The world's largest wine and spirits group Diageo said on Friday that its Diageo-Guinness USA subsidiary was taking legal action seeking to invalidate an Oregon Liquor Control Commission rule which will effectively bans the sale of most Flavoured Malt Beverages (FMB) in more than 3,500 of Oregon's grocery and convenience stores.

The company filed a petition for judicial review with the Oregon State Court of Appeals.
At present, in order to remain in the grocery and convenience store channel, FMB suppliers would be required to reformulate the base alcohol makeup of their beverages that will result in significant price increases and limit consumer choice and access, Diageo said.

Diageo executive vice president, Guy L. Smith said: "This action is no different than a tax increase on consumers and is an unnecessary manipulation of the marketplace by a government agency. It is a classic example of a government agency whose mission is to protect consumers - but is actually working against consumers - while protecting other large, influential producers from competition."

The legal action argues that the rule by the Oregon Liquor Control Commission (OLCC) was enacted in violation of the Oregon Administrative Procedure Act and is therefore subject to review by the Oregon courts. The OLCC adopted the rule without complying with applicable rule making requirements and procedures.

Diageo said that although the derivation of the alcohol in FMBs varies from that of beer, FMBs have the same or less alcohol by volume content as regular beer products and have been sold alongside beer on convenience and grocery store shelves for decades, not only in Oregon, but nationwide. In fact, the alcohol in a regular beer and in a FMB is chemically identical -- alcohol is alcohol.

A statement said: "Without a public comment period or allowing for a reasonable period of time for the makers of FMBs -- and those who sell them -- to comply with such a drastic rule change, the OLCC has ordered that popular FMBs be removed from grocery stores and convenience stores and be available only in liquor stores."

Smith added: "For a state like Oregon that prides itself in open government, this is a real slap at the public process. I know of no other place in America where FMB's are taxed or regulated as distilled spirits. Why? Because it makes no sense to do that," he added.
Diageo said that in order to meet the standards dictated by the OLCC - who provided no public comment period for this rulemaking - it would be forced to raise prices come January 1 on its popular line of FMBs, including Smirnoff Ice, Smirnoff Ice Triple Black and Smirnoff Twisted V.
"This decidedly anti-consumer decision of the OLCC is anti-competitive in nature and subverts similar rulemaking currently taking place on a federal level. Currently, the Federal Tax and Trade Bureau (TTB), under the Treasury Department, that regulates alcohol beverages, is preparing a final rule on FMB reformulation, which went through a rigorous and lengthy public comment period where more than 16,000 public comments were filed," Smith said.