A US appeals court has upheld a jury’s verdict that Constellation Brands Inc (CBI) has not breached its agreement with Grupo Modelo (GM) by selling Corona and Modelo hard seltzers.
The Second Circuit panel confirmed that CBI did not violate its distribution agreement with AB InBev by selling the hard seltzer brands in the United States.
The case arose after AB InBev purchased GM in 2013 and the US competition watchdog approved the deal on the proviso that the rights for selling the Modelo and Corona brands in the US were forfeited; those rights were bought by Constellation Brands.
Fast-forward to the rise of hard seltzers and CBI launched Corona Hard Seltzer in the US, which was soon followed by Modelo Ranch Water. After this, in 2021, GM sued CBI on the grounds that the latter had breached its distribution agreement and infringed on trademarks. CBI’s position was that the agreement allowed the company to sell other alcoholic drinks.
The case essentially centred on whether hard seltzer could be classified as beer.
During the original hearing US District Judge Lewis Kaplan told the jury that because the agreement’s definition of beer was ambiguous they should read the contract as given and not interpret the definition of beer using “plain, everyday language”.
So, last year, the jury found in favour of CBI’s argument that the distribution agreement did allow it to sell the two hard seltzer brands.
Modelo appealed saying Judge Kaplan’s instructions to the jury were wrong and he should have told them to consider the ordinary meaning of beer.
Earlier this week the three-judge Second Circuit panel described both sides’ definitions of what constitutes beer as plausible.
“We therefore conclude that the relevant contractual language is ambiguous as it applies to Corona Hard Seltzer and that the District Court properly denied summary judgment and permitted the case to proceed to trial,” the panel said in its ruling.
The panel added: “Modelo’s interpretation is hard to square with the fact that the sublicense explicitly allows for non-alcoholic versions of beer and malt beverages, even though Modelo’s dictionary definitions uniformly define beer as containing alcohol.”
A spokesperson for Grupo Modelo said that it was disappointed with the decision, adding: “When Grupo Modelo provided Constellation with a license to sell those beer brands in the US, Grupo Modelo never agreed that Constellation had the right to use our iconic Corona and Modelo brands for sugar-based seltzers that are clearly not Mexican cervezas.”
A CBI spokesperson welcomed the ruling and said the company was looking forward “putting this issue behind us and focusing on driving the continued success of our business.”