Texas Court Of Appeals Reverses T.G.I. Friday's Label Decision

On Friday, October 13, 2017, a Texas Court of Appeals handed down the long-awaited decision in Texas Alcoholic Beverage Commission v. Mark Anthony Brewing, Inc., No. 03-16-00039-CV.

The case involves Texas' ban on private-label malt beverage/beer labels, which appear in regulations that are one aspect of the state's comprehensive tied-house laws. Mark Anthony Brewing sought a declaratory ruling on those Texas Alcoholic Beverage Commission (TABC) regulations after the TABC refused to approve the labels for Mark Anthony's T.G.I. Friday's branded flavored malt beverages. T.G.I. Friday's is also, of course, a well-known retail chain. Mark Anthony produces the T.G.I. Friday's line under a trademark license from the retailer, as governed by a trademark licensing agreement between the parties.

A Texas trial court ruled in favor of Mark Anthony, holding that the TABC regulations in question violate the First Amendment. The trial court further ruled that Mark Anthony's sales of the product and the licensing agreement between Mark Anthony and T.G.I. Friday's either did not violate Texas' tied-house prohibitions or, in the alternative, those prohibitions were unconstitutional as applied to Mark Anthony's sales and the parties' agreement.

On appeal, the Texas Court of Appeals (Third District, at Austin) reversed. It did so on the threshold issue of whether Mark Anthony's labels were entitled to First Amendment protection. Recall that the First Amendment only protects commercial speech that is truthful, not misleading and relates to lawful activity. The Court of Appeals concluded that the T.G.I. Friday's labels did not enjoy First Amendment protection because (according to the court) they did not relate to lawful activity.

While the sale of malt beverages and their advertising is not illegal, the Court of Appeals focused on the licensing agreement between Mark Anthony and T.G.I. Friday's. The agreement contained such standard intellectual property licensing provisions as a requirement that T.G.I. Friday's (the retailer and trademark owner) exercise quality control oversight over the production of T.G.I. Friday's branded malt beverages. The Court of Appeals accordingly concluded that the agreement gave T.G.I. Friday's control over Mark Anthony's business in a manner that violated Texas' tied-house statutes and regulations. And because the trademark licensing agreement is unlawful, according to the court, then Mark Anthony's use of the T.G.I. Friday's...