The Bottled-In-Bond Act was passed this week in 1897.  But now, nearly 120 years later, is “Bottled in Bond” just an archaic designation?  Does it ensure that your bourbon is better than without the designation?  Why doesn’t every 100-proof bourbon carry this designation?  All good questions to ponder over a glass of “BIB” bourbon.

The Bottled-In-Bond Act of 1897 (29 Stat. 626, Comp. St. § 6070 et seq.) was drafted to protect the public and to give assurances about the actual spirits contained in a bottle.  Among other requirements, the Act required that any spirit labeled as “Bottled-in-Bond” identify and be the product of one distiller at one distillery during one distillation season, be aged in a federally-bonded warehouse under federal governmental supervision for at least four years, have no additives, be bottled at exactly 100 proof and be sealed with an engraved strip stamp.

As noted in earlier posts (Kentucky Wasn’t Big Enought for two Col. Taylors and E. H. Taylor, Jr. Review), Col. E. H. Taylor, Jr. was the driving force behind the Act  While Col. Taylor, George T. Stagg, and many other Kentucky distillers were making true straight bourbon whiskey, rectifiers, blenders and charlatans were blending neutral spirits (and sometimes bourbon or other whiskey) with additives, and passing off these much cheaper spirits as bourbon.

The Kentucky Court of Appeals, in E. H. Taylor, Jr. & Sons Co. v. Marion E. Taylor, 27 Ky.L.Rptr., 124 Ky. 173, 85 S.W. 1085 (1905), noted the difference between blended whiskey and straight bourbon:

Rectified or blended whisky is known to the trade as “single-stamp whisky,” while bonded whisky is known as “double-stamp goods.”  The proof shows that the rectifiers or blenders take a barrel of whisky, and draw off a large part of it, filling it up with water, and then adding spirits or other chemicals to make it proof, and give it age, bead, etc.  The proof also shows that from 50 to 75 percent of the whisky sold in the United States now is blended whisky, and that a large part of the trade prefer it to the straight goods.  It is a cheaper article, and there is therefore a temptation to simulate the more expensive whisky.

Blenders and rectifiers could make their product in hours or days, compared to the years of aging required for bourbon.  Lower distillation costs, zero barreling and aging costs, and the speed of getting their product to the market gave blenders and rectifiers a tremendous competitive advantage.  To make matters worse, no law prevented them from still calling their product “bourbon.”

The real bourbon distillers needed to protect their brands and profits, and the politically-acceptable way to accomplish this was to sell it as a consumer-protection law.  Not all blenders and rectifiers were bad, but there were reports of hazardous additives, and consumers had a right to know what was in their bottles.

So E. H. Taylor, Jr. – who was himself an extremely well-connected politician – helped push through the Bottled-in-Bond Act of 1897 with the help of then U.S. Secretary of the Treasury, John G. Carlisle (a former U.S. Congressman and Senator from Northern Kentucky).  Perhaps not coincidentally, the second distillery built in 1880 next to the O.F.C. was named the Carlisle Distillery.

As an added benefit to bourbon distillers, they got a tax break.  Normally, distillers would pay taxes on the bourbon aging in their warehouses, but under the Act, they would not pay taxes until it was bottled, and only on what they bottled (thus avoiding taxation on the angel’s share).  The consumers received the government’s solemn guarantee that the contents of the bottle was exactly as stated on the label, and that there were no additives.  As explained by the Sixth Circuit Court of Appeals in W. A. Gaines & Co. v. Turner-Looker Co., 204 F. 553 (6th Cir. 1913), this was not a guarantee of quality, but it was a guarantee of the purity and authenticity of the contents.

Since 1897, the restrictions have been loosened, but it took over eighty years.  In the de-regulation climate of the 1980’s, BIB no longer required a tax stamp with the season and year made and bottled, so now brands no longer have to disclose the age.  The current restrictions are found in the Federal Regulations, requiring the contents to be a single type of spirit, produced in the same distilling season by the same distiller at the same distillery, aged at least four years, unaltered (except that filtration and proofing is permitted), and proofed with pure water to exactly 100 proof.  27 C.F.R. § 5.42(b)(3).

Not all 100-proof bourbons meet these criteria, so they’re not all labeled BIB.  Some that could seemingly meet the criteria (like Four Roses Single Barrel or Rock Hill Farms) aren’t labeled BIB, but they certainly stand on their own merits without any governmental assurances.  In the end, the BIB label doesn’t ensure that you’re buying good bourbon, but it does tell you more information about what you’re drinking.

The United States Court of Appeals for the Sixth Circuit on Wednesday upheld a post-prohibition-era statute that prohibits grocers and gas stations from selling liquor.  In Maxwell’s Pic-Pac, Inc. v. Dehner, Nos. 12-6056/6057/6182, (6th Cir. Jan. 15, 2014) (available at http://www.ca6.uscourts.gov/opinions.pdf/14a0015p-06.pdf), the court reversed the local federal district court’s decision which had invalidated the statute.

 States might be expected to protect their laws from challenges.  In this case, however, it appears as if the real source of the effort to save the regulation was a direct competitor of grocers that stood to lose market share if grocers were allowed to sell liquor and wine – Liquor Outlet d/b/a The Party Source.  The named defendant, Tony Dehner, is the Commissioner of the Kentucky Department of Alcoholic Beverage Control, and he represented the interests of the Commonwealth.  Just as ministers and bootleggers enjoyed a conspiracy of convenience in Kentucky in the 1930’s (90 of Kentucky’s 120 counties outlawed the sale and consumption of alcohol under local option laws), Liquor Outlet allied with ABC to prevent grocers from selling liquor.

In reading the court’s file, it became clear that the history of pre-Prohibition corruption and depravity, lawlessness during Prohibition, and relative peace under regulation after Repeal all played a significant role in the parties’ arguments and in the court’s decision.  Many of us are aware that state liquor control laws vary widely, but we’re often unaware that our respective state’s liquor control laws arose out of the remnants of Prohibition.

In the 1800’s, in Kentucky and elsewhere, “anybody had the right to sell liquors anywhere, to anybody, and at any time.”  Bd. of Trs. of Town of New Castle v. Scott, 101 S.W. 944 (Ky. 1907).  This lack of regulation helped fuel the temperance movement and led to a perception of liquor as a societal evil, so by 1891 Kentucky’s Constitution allowed its counties to regulate (or even ban) liquor sales.

Liquor Outlet hired an expert witness to testify that before Prohibition, liquor had led to political corruption, prostitution, gambling, crime, poverty and family destruction.  Prohibition created its own problems, though, which were often worse.  The district court noted that Prohibition left Kentucky “infested with bootleggers … corruption and crime, no revenue, no control, disrespect for law and general demoralization.”  It was an unmitigated disaster.

Along with the repeal of Prohibition, the Twenty-First Amendment allowed states to regulate the sale of alcoholic beverages.  John D. Rockefeller, Jr. financed a major study used by the states in developing their respective regulations.  Initially, Kentucky’s regulatory framework did not restrict the types of premises that could sell package liquor.  But in 1938, Kentucky enacted a new statute that, in essence, still exists today.  Kentucky decided on a regulatory structure that required licensure (and limited the number of licenses), and it prohibited licenses for “any premises used as or in connection with the operation of any business in which a substantial part of the commercial transaction consists of selling at retail staple groceries or gasoline or lubricating oil.”  So, grocers and gas stations have been prohibited from selling wine and liquor for over 75 years.

A small grocer, Maxwell’s Pic-Pac, decided that Kentucky’s regulatory structure discriminated against grocers without any reasonable or justifiable basis.  Under Kentucky’s regulatory framework, for example, a grocery-selling drugstore (like CVS or Walgreens) can sell liquor, but a pharmaceutical-selling grocery store cannot.  Similarly, a big-box “party store” can sell grocery items along with liquor, but a grocery store still cannot sell liquor.  The district court agreed and in August 2012 it ruled in favor of Pic-Pac.

Predictably, Kentucky and Liquor Outlet appealed.  The Sixth Circuit concluded that it is reasonable for Kentucky to choose to prohibit the sale of liquor in certain places, such as places where “the community must come together.”  Sounding like the temperance-movement activists, Liquor Outlet argued that grocery stores and gas stations posed a greater risk of “exposing” citizens to alcohol, and that more minors work at grocery stores, so they too would be “exposed” to alcohol.

Liquor Outlet (and its expert) also argued that Kentucky must be allowed to use regulations to steer society to lower-alcohol beverages and to reduce exposure of alcohol to impressionable or abstinent citizens, and that limiting the types of places that sell alcohol plausibly satisfies that public policy.  Still, overly-broad alcohol control laws have been struck down previously in Kentucky and in other states.  For example, in Commonwealth of Ky. ABC Bd. v. Burke, 481 S.W.2d 52 (Ky. 1972), the court invalidated a provision of the Alcohol Beverage Control Act that prohibited women from being bartenders and from drinking at a bar.  The Sixth Circuit did not discuss Burke, and rejected Pic-Pac’s challenge.

This regulation is partly just academic since many national chain grocers in Kentucky have separate adjacent liquor stores.  Of course, this really results in the law only being applicable to small or independent grocers like Pic-Pac.  In those stores, the temperance movement still has a foothold.