Malt Beverage Territorial Assignments

Notice to Malt Beverage Industry
Re: Territorial Assignments.

Updated: September 2, 2008

In light of several proposed mergers and acquisitions at the manufacturing tier of the malt beverage industry, it is appropriate for the TABC to clarify the status of a territorial assignment of a brand required by Chapter 102 of the Texas Alcoholic Beverage Code. The purpose of Subchapters C and D of Chapter 102 of the Texas Alcoholic Beverage Code are to establish territorial assignments for the distribution of malt beverages and prohibit certain conduct in connection with those assignments. The laws are designed to "promote the public's interest in the fair, efficient, and competitive distribution within this state." §102.72 TX. ALCO. BEV. CODE.

Subchapter C of Chapter 102 of the Code requires a malt beverage manufacturer to assign an exclusive territory to a distributor for every brand it sells in the Texas marketplace. Subchapter D of Chapter 102 of the Code regulates certain conduct related to the required assignments and limits the ability of manufacturers to unilaterally terminate territorial assignments.

The territorial assignments required by Subchapter C and the regulations regarding the territorial assignments in Subchapter D are not affected by a transfer in ownership of the manufacturer of a brand or the creation of a new entity due to a merger of one or more manufacturers of a brand. Furthermore, a change in the identity of the holder of the license to manufacture a malt beverage brand does not affect the territorial assignment of a brand to a distributor or the legal rights or responsibilities related to the brand as outlined in Chapter 102 of the Texas Alcoholic Beverage Code.

In conclusion, any change at the manufacturing tier related to a brand does not affect the territorial assignment for that brand to a distributor or the rights of the distributor related to the brand under Texas law as long as the brand continues to be distributed in Texas.

Clarification:

Do the same rules apply to ale or malt liquor?

Yes. §102.81 of the Alcoholic Beverage Code applies the law relating to territorial agreements and the Beer Industry Fair Dealing Act to malt liquor as well as beer.

In the assignment letter, may one letter cover all brands from one single manufacturer? Or should there be one letter for each and every brand of said manufacturer?

One letter may cover all brands. The relevant law simply states that the manufacturer "shall designate territorial limits in this state within which the brands of beer the licensee manufacturers may be sold by [distributors]." This designation must be by "written agreement." §102.51(a),(b). We suggest however, that letters be crafted so as to be clear as to which distributor is authorized to carry which brand in what territory so as to avoid future disputes arising from ambiguity in the initial assignment.

May a manufacturer assign as the exclusive territory the "entire state of Texas" or must each and every county be listed if it is the entire state?

There are no limitations on what a territory can or should be in our statute. Therefore, a territory may be "the entire State of Texas." Again, if multiple distributors are assigned different territories, we advise that it is in everyone's interest to carefully delineate the respective territories so as to avoid future dispute.

May a manufacturer establish quotas that must be sold in order for the assignment to be valid or continue? Can a manufacturer put an expiration date on a letter of assignment?

A manufacturer may make a territorial assignment for a date certain. They may not impose quotas. §102.16(a)(1).

As long as the letter is on brewery (licensee) letterhead, who is allowed to sign the letter? Must it be someone named in the original license application? Can it ever be from an importer of record or from someone who has a power of attorney for the brewery?

The letter must clearly be a designation by the brewery or actual manufacturer of the beer or malt liquor. Neither the law nor the Commission designates which person within the manufacturer's organization is authorized or required to sign the territorial designation or distribution contract.