Diageo Sues Over Oregon RTD Plan

Raising The Equivalency Argument

David Fleming
Posted: October 15, 2004

Diageo-Guinness USA has filed suit in Oregon in an effort to void an Oregon Liquor Control Commission directive banning most major RTD brands from the state's 3,500 grocery and convenience stores. In a letter dated September 28, the OLCC gave the stores until December 31 to remove all RTDs that don't meet the state's legal definition of a malt beverage. An Oregon law passed last year sets the RTD spirits alcohol limit at 0.5% — and most of the leading RTDs exceed that level. The legislation stipulated the December 31, 2004 deadline.

Some producers, including Anheuser-Busch (for the Bacardi Silver line, BE and Tequiza) have reformulated their product to meet the guidelines. At press time, Miller Brewing (for Skyy Blue) was expected to follow suit. But Diageo is fighting back, partly because of what it perceives as an anti-spirits bias. The company noted that most RTDs have the same or lower alcohol content than regular beers, which continue to be sold in grocery and convenience stores. (Smirnoff Ice's total ABV is 5%, the same as Heineken and most other top beer brands.) In taking aim at the law's focus on spirits alcohol, Diageo in essence is raising the equivalency argument.

In filing suit in Oregon's State Court of Appeals on October 15, Diageo's lawyers argued that the OLCC directive violates rulemaking procedures and is thus subject to court review. Diageo also noted that the Federal Tax and Trade Bureau (TTB) is already preparing a final rule on FMB reformulation. "TTB went through a rigorous and lengthy public comment period, with more than 16,000 public comments filed," noted Diageo executive vice president Guy Smith.

As a result of Oregon's move, Diageo also will raise prices there on its key RTDs — Smirnoff Ice, Smirnoff Ice Triple Black and Smirnoff Twisted V — at the compliance deadline for the new rule.