A panel of judges has upheld a jury decision that Constellation Brands did not violate its sublicense with Anheuser-Busch InBev (A-B) when it introduced Corona Hard Seltzer.
The ruling, issued Monday morning, is the most recent update in a legal battle that has been ongoing since February 2021, when A-B subsidiary Cerveceria Modelo de Mexico filed a lawsuit against Constellation, which sells the Modelo, Corona and Pacifico brands in the U.S. under a 2012 sublicense.
A-B challenged a jury’s March 2023 finding that Constellation did not violate the companies’ agreement, necessitated by the Department of Justice in 2012 when A-B acquired the entirety of Grupo Modelo. The world’s largest beer manufacturer spun off the production and sale of the Mexican import brands for the U.S. market to Constellation for $4.75 billion.
At the time, hard seltzer did not exist, and could not have been anticipated as a version of beer, which is what the sublicense allows Constellation to produce under the Modelo, Corona and Pacifico brands.
Both Constellation’s and A-B’s legal teams argued for differing definitions of the word “beer” in the U.S. District Court for the Southern District of New York last year.
“We find that both parties’ readings of the scope of the term ‘versions’ are plausible,” wrote circuit judges José A. Cabranes, Richard C. Wesley and Raymond J. Lohier, Jr. “As a result, it is unclear whether the sublicense’s definition of ‘Beer’ includes Corona Hard Seltzer. 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.”
A-B argued that without malt or notable hop flavor, hard seltzer cannot be considered beer. However, Constellation pushed back that the ”dictionary definitions” A-B used in its legal arguments “uniformly define ‘beer’ as containing alcohol.”
This “interpretation is hard to square with the fact that the sublicense explicitly allows for ‘non-alcoholic versions’ of beer and malt beverages,” the judges wrote.
“We are pleased with the continued affirmation that Constellation acted within its rights under our sublicense agreement. We look forward to putting this issue behind us and focusing on driving the continued success of our business,” a Constellation spokesperson told Brewbound.
Still, Grupo Modelo plans to “vigorously defend” its brands, according to a spokesperson.
“For almost 100 years, Grupo Modelo has invested in and built Corona and Modelo to become leading brands in Mexico and in markets around the world,” a Grupo Modelo spokesperson told Brewbound. “When Grupo Modelo provided Constellation with a license to sell those beer brands in the U.S., 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. While we are disappointed in today’s order from the Second Circuit, we will continue to vigorously defend our brands and enforce our commercial agreements, as we always have.”
Corona Hard Seltzer, which Constellation launched in March 2020, struggled to gain footing in the hard seltzer segment, which is dominated by Mark Anthony Brands’ White Claw. With $1.972 billion in sales at off-premise retailers in the 52-week period ending February 24, White Claw is the seventh-largest brand family in the overall beer category and accounts for 57% of the hard seltzer segment, according to market research firm NIQ.
Corona’s hard seltzer brands have reached $22.27 million in off-premise sales in the same period.
The four SKUs of Corona Hard Seltzer active in NIQ scan data have all recorded steep declines in dollar sales and volume for the 52 weeks ending February 26:
- Corona Hard Seltzer Variety Pack No. 2 – -54.3% in dollars, -56.3% in volume;
- Corona Hard Seltzer Variety Pack No. 1 – -74.8% in dollars, -75.3% in volume;
- Corona Hard Seltzerita Variety Pack – -75.9% in dollars, -76.4% in volume;
- Corona Hard Seltzerita Classic Lime – 80.7% in dollars, -80.6% in volume.
Although Corona Hard Seltzer was at the center of the lawsuit when it was filed more than three years ago, Constellation’s beyond beer innovation has continued with offerings such as Modelo Aguas Frescas. Corona Hard Seltzer was not mentioned among Constellation Brands’ plans during the Gold Network Summit in Las Vegas earlier this month.