Craft brewers in Illinois will achieve status as a separate class if the proposed changes to Illinois’s beer franchise law, the Beer Industry Fair Dealing Act (815 ILCS 720/1), pass. House Bill 3442 proposes to change the way craft brewers are treated in Illinois.
Beer franchise laws like Illinois’s Beer Industry Fair Dealing Act developed as a way to keep large brewers from exercising their market dominance and substantial bargaining power in beer distribution relationships mandated by the three-tier system. They date back to a time when many distributors were small businesses forced to deal with national and even international conglomerates – brewers such as Anheuser, Miller, and Coors – because state laws mandated (and still do) that those brewers send their beer through a licensed wholesaler in order to get it to retailers.
One advent of the craft brewing boom – many craft brewers are constrained and impacted by these beer franchise statutes as the statutes tend to lump all brewers into a singular category. This lack of discrimination resulted from having laws passed at a time when no one anticipated or thought that 1) industry factors would create a market for small brewers and 2) no one anticipated a situation where wholesalers would consolidate, making them national conglomerates. These factors leave small craft brewers in Illinois and elsewhere in a position of being constrained in ways the legislature did not intend as well as in ways that are harmful to the growth of their business.
Many states have amended their franchise and production laws to account for the burgeoning craft beer (and spirits and wine) industry by pushing limitations on self-distribution laws into the tens of thousands of barrel ranges and passing amendments exempting craft brewers from beer franchise laws.
Given the national trend and the evolution and maturation of craft beer industry state lobbying groups, it is simply a matter of time until craft brewers achieve a certain amount of self-determination over the legislation impacting their businesses.
And Illinois’s craft brewers appear to be pushing the envelope with this proposed amendment to the Illinois Beer Industry Fair Dealing Act.
Under this amendment (assuming it passes as drafted, which is unlikely – but some version may get to the finish line this legislative session), Illinois’s craft brewers can anticipate some wonderful new rights such as:
- A uinque definition of craft brewer separating brewers from craft brewers at 120,000 barrels (3,720,000 gallons);
- A right to some great economic self-determination with the ability to waive the provisions of the Beer Industry Fair Dealing Act all together when contracting for distribution with a wholesaler;
- Malfeasance and misfeasance (as opposed to just fraud) become grounds for terminating a craft beer distribution agreement in Illinois;
- Damage to a craft brewer’s trademark, reputation, name, and brand and even the products would become reasons for terminating a craft beer distribution agreement in Illinois; and
- Craft brewers in Illinois would be granted a right of termination for Illinois beer distribution agreements in a new section which may also dictate (if agreed to by the parties beforehand) when compensation would be owed during the termination of a craft brewer distribution agreement.
There are other additions and a few odd provisions such as forcing the party initiating a lawsuit to prove “good cause” (when good cause is only a requirement for termination by a brewer, so this provision oddly asks a wholesaler looking to show that a termination was not for good cause to prove “good cause” (see section 9(1) of the proposed revisions)) that we will wait to address as the law progresses in this legislative session.
Suffice it to say that very soon, Illinois craft brewers may finally achieve separation from big beer in Illinois in a meaningful way.
You can follow the status of the bill here.