Rent-seeking diary: It’s only Tennessee whiskey if it’s Jack Daniel’s

Today’s Wall Street Journal has an article, Jack Daniel’s Faces a Whiskey Rebellion, that highlights how politically powerful industries can use industry-protecting regulation to raise their rivals’ costs:

At the company’s urging, Tennessee passed legislation last year requiring anything labeled “Tennessee Whiskey” not just to be made in the state, but also to be made from at least 51% corn, filtered through maple charcoal and aged in new, charred oak barrels.

So there are three dimensions on which JD’s competitors could vary, at least slightly, and still make something that consumers could recognize as Tennessee whiskey (not bourbon, not whisky).

Who are the rivals in the Tennessee whiskey market, in which Jack Daniel’s has a 90+ percent market share? Dickel is the largest rival,

Diageo says the George Dickel brand is in compliance with the new law, and that it has no plans to change the way it is made. But the liquor giant says last year’s law puts a lid on innovation and that Brown-Forman shouldn’t be allowed to define the only path to high-quality Tennessee Whiskey.

“We’re in favor of flexibility that lets all distillers, large and small, make Tennessee whiskey the way their family recipes tell them,” said Alix Dunn, a Diageo spokeswoman.

 

… but unless you’ve been under a rock for the past two years you’ve surely noticed the craft distilling revival in the US. Some craft distillers agree with Diageo that such legislation stifles innovation.

But others see a clear legislative definition of what constitutes Tennessee whiskey as providing a strong focal point around which distillers can coalesce, and compete. Although one of these is quoted in the article, I don’t see the argument. Perhaps I’ll mull it over while enjoying a cocktail.

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6 thoughts on “Rent-seeking diary: It’s only Tennessee whiskey if it’s Jack Daniel’s

  1. If the legal treatment of appellations in the wine industry is any indication, the Tennessee distillers would have a legal cause of action against any California distiller calling their product “Tennessee whiskey”.

    The other interesting aspect of this story is the central role of charcoal and/or charred wood, and the economics of reusing or not reusing the oak barrels. Now, where I drink mostly (which is in the Scottish isles), the reusing has turned into a differentiating feature. The incumbents are trying to tamp down on that in this case.

  2. I understand the argument that there might be some value in having a commonly understood “focal point,” but the claim that that would require legislation seems weak to me.

    But here’s an interesting take on the issue: http://chuckcowdery.blogspot.com/2014/03/lets-be-clear-about-this-tennessee.html:

    “So with everything at stake, Diageo will do anything. If it succeeds in Tennessee (probably a long shot), it will hurt its own Tennessee whiskey, George Dickel. It doesn’t care. It will gladly kick George Dickel to the curb to protect Johnnie Walker. Not just Tennessee whiskey, but bourbon and rye too, where The Big Galoot is also a pipsqueak. It likes Bulleit better than Dickel, but not at the expense of Walker. Diageo’s big dog in North America is Crown Royal, a Canadian whisky aged in used barrels. The way Diageo sees it, anything that hurts bourbon, rye, and Tennessee, the ‘new barrel boys,’ helps them.

    “Ultimately, this fight will be between Big Scotch and Big Bourbon. This is just the opening round.”

    That article also points out that there are already federal regs that define various spirits, of course (the Standards of Identity for Distilled Spirits: http://www.law.cornell.edu/cfr/text/27/5.22) but not Tennessee whiskey.

    Meanwhile, the Lanham Act prohibits “false designations of origin,” which would presumably prevent that California distiller from offering “Tennessee” whiskey made in California, and thus there’s also no incentive for California to adopt its own, competing Tennessee whiskey designation.

    (And, for what it’s worth, this theoretical California-Tennessee whiskey also couldn’t be sold in Canada or Mexico, not only because of NAFTA’s general IP provisions, but quite specifically under NAFTA Annex 313:

    “1. Canada and Mexico shall recognize Bourbon Whiskey and Tennessee Whiskey, which is a straight Bourbon Whiskey authorized to be produced only in the State of Tennessee, as distinctive products of the United States. Accordingly, Canada and Mexico shall not permit the sale of any product as Bourbon Whiskey or Tennessee Whiskey, unless it has been manufactured in the United States in accordance with the laws and regulations of the United States governing the manufacture of Bourbon Whiskey and Tennessee Whiskey.”

    And it would have problems in every WTO country under TRIPs, as well.)

    The upshot of all of which is that there is no obvious way to avoid Tennessee’s very specific and (unavoidably) mechanical designation (other than to call your liquor something other than Tennessee whiskey, of course), even if liquor that was produced by a process that didn’t follow one or more of its requirements, or that was produced in California, were otherwise essentially indistinguishable from Jack Daniels. From the “focal point” stand point, I would think that taste — and not the specific manufacturing process — is what matters.

    Which is why, if the focal point idea makes sense, its enforcement by statute probably does not. Trademark and/or something like competing trade associations would be better ways of going about it. I have to think that very few people who drink Jack Daniels know or care whether it is Tennessee whiskey or something else. Its trademarked name is more than enough to convey its identity. And if Jack Daniels (or the owner of a theoretical “Tennessee whiskey” trademark) wanted to license its name to a product made using a different process, or made in California (assuming it could do so under the Lanham Act, TRIPs and NAFTA, which I’m not certain of), it would be able to — and concern for its own TM would almost certainly do more than Tennessee’s law to ensure that such a designation would be a good idea.

    Moreover, if you’re looking for something “RIYL Jack Daniels,” there’s undoubtedly more variation between certain “legally” Tennessee whiskeys than there is between certain Tennessee whiskeys and one or more non-Tennessee-whiskey analogues. Standards would seem far preferable to rules here – but that would seem impossible to accomplish by statute (a law that said “Tennessee whiskey is defined as any whiskey that tastes a whole lot like Jack Daniels” probably wouldn’t work).

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