way through the Congress this year," said Donna Christensen, the USVI delegate to Congress.

The rum cover has so far awarded USVI approximately $100 million each year, but that number is expected to rise "with increased production from the Cruzan plant and the new Diageo plant, which began production this year," says the article. Puerto Rico, meanwhile, has lost a significant portion of the rum cover rebate it receives from the United States with the departure of Captain Morgan. You'll recall this has been an ongoing issue for some time.

ELLERSTON CAPITAL INCREASES STAKE IN TWE TO 6.1%

Ellerston Capital investment group, backed by James Packer, has increased its stake in Treasury Wine Estates from 5.03% to 6.1%, according to a filing with the Australian Securities Exchange, reports The Sydney Morning Herald. The company is currently valued at almost $3 billion. Ellerston now has 39.45 million shares in TWE valued at A$175 million ($181 million).

UNDERSTANDING THE LATINO CONSUMER

Latino consumers are expected to represent the majority (60%) of population growth over the next five years, thus making them essential to American business success. According to Nielsen there are a few key findings businesses need to understand about the Hispanic Market. Why does this matter? More spirits companies, such as Diageo, are trying to tap into that important market which has historically been dominated by beer.

The Latino population remains young, while the US population continues to get older. The median age of the Latino population is 28, which is about ten years younger than the median age for the total market. Guess who likes spirits? Millennials.

Also, Latino technology use does not mirror the general market. Hispanics spend 68% more time watching videos on the Internet and 20% more time watching videos on their phones than non-Hispanic whites. This is a great opportunity for digital marketing. Also note that Hispanics make fewer shopping trips per household, but tend to spend more per trip than non-Hispanics.


Until Monday, Megan

"The most remarkable thing about my mother is that for thirty years she served the family nothing but leftovers. The original meal has never been found."
Calvin Trillin

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