Second Circuit finds Constellation hard seltzer does not violate Modelo trademark deal

MANHATTAN (CN) — A Second Circuit panel affirmed Monday that Constellation Brands can market hard seltzers as Modelo and Corona products under a trademark agreement with the Mexican beer giant.

Constellation Brands — which produces beer, wine and spirits, including a beverage sold as Corona Hard Seltzer — entered into a trademark licensing agreement with Modelo in 2013 in which the beer company granted Constellation the rights to use Modelo and Corona trademarks on beer, malt beverages or “versions” of the two.

Modelo claimed Constellation violated the contract by producing hard seltzers using its trademark because the beverage is made from fermented sugar rather than malted grain. But U.S. District Judge Lewis Kaplan, a Bill Clinton appointee, found that the licensing agreement’s definition of “beer” was ambiguous and so instructed the jury to read the contract as given and to not interpret the definition of beer using “plain, everyday language.”

The jury returned a verdict in favor of Constellation. But Modelo claimed Kaplan erred with his jury instructions, saying the jury should have been instructed to consider the “ordinary meaning” of beer.

On Monday, the Second Circuit disagreed and found the jury instructions allowed the jury to interpret the contract through both the contract’s language and extrinsic evidence provided at trial.

“The district court’s jury instructions focused first on the relevant contractual terms and then any extrinsic evidence of the parties’ intent in the form of ‘the facts and circumstances in which the contract was negotiated and agreed upon,” the panel said in an 11-page per curiam order.

Modelo specifically argued that hard seltzers are not considered “versions” of beer or malt beverages under the contract because the beverage doesn’t share common characteristics.

“To be a malt beverage or a version of a malt beverage, a drink has to have malt. To be a beer or a version of beer, a drink has to be fermented with malt and flavored with hops,” Jeffrey Bryan Wall, an attorney for Modelo, said during oral arguments.

But the Second Circuit panel found the contract’s language is ambiguous as to whether hard seltzer qualifies as beer, especially since “nonalcoholic versions” of beer and malt beverages are permitted under the contract.

“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,” the panel wrote.

Modelo also challenged Kaplan's decision to exclude evidence of Constellation’s 2020 correspondence with the U.S. Department of Justice regarding whether Modelo’s threat to sue over the hard seltzer violated a 2013 judgment that prompted the beer company to sell its U.S.-based business to Constellation.

The Second Circuit rejected Modelo’s argument, saying Kaplan had discretion to exclude the correspondence because it might have sowed unnecessary confusion among the jury.

“In particular, admitting DOJ’s finding that Corona Hard Seltzer was not ‘beer’ under the terms of the 2013 final judgment might prompt the jury to defer to DOJ’s views rather than interpret the definition of ‘beer’ under the sublicense,” the panel wrote.

U.S. Circuit Judge Richard Wesley, a George W. Bush appointee, U.S. Circuit Judge José Cabranes, a Bill Clinton appointee, and U.S. Circuit Judge Raymond Lohier Jr., a Barack Obama appointee, made up the panel.

Both parties’ attorneys did not respond to requests for comment.

Follow @NikaSchoonover

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