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  • Arden Cleves

Understanding "Tied-House" Laws and Restrictions in the Alcohol Beverage Industry

A "tied-house"

The topic of “tied-house” laws can be a bit complex and frustrating for many members in the alcohol industry. This article breaks down the elements of a prohibited tied house practice and the laws and regulations industry members must adhere to.

One goal of the Federal Alcohol Administration (FAA) Act is to regulate promotional and marketing trade practices that might lead to corruption or excessive consumption. The FAA Act includes provisions to prevent unfair trade practices. There are four prohibited trade practices: tied house, exclusive outlet, commercial bribery, and consignment sales.  Note that there are several exceptions to tied-house laws, which can be found in 27 CFR Subpart D.

Generally speaking, a “tied-house” is a practice whereby an industry member induces a retailer to purchase its alcohol products to the exclusion of a competitor’s products. Federal tied-house restrictions generally do not apply to interests between manufacturers and wholesalers and are designed to primarily protect the interests of retailers. Note that some states may apply tied-house restrictions to all three tiers.

From a federal perspective, the two central elements of tied-house practices are (1) inducement and (2) exclusion. Inducement means persuading or influencing someone to do something. Among the many prohibited inducement practices laid out by the FAA, there are two especially important prohibitions to keep in mind. First, it is prohibited to hold any interest in the license of a retailer. Second, a manufacturer or wholesaler may not have any ownership in the real or personal property owned or used by a retail establishment. While complete ownership in a retail business may not be prohibited at the federal level, anything less than 100% ownership may be considered a violation of tied-house law under federal law. 

The second element, exclusion, entails a showing that the requirement to purchase one’s alcohol beverage is to the exclusion of another’s alcohol beverage. Unfortunately, this can be a very subjective standard, and the effect of exclusion regardless of intent can still lead to tied-house violations.

To illustrate the above: ABC, Inc., a distilled spirits manufacturer, tells Local Bar that they will sell their alcohol products to them for a fantastic rate if they agree to sell ABC, Inc.’s distilled spirits products at the exclusion of competitor products. This would be a textbook example of the kind of behavior the FAA Act seeks to prevent. 

We recommend consulting with experienced legal counsel if you have questions about these issues.


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