An intense legal battle is brewing between defunct 3rd Sign and its former distributor, River City Brands, and it could have a major impact on the future of small brewery distribution in the state of Wisconsin. Dave Eisenberg and Michael Kiser wrote a well-informed article on the status of litigation between Octopi (owner of the 3rd Sign brand) and River City. Octopi has portrayed their demise as the result of being a captive victim of their former distributor. That’s probably true to an extent, but it may not have been the whole story.
There were some quality issues with the 3rd Sign label, which was quite obvious. A former employee notes that they sent six-month-old IPA to Milwaukee for the launch of their distribution market there. When it comes to IPAs, fresh is king; I try not to drink any IPA older than two months if I can help it. Opening a new market with old beer is not the best business practice.
That said, I wholeheartedly support 3rd Sign in their litigation against River City. As some may already know, one of the greatest impediments to craft brewery success is the antiquated model of three-tier distribution. This model was made law by many states, including Wisconsin, and separates beer production from its distribution and retail sales. The big brewers support three-tier distribution because they have the weight to influence their distributor’s actions — like which brands they promote — if they don’t already own at least a portion of the distributor itself.
The three-tier model has been somewhat relaxed in Wisconsin over the years to allow smaller breweries to self-distribute. (Until very recently, breweries as big as Toppling Goliath self-distributed in Wisconsin.) However, River City contends that 3rd Sign could not self-distribute because it had a perpetual contract and could only get out of that contract by paying them the fair market value of the brand, which River City calculated at three times 3rd Sign’s profits: $93,000.
The progress of this case will be interesting to follow as a perpetual contract for distribution rights would seem anti-small business, essentially allowing distributors to hold small breweries hostage. 3rd Sign is standing up for the little guys who may be locked into their own distribution contracts with no realistic way out, in hopes of setting a precedent for future small operations and regulation changes. I’ll be sure to keep you updated on this David vs. Goliath battle.
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