[Federal Register Volume 74, Number 234 (Tuesday, December 8, 2009)]
[Rules and Regulations]
[Pages 64602-64613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29217]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Part 9

[Docket No. TTB-2007-0067; T.D. TTB-83; Ref: Notice Nos. 36 and 77]
RIN 1513-AA92


Establishment of the Calistoga Viticultural Area (2003R-496P)

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Final rule; Treasury decision.

-----------------------------------------------------------------------

SUMMARY: This Treasury decision establishes the Calistoga viticultural 
area in Napa County, California. The viticultural area is entirely 
within the existing Napa Valley viticultural area. We designate 
viticultural areas to allow vintners to better describe the origin of 
their wines and to allow consumers to better identify wines they may 
purchase.

DATES: Effective Date: January 7, 2010.

FOR FURTHER INFORMATION CONTACT: Amy R. Greenberg, Regulations and 
Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G 
Street, NW., Washington, DC 20220; telephone 202-453-2265.

SUPPLEMENTARY INFORMATION: 

Background

TTB Authority

    Section 105(e) of the Federal Alcohol Administration Act (FAA Act), 
27 U.S.C. 205(e), authorizes the Secretary of the Treasury to prescribe 
regulations for the labeling of wine, distilled spirits, and malt 
beverages. The FAA Act requires that these regulations, among other 
things, prohibit consumer deception and the use of misleading 
statements on labels, and ensure that labels provide the consumer with 
adequate information as to the identity and quality of the product. 
Section 105(e) of the FAA Act also requires that a person obtain a 
certificate of label approval (COLA) or a certificate of exemption, as 
appropriate, covering wine, distilled spirits, and malt beverages 
before bottling the product or removing the product from customs 
custody, in accordance with regulations prescribed by the Secretary. 
The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers the 
regulations promulgated under the FAA Act.
    Part 4 of the TTB regulations (27 CFR part 4) allows the 
establishment of definitive viticultural areas and the use of their 
names as appellations of origin on wine labels and in wine 
advertisements.

Viticultural Areas Designation

    Section 4.25(e)(1)(i) of the TTB regulations (27 CFR 4.25(e)(1)(i)) 
defines a viticultural area for American wine as a delimited grape-
growing region distinguishable by geographical features, the boundaries 
of which have been recognized and defined in part 9 of the regulations 
(27 CFR part 9). The establishment of viticultural areas allows 
vintners to describe more specifically the origin of their wines to 
consumers and allows consumers to attribute a given quality, 
reputation, or other characteristic of a wine made from grapes grown in 
an area to its geographic origin. Establishment of a viticultural area 
is neither an approval nor an endorsement by TTB of the wine produced 
in that area.

Use of Viticultural Area Names on Wine Labels

    For a wine to be labeled with a viticultural area name or with a 
brand name that includes a viticultural area name or other term 
identified as being viticulturally significant in part 9 of the TTB 
regulations, at least 85 percent of the wine must be derived from 
grapes grown within the area represented by that name or other term, 
and the wine must meet the other conditions listed in 27 CFR 
4.25(e)(3). Under the provisions of 27 CFR 4.39(i), a wine may not be 
labeled with a brand name that contains a geographic name having 
viticultural significance unless the wine meets the appellation of 
origin requirements for the geographic area named. There is an 
exception for brand names used in existing certificates of label 
approval issued prior to July 7, 1986, which meet certain criteria set 
forth in that paragraph (see 27 CFR 4.39(i)(2)). Under 27 CFR 
4.39(i)(3), a name has viticultural significance when it is the name of 
a state or county (or the foreign equivalents), when approved as a 
viticultural area in part 9 of the TTB regulations or by a foreign 
government, or when found to have viticultural significance by the 
appropriate TTB officer.
    If the wine is not eligible for labeling with the viticultural area 
name or other viticulturally significant term and that name or term 
appears in the brand name, then the label is not in compliance and the 
bottler must change the brand name (and have an approved COLA for that 
brand name). Similarly, if the viticultural area name or other 
viticulturally significant term appears in another reference on the 
label in a misleading manner, the bottler would have to relabel the 
product in order to market it.

Viticultural Area Petitions

    Section 4.25(e)(2) of the TTB regulations outlines the procedure 
for proposing an American viticultural area and provides that any 
interested party may petition TTB to establish a grape-growing region 
as a viticultural area. Section 9.3(b) of the TTB regulations requires 
the petition to include--
     Evidence that the proposed viticultural area is locally 
and/or nationally known by the name specified in the petition;
     Historical or current evidence that supports setting the 
boundary of the proposed viticultural area as the petition specifies;
     Evidence relating to the geographical features, such as 
climate, soils, elevation, and physical features, that distinguish the 
proposed viticultural area from surrounding areas;
     A description of the specific boundary of the proposed 
viticultural area, based on features found on United States Geological 
Survey (USGS) maps; and
     A copy of the appropriate USGS map(s) with the proposed 
viticultural area boundary prominently marked.

I. Calistoga Petition

    On behalf of interested parties in the Calistoga viticultural 
community, James P. ``Bo'' Barrett of Chateau Montelena, a Calistoga, 
California, winery and vineyard, petitioned TTB to establish 
``Calistoga'' as an American viticultural area. Located in northwestern 
Napa County, California, the proposed area surrounds the town of 
Calistoga and is entirely within the existing Napa Valley viticultural 
area described in 27 CFR 9.23. Below, we summarize the evidence 
presented in the petition.

Name Evidence

    The petitioner submitted the following as evidence that the 
proposed viticultural area described in the petition is locally and 
nationally known as Calistoga:
     Excerpts from Charles L. Sullivan's book, ``Napa Wine: A 
History from Mission Days to Present,'' explaining that Sam Brannan 
founded the town of Calistoga in 1857 and established

[[Page 64603]]

vineyards there in 1862. Sullivan's book includes viticultural and 
winery census data circa 1880, which all report Calistoga separately 
from other Napa County grape-growing regions. Sullivan's map of Napa 
wineries in 1893 shows a significant clustering of wineries near 
Calistoga distinctly separate from the wineries found in surrounding 
areas.
     Excerpts from ``The University of California/Sotheby Book 
of California Wine,'' which note Sam Brannan's first vineyard planting 
in Calistoga.
     Excerpts from an 1881 book, ``History of Napa and Lake 
Counties,'' showing three Napa County viticultural districts--
Calistoga, St. Helena, and Napa.
     Excerpts from Leon Adams' 1973 book, ``The Wines of 
America,'' referring to Calistoga as a specific grape-growing area.
     Excerpts from Hugh Johnson's 1983 book, ``Hugh Johnson's 
Modern Encyclopedia of Wine,'' listing Calistoga among his list of 
``unofficially recognized appellations or sub-areas.'' The petitioner 
explains that 10 of the 12 defined sub-areas listed in this book are 
now designated as American viticultural areas.
     Excerpts from Andr[eacute] Domin[eacute]'s book, ``Wine,'' 
recognizing Calistoga as a distinct region within Napa Valley and 
noting that ``the bay influences the weather less as the valley rises 
up toward Calistoga, which is classified as a Region III area.''
     Excerpts from James Laube's 1989 book, ``California's 
Great Cabernets,'' which explain that for the purposes of the book, ``a 
`commune' system within Napa Valley is utilized to differentiate where 
grapes are grown within the valley as well as to analyze regional 
styles of wines.'' In his list, Laube includes Calistoga equally among 
the other nine Napa Valley ``communes.'' The petition notes that 9 of 
the 10 communes listed are now TTB-approved viticultural areas.
     An excerpt from James Halliday's book, ``Wine Atlas of 
California,'' which, the petitioner states, ``so definitively covers 
the Calistoga area that the chapter in his book could provide most of 
the evidential requirements for this entire petition.''
     A brief summary of ``Calistoga's Wine History'' by 
Calistoga Winery proprietor Jim Summers, which, the petitioner states, 
``includes a more historical perspective in the long recognition of 
Calistoga as a viticultural area.''

Boundary Evidence

    The established viticultural areas surrounding the proposed 
Calistoga viticultural area define a portion of its boundaries. The 
existing St. Helena viticultural area (27 CFR 9.149) northwestern 
boundary defines the Calistoga southeastern boundary, while the 
existing Diamond Mountain District area (27 CFR 9.166) northeastern 
boundary defines the Calistoga southwestern boundary. The Napa-Sonoma 
county line, which forms the Napa Valley viticultural area boundary in 
the northwestern corner of Napa County, defines the Calistoga western 
and northern boundaries. The 880-foot elevation line, beyond which lies 
rugged, unplantable terrain, defines Calistoga's eastern limit and 
returns the boundary line to its starting point.

Distinguishing Features

    The petition included, as evidence of the proposed Calistoga 
viticultural area's unique growing conditions, a report written by 
Jonathan Swinchatt, PhD, of EarthVision, Inc.
Geologic and Geographic Features
    Dr. Swinchatt's report indicated that the proposed Calistoga 
viticultural area is distinguished from surrounding areas by its 
geographic and geologic features. Dr. Swinchatt explained:

    The entirety of the proposed viticultural area is underlain by 
volcanic bedrock, part of the more widespread Sonoma Volcanics that 
occur in the Vaca Mountains, in the northern Mayacama Mountains, 
bordering the lower slopes of the southern Mayacamas Mountains, and 
in Sonoma County. All the rock materials in the proposed 
viticultural area--bedrock and sediments--are part of, or derived 
from, the Sonoma Volcanics. These rocks comprise lava flows, ash-
fall tuffs, welded tuffs, pyroclastic flows, mudflows, and 
ignimbrites. Their composition is largely andesitic with some 
rhyolitic rocks admixed. AVAs [American Viticultural Areas] farther 
to the south--St. Helena, Rutherford, and Oakville, in particular--
exhibit significantly greater geologic diversity across their width, 
being underlain primarily by marine sedimentary rocks on the west 
side of the valley but by volcanic rocks on the east. In addition, 
these AVAs contain alluvial fan environments on their edges, and 
fluvial (river) environments in their more central parts. The 
proposed Calistoga AVA is topographically more diverse but 
geologically more uniform than these other AVAs that include valley 
floor environments. The mineralogy and chemistry of the substrate 
throughout the proposed viticultural area reflects the common source 
of the granular materials in the Sonoma Volcanics.
    In the mountains, vineyards are planted in colluvium-sedimentary 
particles that have been transformed from the parent bedrock through 
weathering processes and have accumulated either in place or moved 
only a short distance. The upland soils are dominantly excessively 
drained, gravelly loams, very stony loams, and loams, on steep 
slopes. Most of the breakdown products of weathering have been 
transported by streams into the valley; much of the finer material 
has been transported from the area by the Napa River, leaving 
coarser sediments behind throughout much of the proposed 
viticultural area.
    Alluvial fans have formed at the mouths of most of the 
drainages, particularly along the northeast side of the valley at 
Dutch Henry Canyon, Simmons Canyon, Jericho Canyon, and north of 
Tubbs Lane at the headwaters of the Napa River in Kimball Canyon. At 
all these locations, cobbly and gravelly loams extend well out onto 
the valley floor, mixed here and there with finer-grained sediments. 
On the southwest side, small fans occur at the mouths of Diamond 
Creek, Nash Creek, and Ritchie Creek. These locations are 
characterized by cobbly and gravelly loams. Coarse sediments 
characterize the valley floor throughout the extent of the proposed 
viticultural area, the finer-grained materials having been 
transported out of the region by the waters of the Napa River. Soils 
throughout the proposed viticultural area are loams, gravelly loams, 
cobbly loams, often with boulders, some with admixtures of silt and 
clay--clay-rich soils are of limited distribution. These sediments 
are well drained, with admixtures of clay providing water-holding 
capacity. Further south in the Napa Valley, gravelly loams and loams 
are characteristic only of the upper reaches of the alluvial fans 
that line the valley, while the valley center is often covered by 
much finer, clay-rich, material.
Climatic Features
    In addition to the unique geographic and geologic features of the 
proposed Calistoga viticultural area, Dr. Swinchatt's report indicated 
that its unique climatic features further distinguish the proposed 
Calistoga viticultural area from surrounding areas. Dr. Swinchatt 
explained:

    Climatic information in our report for the Napa Valley Vintners' 
Association is based on data from DAYMET.org, a website that 
provides climatic information throughout the United States. DAYMET 
data is based on a computer algorithm that allows the extension of 
data from scattered weather stations into areas of complex 
topography. The algorithm was tested over 400,000 square kilometers 
in Washington State and found to be accurate within 1.2 degrees 
centigrade for temperature prediction and to be able to predict 
rainfall with an 83 percent accuracy.
    Heat summation in degree days, defined as the total number of 
hours above 50 degrees Fahrenheit, is the accepted general measure 
of temperature and solar insolation in the wine industry. While heat 
summation is only a general indicator of regional temperature, it 
provides a more useful view than the limited temperature data from 
one or two available weather stations. Temperature--climate in 
general--can vary over distances of a few hundred feet or less, so 
that temperature measurements at one or two locations mean

[[Page 64604]]

little within a regional context. Under these conditions, DAYMET 
heat summation data provides as good a measure of regional 
conditions as is available.
    Examination of DAYMET data indicates that most of the proposed 
viticultural area--mountain slopes and valley floor alike--lies 
within Region III, defined as the range of 3,000 to 3,500 degree 
days. Only a small area of the valley floor in the proposed 
viticultural district--east of the restriction in the valley formed 
by the ridge just west of the mouth of Dutch Henry Creek--lies 
within low region IV. The difference is well within the limits of 
accuracy of the data, indicating that the entire proposed 
viticultural area has a similar temperature profile. Farther south, 
valley floor vineyards are exposed to significantly different 
temperature conditions than those in the hills; in the Calistoga 
region, valley floor and hills appear to be part of a single 
climatic regime. This regime is characterized by hot days and cool 
nights, conditions ideal for a combination of ripening grapes but 
maintaining good acid balance.
    One of the long-standing climatic assumptions in the Napa Valley 
is that Calistoga has the highest temperatures of any location 
within the valley. Temperature data and anecdotal evidence, however, 
dispute this assumption, both indicating that the hottest part of 
the valley is a small region just west closer of Bale Lane. Hottest 
average temperatures in August (over the 18 year period from 1980 
ton 1997) occur from Stags Leap District to south of Dutch Henry 
Canyon, along the base of the Vaca Mountains.
    The Calistoga AVA is cooled by air currents drawn in from the 
Russian River through the northwestern corner of the mountain 
heights. These are drawn in to replace hot air rising from the 
valley, currents that used to support sailplanes headquartered at 
the Gliderport at Calistoga. In addition, cooling breezes flow down 
the slopes of both the Vaca and Mayacamas Mountains in the later 
afternoon. Daytime peak temperatures reach about 100 degrees at mid-
day. The heated air rises by convection, drawing in cooler air form 
the Russian River, the breezes continuing after sunset, cooling the 
valley floor to about 65 degrees. Further cooling occurs, on fog 
free nights, driven by cool air moving downslope from the mountains 
providing additional cooling of 12 to 15 degrees.
    Minimum nighttime temperatures often average about 50 degrees, 
giving a diurnal temperature range that sometimes is greater than 50 
degrees. Vintners in the proposed viticultural areas hold that this 
large diurnal variation is one of the main influences on the 
character of wines from the region. The hot daytime temperatures 
provide color and big berry fruit, while the cool nights provide 
good acid balance for structure and develop power in the wines. The 
character of wines in the southeastern-most corner of the proposed 
viticultural district, south of the ``Sterling Hill'' between Maple 
and Dunaweal Lanes is somewhat softer due to higher nighttime 
temperatures.
    In its southern and central portions, the Napa Valley trends 
northwest-southeast, with slopes facing mainly northeast and 
southwest, modified by the drainages that cut the slopes that add 
diversity to the aspect presented by vineyards to the sun. In its 
northern portions, however, the trend of the valley is closer to 
west-east, with the major slopes facing just east of north (in the 
Mayacamas Mountains) and just west of south (in the Vaca Mountains). 
A slope aspect map indicates also that the valley floor has very 
little flat ground, most of it reflects the slopes of alluvial fans, 
gentle on the north (such as at Dutch Henry Canyon) and steeper on 
the south. Slope aspect and exposure to the sun in the Calistoga 
region thus is quite distinct from that in any other AVA within the 
Napa Valley region.
    Rainfall in the Calistoga region is typically higher than 
elsewhere in the area, with the highest rainfall recorded just 
outside the northern perimeter of the proposed viticultural area, on 
Mount St. Helena. Precipitation is highest in the mountains, up to 
60 plus inches per year, and lowest in the valley, but year-to-year 
variation is large, as it is elsewhere in the Napa Valley region. 
DAYMET data for the years 1990 to 1997 indicate that precipitation 
ranged from just over 20 inches to over 55 inches on the valley 
floor, and from about 25 inches to over 65 inches in the surrounding 
mountains. Measures of average rainfall thus have little meaning.

II. Notice No. 36

    On March 31, 2005, TTB published in the Federal Register (70 FR 
16451) as Notice No. 36 a notice of proposed rulemaking regarding the 
establishment of a ``Calistoga'' viticultural area. In that notice, we 
requested comments from all interested persons by May 31, 2005. TTB 
received two brief comments regarding Notice No. 36 before the close of 
the comment period. Both comments fully supported the establishment of 
the Calistoga viticultural area.
    After the close of the comment period, we received representations 
on behalf of two entities opposing the establishment of the Calistoga 
viticultural area as proposed because the brand names used by these 
entities contain the name ``Calistoga'' and, upon establishment of the 
Calistoga viticultural area, a brand name that included the 
``Calistoga'' name could be used on a label only if the wine in the 
bottle met the appellation of origin requirements for that viticultural 
area, or the brand name were used on certificates of label approval 
issued prior to July 7, 1986, and met the conditions under the Sec.  
4.39(i)(2) ``grandfather'' provision. Both indicated that, under their 
existing business practices, their wines would not meet the appellation 
of origin requirements for use of the Calistoga viticultural area name 
on their wine labels and that, additionally, neither would meet the 
conditions of the ``grandfather'' provision. The two entities in 
question are Calistoga Partners, L.P., d.b.a. Calistoga Cellars, and 
Chateau Calistoga LLC, which uses ``Calistoga Estate'' as its trade 
name, and they are referred to in this preamble as ``Calistoga 
Cellars'' and ``Calistoga Estate,'' respectively.
    In a written submission to TTB, representatives of Calistoga 
Cellars expressed opposition to the establishment of the Calistoga 
viticultural area due to the impact the establishment of an area named 
``Calistoga'' would have on the winery and its existing wine labels. In 
particular, Calistoga Cellars noted that it has been using the 
``Calistoga Cellars'' name on wine labels since 1998. The letter also 
stated that Calistoga Cellars had invested millions of dollars and 
years of effort in building the trade name, trademark, and brand name 
``Calistoga Cellars,'' and that losing the use of the name or being 
restricted in its use would materially impact the winery. According to 
the letter, Calistoga Cellars produced about 8,500 cases of wine a year 
and sold in about 10 states. As to the merits of a ``Calistoga'' 
viticultural area, Calistoga Cellars argued that the term ``Calistoga'' 
is most often associated with the town of Calistoga and that the town 
is known as a tourist destination rather than a specific viticultural 
area.
    For these reasons, Calistoga Cellars requested that TTB: (1) Reopen 
the public comment period to allow it and others to provide additional 
comment on alternative solutions that would protect Calistoga brand 
names; (2) exempt Calistoga Cellars from any restrictive consequences 
resulting from the establishment of the Calistoga viticultural area, by 
providing a specific ``grandfather'' provision for that brand name; (3) 
delay approval of the viticultural area until an industry-wide solution 
is implemented to protect Calistoga Cellars; or (4) allow Calistoga 
Cellars to continue to use its existing labels with a TTB-approved 
notice on the back label.
    Also in a written submission to TTB, representatives of Calistoga 
Estate opposed the establishment of the Calistoga viticultural area. 
According to the letter, in 2005 Chateau Calistoga LLC purchased a 
small estate in the Calistoga area which had no vineyards of its own. 
The Calistoga Estate wines were made under contract with another 
winery, Adler Fels in Santa Rosa, California, and produced with grapes 
from the Napa Region, but not necessarily from the Calistoga region. 
This commenter stated that Calistoga Estate had spent thousands of 
dollars and a considerable amount of time

[[Page 64605]]

building its brand name, selling the wine in six states and the 
District of Columbia and planned to add two additional states, and 
urged that TTB consider some relief for that brand name.

III. Notice No. 77

    On November 20, 2007, TTB published in the Federal Register (72 FR 
65256) as Notice No. 77 a new proposal for the establishment of the 
Calistoga viticultural area for public comment. This new proposal 
included a limited ``grandfather'' protection for some brand names, as 
explained later in this preamble.
    In Notice No. 77, TTB stated that the original petition included 
sufficient evidence of the viticultural distinctiveness of the 
Calistoga area and that there was a substantial basis for the 
establishment of the Calistoga viticultural area. At the same time, 
while distinctive from surrounding areas, the Calistoga area 
nevertheless retains common characteristics with the Napa Valley 
appellation. We also noted that, consistent with previous practice, we 
had considered alternative names as a means of resolving conflicts 
between existing labels and the ``Calistoga'' viticultural area name. 
For example, the ``Oak Knoll District of Napa Valley'' viticultural 
area (T.D. TTB-9, 69 FR 8562) and the ``Diamond Mountain District'' 
viticultural area (T.D. ATF-456, 66 FR 29698) were established after 
resolving such conflicts, resulting in viticultural area names that 
were modifications of those originally proposed by the petitioners. The 
petition to establish the ``Oak Knoll District of Napa Valley'' 
viticultural area originally proposed the name ``Oak Knoll District''. 
The petition to establish the ``Diamond Mountain District'' 
viticultural area originally proposed the name ``Diamond Mountain'' for 
the viticultural area. In these and similar cases, TTB or its 
predecessor agency found that name evidence supported the use of the 
modified names, that the modified names were associated with the 
proposed viticultural area boundaries, and that their use reduced 
potential consumer confusion with long-standing existing labels. In the 
cases of Oak Knoll District of Napa Valley and Diamond Mountain 
District, the petitioners also agreed to the modifications of the 
viticultural area names.
    Notice No. 77 explained that, in the case at hand, the petitioners 
and commenters to Notice No. 36 did not suggest any modification to the 
proposed name that would resolve conflicts between existing brand names 
and the ``Calistoga'' viticultural area name. (We also note that the 
evidence submitted with the original petition did include historical 
information that the term ``District'' was associated with the 
Calistoga area. Nevertheless, while not determinative of the 
appropriateness of the name, the petitioner did not believe that a 
modifier in the name such as ``district'' was appropriate.) Moreover, 
TTB had not found any potential name modifications that would be 
acceptable alternative names for the proposed ``Calistoga'' 
viticultural area. TTB had carefully considered the evidence submitted 
in support of the Calistoga viticultural area petition and had 
concluded that the term ``Calistoga'' alone is a specific, not generic, 
descriptive name that is clearly associated with Napa Valley 
viticulture. Accordingly, TTB acknowledged in Notice No. 77 that the 
term ``Calistoga'' alone would have viticultural significance. 
Therefore, under Sec.  4.39(i), even if the name of the viticultural 
area were ``Calistoga District,'' a wine containing the term 
``Calistoga'' in the brand name would still have to meet the 
appellation of origin requirements for the viticultural area (unless 
the brand name were subject to the exception in Sec.  4.39(i)(2)).
    In Notice No. 77, we stated that the evidence submitted by the 
petitioners indicates that designation of the Calistoga viticultural 
area would be in conformity with applicable law and regulations, and 
that a delay in the approval of the ``Calistoga'' viticultural area, as 
suggested by Calistoga Partners, would not be an appropriate or 
responsive resolution. After noting that the Calistoga case and cases 
with similar factual bases involve a fundamental conflict between two 
otherwise valid and appropriate TTB administrative actions, that is, 
the approval of labels by TTB through the issuance of certificates of 
label approval (COLAs) and the subsequent approval of a petitioned-for 
AVA, we stated:

    However, TTB also believes that Calistoga Partners has 
demonstrated a legitimate interest in not losing the ability to 
continue to use its long-held Calistoga Cellars brand name on its 
wines in the same way it has been using this name. We believe it is 
desirable to find a solution that will address the legitimate 
interests of both the Calistoga petitioners, who have an interest in 
gaining formal recognition of a viticulturally significant area and 
name, and vintners who have an interest in retaining the use of 
long-held brand names. We also believe, as a fundamental tenet of 
administrative practice, that it is preferable to avoid, whenever 
possible, a situation in which one otherwise proper administrative 
action (issuance of a certificate of label approval in this case) is 
restricted by a subsequent, valid administrative action 
(establishment of a viticultural area). And perhaps more 
importantly, where a conflict arises between a proposed AVA name and 
an established brand name, we do not believe that, in the context of 
the labeling provisions of the FAA Act, it is an appropriate 
government role to make choices between competing commercial 
interests, if such choices can be avoided.

    As a result, we proposed regulatory text that would address the 
concerns of Calistoga Partners, L.P., and its continued use of the 
brand name ``Calistoga Cellars.'' Specifically, the proposal would 
allow for the continued use of a brand name containing the word 
``Calistoga'' on a label for wine not meeting the appellation of origin 
requirements of 27 CFR 4.25 for the established Calistoga viticultural 
area if (1) the appropriate TTB officer finds that the brand name has 
been in actual commercial use for a significant period of time under 
one or more existing certificates of label approval that were issued 
under 27 CFR part 4 before March 31, 2005; and (2) the wine is labeled 
with information that the appropriate TTB officer finds to be 
sufficient to dispel the impression that the use of ``Calistoga'' in 
the brand name conforms to the appellation of origin requirements of 27 
CFR 4.25. The notice noted that the proposed grandfather provision 
would not apply to a brand name that was first used in a certificate of 
label approval issued on or after March 31, 2005, the date that Notice 
No. 36 was published in the Federal Register originally proposing the 
establishment of the Calistoga viticultural area. This ``grandfather'' 
protection as proposed would not extend to the use of the name 
``Calistoga Estate'' because that name was first submitted to TTB in 
connection with a label approval in July 2005, that is, after 
publication in the Federal Register of Notice No. 36.
    In Notice No. 77 we invited comments on the ``grandfather'' 
provision, on the period of time that a label should be in actual 
commercial use for that use to be deemed ``significant,'' on the type 
of dispelling information that would be sufficient to prevent consumers 
from being misled as to the origin of the grapes used to produce the 
wine, on the appropriate type size and location on the wine label of 
such dispelling information, and on other alternatives.
    The comment period for Notice No. 77 was originally scheduled to 
end on December 20, 2007. TTB received multiple requests to extend the 
comment period. In consideration of the requests and in light of the 
impact that

[[Page 64606]]

the approval of the proposed viticultural area and grandfather 
provision would have on wine labels, we published Notice No. 79 on 
December 17, 2007 (72 FR 71289), extending the comment period through 
March 20, 2008.

IV. Overview of Comments Received in Response to Notice No. 77

    TTB received over 1,350 comments in response to Notice No. 77. Of 
these, approximately 1,160 were variations of form letters and 
postcards, submitted by mail and e-mail. The remaining written comments 
were received from individuals, wine consumers, wine distributors, 
winegrape growers, wineries, interest groups, business and trade 
organizations, and local, State and Federal Government representatives. 
Nearly all of these comments focused on the proposed grandfather 
provision for some labels and the ``dispelling'' information statement 
(referred to by many as the ``disclaimer'') that was proposed as a 
condition for use of the grandfather provision.
    A number of the comments we received in response to Notice No. 77 
also included commentary on Notice No. 78, which also was published in 
the Federal Register (72 FR 65261) on November 20, 2007. Notice No. 78 
primarily involved proposed amendments to the TTB regulations regarding 
the establishment of viticultural areas in general, including a new 
grandfather concept for Sec.  4.39(i). Comments that relate to 
proposals in Notice No. 78 are outside the scope of this rulemaking and 
will be addressed in a separate rulemaking action specific to Notice 
No. 78.
    During the public comment period for Notice No. 77, TTB also met 
with attorneys representing Calistoga Cellars at their request. TTB 
included a summary of that meeting with the comments we received on 
Notice No. 77 that are posted on the Regulations.gov Web site (http://www.regulations.gov), and the points raised on behalf of Calistoga 
Cellars in that meeting are included where applicable in the following 
discussion.
    The following discussion focuses on the commenters' positions on 
the establishment of the Calistoga American viticultural area (AVA) as 
a general proposition and on the grandfather provision in the proposed 
regulatory text (referred to herein as the ``Notice No. 77 grandfather 
provision''). Some commenter totals are given as approximations, 
because some commenters might fall within more than one of these 
general categories. A more detailed discussion of the comments on these 
two issues follows this category breakdown discussion.
     Form letters and postcards. As mentioned above, we 
received over 1,160 comments that were variations of form letters and 
postcards, nearly all of which were submitted through a group called 
``Stand Up for the Little Guy,'' an interest group supporting Calistoga 
Cellars. The form letter asks TTB to ``sustain TTB Notice 77'' 
as it ``strikes a balance between the desire for a regional competitive 
advantage by designating the new Calistoga AVA and the due process 
right of a small winery.'' It states that ``Calistoga Cellars has spent 
over 10 years building a successful brand with customers throughout the 
country,'' that the winery has ``already agreed to more stringent 
labeling language,'' and that it is ``wrong for large, corporate 
wineries to use the AVA process to threaten the livelihood of a small 
winery such as Calistoga Cellars.'' The form postcard language is 
similar to that of the letter.
     Wineries and wine cellars. We received approximately 60 
nonform-letter comments from representatives of wineries and wine 
cellars (other than the petitioner and representatives of Calistoga 
Cellars and Calistoga Estate). All of these comments opposed the 
proposals set forth in Notice No. 77, without distinguishing between 
the establishment issue and the grandfather issue. The majority of 
these comments argued that allowing geographic brand names to appear on 
labels of wine that do not comply with the sourcing requirements for 
the use of that viticultural area on the label will mislead and confuse 
consumers, and will undermine the integrity of the viticultural area. 
Many of these comments also noted that a disclaimer on a back label of 
a wine will not dispel consumer misperception of the origin of the 
wine. Several of the commenters suggest that the affected wineries 
should have known better than to have selected geographic brand names, 
like Calistoga, and that the proposal serves to harm those in the 
industry who have played by the rules when selecting their brand names.
     Business interests and trade groups. We received 
approximately 25 comments from interest groups and wine trade 
organizations, including the Calistoga Chamber of Commerce, the Napa 
Chamber of Commerce, Napa Valley Vintners, the Wine Institute, Sonoma 
County Vintners, Oregon Winegrowers Association, Appellations St. 
Helena, Family Winemakers of California, Napa County Farm Bureau, 
Winegrowers of Napa Valley, Lodi District Grape Growers Association, 
Wine America, California Farm Bureau Federation, Paso Robles AVA 
Committee, California Association of Winegrape Growers, Washington Wine 
Institute, Walla Walla Valley Wine Alliance, Stags Leap District 
Winegrowers Association, Santa Cruz Mountains Winegrowers Association, 
and the Washington Wine Group (self-described as a public agency 
``empowered to speak for the Washington wine industry''). Many of these 
groups explicitly or implicitly supported the establishment of the 
Calistoga AVA in their comments, although all of the comments from 
these groups also expressed opposition to Notice No. 77. Many argued 
that the Notice No. 77 grandfather provision would have the effect of 
confusing and misleading consumers and undermining the integrity of the 
AVA system and the global competitiveness of American wines. Napa 
Valley Vintners (NVV) suggests that existing labels using the term 
``Calistoga'' in the brand name should be prohibited from continued use 
because, along with being misleading, they were ``mistakenly issued.'' 
In addition, the NVV states that the proposed grandfathering of 
``Calistoga'' brand names is incompatible with U.S. international 
obligations pursuant to Article 23 of the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPS).
     Members of Congress. We received a number of letters from 
members of the United States Congress. Several forwarded letters from 
constituents supporting Notice No. 77 (constituents included owners and 
investors in Calistoga Cellars). One Senator voiced support for Notice 
No. 77, expressing concern that ``a large wine industry group could use 
the AVA process to threaten the livelihood and survival of one 
vineyard,'' and asking that ``full and fair consideration'' be given to 
the concerns raised by Calistoga Cellars. Similar views were expressed 
in letters submitted by other Members of Congress. Another Senator also 
wrote on behalf of Calistoga Cellars, stating that, while he recognized 
the legitimate needs of consumers to better identify wines they 
purchase and vintners' desires to better describe their wines' origins, 
he encouraged TTB to ``continue to fully take into account businesses 
like Calistoga Cellars, which have made significant commercial 
investments over a period of time.''
    One Senator submitted four letters in opposition to Notice No. 77. 
In referencing both Notice Nos. 77 and 78, the Senator stated that 
``the changes being proposed do not improve the identification and 
labeling requirement

[[Page 64607]]

of wine products nor do they protect the consumer.'' The Senator 
further stated the proposed rules are ``contrary to U.S. international 
obligations and out of step with international wine industry standards 
for recognition of wine regions'', and that the grandfather provision 
in Notice No. 77 does not comply with the regulatory standards of the 
AVA system for grape content and geographic origin. TTB also received a 
letter signed by 61 members of the United States Congress expressing 
support for the existing AVA regulations and ``grave concern'' over 
Notice Nos. 77 and 78, ``which would significantly and detrimentally 
alter the American Viticultural Area (AVA) system.'' Two of the 
cosigners subsequently submitted a separate letter expressing the same 
viewpoint.
     State and local governments. We received comments from 
five State and local government representatives. A California State 
Senator submitted a resolution passed unanimously by the California 
State Legislature requesting TTB to withdraw Notice Nos. 77 and 78 and 
to move forward with the ``uncompromised recognition'' of the Calistoga 
AVA as originally petitioned for. The Mayor of the City of Paso Robles 
wrote in opposition to the Notice No. 77 grandfather provision, as did 
the City Manager for the City of Calistoga, the Napa County 
Agricultural Commissioner, and the Chair of the Napa County Board of 
Supervisors, who also expressed support for the establishment of the 
petitioned-for Calistoga AVA. The comment from the Napa County Board of 
Supervisors included a resolution passed by that body endorsing the 
Calistoga AVA petition and objecting to the Notice No. 77 proposals. 
These State and local government commenters raised concerns over 
potential negative economic consequences of the proposal, misleading 
and deceptive labels, diluting public confidence in domestic wine 
products, potential conflicts with the provisions of international 
agreements and with trademark laws, the integrity of the American wine 
industry domestically and internationally, and the devaluing of the 
Calistoga name.
     Other businesses. Approximately twenty comments were 
received from submitters identifying themselves in occupations relating 
to wine publishing and education, hotel operations, and wine 
importation, marketing, promotion, retail sales and distribution. 
Others identified themselves with Napa area businesses, such as the 
Napa Community Bank and Chardonnay Golf Club. One comment was received 
from Compliance Service of America, whose services include the 
preparation and filing of AVA petitions. With the exception of the 
latter, all of these commenters oppose the provisions of Notice No. 77. 
Generally, these commenters cited concerns about misleading wine labels 
that confuse consumers and about disclaimers hidden on the back labels 
that would not be read by a consumer before purchase at retail, from a 
wine list in a restaurant, or when using the internet. Some argued that 
such labels will undermine the integrity of American wine and the 
credibility of the AVA system. The comment from Compliance Service of 
America supports all of the proposals set forth in Notice No. 77 and 
cites examples of how conflicts between viticultural area names and 
brand names may legitimately arise.
     Calistoga Cellars. Five comments were submitted by 
representatives of Calistoga Cellars. The general partners of Calistoga 
Cellars provided specific information about that winery's operations, 
similar to information submitted in response to Notice No. 36 described 
above, including a list of existing certificates of label approval, 
specific sourcing information for grapes used in Calistoga Cellars 
wine, and an explanation of the ``impediments to sourcing grapes in the 
proposed Calistoga AVA.'' One comment reiterated the winery's position 
that it would be unable to find grapes of appropriate quality and 
quantity for its winery operations. For example, they asserted that the 
winery has found no source of Sauvignon Blanc grapes, Zinfandel grapes, 
or Cabernet Sauvignon grapes in the Calistoga viticultural area equal 
to or superior to its current sources. Further, they stated that, if 
required to source grapes only from the Calistoga AVA, the winery would 
suffer a ``devastating financial impact'' and the quality of its wines 
would suffer. According to that letter, Calistoga Cellars sold 
approximately 10,000 cases of wine in 2006 and 2007, an increase from 
approximately 8,000 cases in 2005. Further, Calistoga Cellars had 
continued to build its national brand by increasing the number of 
States into which it was distributed to 35.
     Calistoga Estate. Eight comments were received from 
submitters describing themselves as owners, investors, partners, or 
attorneys of Calistoga Estate. One commenter specifically opposed the 
establishment of the Calistoga viticultural area. Others opposed 
excluding Calistoga Estate from the Notice No. 77 grandfather 
provision, pointing out that the grandfather provision applies only to 
labels in commercial use as of March 31, 2005, whereas Calistoga Estate 
received its first label approval in July 2005. They argued that the 
proposed provisions would be arbitrary and capricious, serve no public 
policy purpose, and constitute an improper taking of their property 
(brand). Further, the commenters asserted that the winery has spent 
considerable time and money establishing the brand name (distributing 
in 10 States, adding 3 more in January 2008), and that for the winery 
to ``have to change our name at this time would be devastating.'' They 
asserted that the Notice No. 77 proposals, if adopted, would also harm 
the wholesalers, brokers, retailers, and food establishments handling 
Calistoga Estate wines. They suggested that TTB should have notified 
the winery about the potential AVA name conflict when the Calistoga 
Estate labels were submitted for approval.
     The petitioner. The original petitioner for the Calistoga 
AVA, submitted two comments, both opposing the Notice No. 77 
grandfather provision. He argued that the provision would ``greatly 
weaken American consumers' confidence in American wine labels,'' that 
the proposed regulations would conflict with international agreements 
and may cause the European Union and Japan to prohibit importation of 
wine from the United States bearing a viticultural area designation, 
and that the proposals conflict with current TTB publications and 
regulations. He also argued that the proposals would benefit 
``illegitimate economic interests of one owner of a misdescriptive 
Calistoga brand name over the legitimate economic interests of the wine 
industry for the entire Calistoga region and the veracity of the 
Calistoga name.''
     Concerned citizens and ``unaffiliated'' commenters. The 
remaining commenters, approximately 50, either described themselves as 
``concerned citizens'' or did not designate a particular affiliation. 
One of these comments supported the position of Calistoga Estate and 
asked that the date by which labels could be considered for the Notice 
No. 77 grandfather provision be changed to accommodate that winery's 
labels. Seven of the approximately 50 comments supported the position 
of Calistoga Cellars, most citing concern over abuses of the policy 
process by ``large corporations'' and anticompetitive practices that 
harm ``small, independent businesses,'' while one argued that not 
sustaining Notice No. 77 would ``constitute an ex post

[[Page 64608]]

facto taking of Calistoga Cellars' name without just compensation.'' 
The remaining comments opposed Notice No. 77, suggesting that it would 
allow misleading labels, would violate the intent of, and would be 
contradictory to, the stated objectives of the AVA process and would 
support deceptive brand names. Many commenters opposed a provision they 
describe as contrary to ``truth in labeling,'' and considered 
disclaimers on back labels to be ineffectual in conveying information 
to consumers buying wine at a restaurant, at retail, or through the 
Internet.

V. Comments on the Establishment of the Calistoga Viticultural Area

    Twenty-eight commenters stated support for the establishment of the 
Calistoga viticultural area. Many others indirectly expressed support 
for or opposition to the establishment of the AVA, conditioned on other 
issues, such as the Notice No. 77 grandfather provision. A few 
commenters who supported the establishment of the viticultural area 
said that it would enhance the distinct character of the Calistoga 
region and protect consumers who rely on the meaning and value of the 
Calistoga name. A representative of Jericho Canyon Vineyard wrote that 
the Calistoga appellation would enable consumers to ``identify 
characteristics that make Calistoga wines unique.'' A Jax Vineyards 
representative stated that ``[w]hen we purchased our vineyard in 1996, 
we specifically chose Calistoga for its unique weather conditions and 
specific soil content ideal for Cabernet Sauvignon,'' and that the 
proposed Calistoga viticultural area is distinct from the viticultural 
area next to it. That commenter argued that she should be able to 
promote the fact that her wines come from Calistoga. Napa Valley 
Vintners also provided numerous references in support of the 
petitioners' evidence showing that the Calistoga area is recognized as 
an area of viticultural significance and has been associated with the 
``Calistoga'' name.
    Three commenters offered several arguments against the 
establishment of the proposed viticultural area, including questioning 
the proposed name and boundaries. Two commenters suggested that 
Calistoga is not known for wine, but rather for tourism, hot springs, 
and mineral water. One asserted that there ``has not been any clear 
connection with that name and wine produced in the Napa Valley, or for 
that matter in and near the city of Calistoga.'' Another opined that 
``suggesting an AVA is confusing in that Calistoga is not the major 
wine `player' that is suggested by an AVA designation.'' Two commenters 
expressed opposition to the proposed viticultural area boundaries 
because of the relationship between those boundaries and political 
(e.g., county or city) boundaries in the area. One commenter 
specifically objected to the use of the county line as the proposed AVA 
boundary ``as if the characteristics of the soil and climate respected 
political divisions''. This commenter argued that those with Calistoga 
as their legal address should be allowed to use the name on their 
wines.
    Two commenters, one an investor in the Calistoga Estate winery and 
the other an attorney writing on behalf of that winery, questioned the 
proposed viticultural area boundaries because the boundaries do not 
include all of the city of Calistoga. The latter commenter asserted 
that, because the proposed viticultural area boundaries and the city 
boundaries do not perfectly correspond, using the ``Calistoga'' name 
for the viticultural area would cause confusion between that Calistoga 
viticultural area and the city of Calistoga. He stated that, ``because 
many consumers know the city of Calistoga, they almost certainly will 
believe that wine bearing a Calistoga AVA originated in the city of 
Calistoga.'' In addition, he pointed out that some parts of the city of 
Calistoga are within a different viticultural area, the Diamond 
Mountain District viticultural area and that, in some cases, 
``consumers would confront wines that bear Calistoga, California as the 
mandatory name and address information on the label, but confusingly 
bear the Diamond Mountain District AVA on the label.'' Additionally, 
some wineries that are not within the Calistoga city limits would be in 
the Calistoga viticultural area. This commenter also argued that the 
proposed AVA would include areas even outside of the city of 
Calistoga's ``unincorporated Planning Area,'' which would ``sweep in 
far more area than the city itself,'' and that consumers could be 
confused by areas in the AVA that are outside of the planning area. The 
commenter suggested for the reasons above that the name ``Calistoga'' 
for the viticultural area would be misleading unless further qualified, 
for example, by modifying the name to ``Calistoga District.''
    Another commenter stated that TTB should expand the boundaries of 
the proposed viticultural area to accommodate the vineyards used by 
Calistoga Cellars.

TTB Response

    After carefully considering the evidence submitted in support of 
the petition and the comments received in response to Notice No. 77, 
TTB continues to believe that the evidence submitted supports the 
establishment of the ``Calistoga'' viticultural area, with the 
boundaries as the petition describes and as set forth in the proposed 
regulatory text. We find that there is sufficient evidence that the 
proposed viticultural area boundaries are associated with both a name 
and a set of geographical features (climate, soils, elevation, and 
physical features) that are common to the designated region and that 
distinguish it from other areas. None of the commenters opposing the 
proposed boundaries has submitted evidence to undermine this finding. 
Much of the Calistoga boundary reflects the boundaries of existing 
AVAs, and the record in those rulemakings supports those boundaries, 
including the political boundary of the county line to which one 
commenter objected. Moreover, none of these commenters has specifically 
proposed new, more appropriate boundaries, other than to say that the 
boundaries should or should not reflect political boundaries or that 
the boundaries should include other vineyards or wineries. None of 
these commenters has provided evidence to show that the viticultural 
area geographic features coincide with, or vary from, the relevant 
political boundaries such as a county line. We have in the past 
considered, and will continue to consider, any petition to amend the 
boundaries of an established viticultural area, so long as that 
petition contains sufficient name and geographical features evidence to 
support such an amendment. The points made by these commenters do not 
meet this evidentiary standard and, therefore, we find no basis at this 
time for modifying the boundary proposed for the Calistoga viticultural 
area.
    We disagree with those commenters who suggested that there is, or 
should be, a relationship between the legal address of a business, in 
this case a winery, and the viticultural area designation of a wine. 
Under the TTB regulations at 27 CFR 4.32(b)(1) and 4.35(a) there is 
only one specification for name and address that is mandatory on a 
label for American wine: The words ``bottled by'' or ``packed by'' 
followed by the name of the packer or bottler of the wine and the place 
where the wine is bottled or packed. (Wine labels may also bear, as 
optional statements under certain conditions, address information 
corresponding to the place the wine was produced, blended, or 
cellared.) Therefore, it is not uncommon or inappropriate for a wine 
label that bears a viticultural area name

[[Page 64609]]

to also bear address information that does not correspond to that 
viticultural area. The same result might arise from wines that bear a 
county or state name as an appellation of origin due to the fact the 
product may be bottled outside of the county or State.
    With regard to the viticultural area name, the evidence clearly 
establishes that ``Calistoga'' is a name that is locally and regionally 
known and that the term ``Calistoga'' by itself has been associated 
historically with viticulture, specifically Napa Valley viticulture. As 
noted above, in the preamble to Notice No. 77, we discussed in detail 
possible modifications to the name of the viticultural area, including 
the addition of the word ``District'' (making the viticultural area 
name ``Calistoga District''). The evidence submitted with the 
viticultural area petition as outlined earlier in this final rule under 
``Name Evidence'' supported a finding that the term ``Calistoga'' alone 
is a specific reference to an area associated with viticulture and 
therefore would be a term of viticultural significance regardless of 
other words that might be included in the viticultural area name such 
as ``District''. As to whether the name was underinclusive by not 
including other areas also known by the term Calistoga, such as all of 
the city of Calistoga, TTB's establishment of an AVA does not mean that 
there can be no area outside of the established AVA boundaries also 
known by that term. This is consistent with the past practice of TTB 
and its predecessor in establishing AVAs (e.g., Snake River Valley, 
T.D. TTB-59, 72 FR.10602 (Mar. 9, 2007) and Niagara Escarpment, T.D. 
TTB-33, 70 FR 53300 (Sept. 8, 2005)). In response to the comment that 
the AVA includes areas not included in the ``unincorporated Planning 
Area,'' TTB does not believe that a map designed to reflect planning 
authority defines the extent of this area's name. Furthermore, the 
commenter was satisfied with calling the area ``Calistoga District,'' 
which suggests that the term ``Calistoga'' in connection with the 
proposed area was acceptable.

VI. Comments on the Notice No. 77 Grandfather Provision

Whether Another Grandfather Provision Is Appropriate

    As noted earlier, TTB received approximately 1,160 variations of a 
form letter and postcard supporting the Notice No. 77 grandfather 
provision. The vast majority of these comments, along with another 15 
written comments supporting the position of Calistoga Cellars, focused 
primarily on the expected effect of the grandfather provision (that is, 
the protection of a ``small winery'' or ``a small investor'' or 
``individual business owners'' in the face of actions by ``large, 
corporate wineries'' or ``the large wine industry group, the Napa 
Valley Vintners'') and the hardship that the winery would otherwise 
face.
    As noted above, several Members of Congress commented in support of 
Notice No. 77. The comment of one Senator provided a concise summary of 
many of the comments in favor of Notice No. 77, saying that it ``struck 
the appropriate balance'' and that, without the grandfather provision, 
the establishment of the Calistoga AVA ``would have a devastating 
impact on Calistoga Cellars, forcing this small company to lose its 
investment and the brand name the company spent over 10 years 
building.'' One Senator expressed concern about opposition to the 
grandfather provision by Napa Valley Vintners, stating that he was 
``troubled that a large wine industry group could use the AVA process 
to threaten the livelihood and survival of one small vineyard'' and 
that ``the AVA process should not be used as a tool to eliminate 
competition in the marketplace.''
    A comment submitted by one of the general partners of Calistoga 
Cellars further argued that the existing grandfather provision of 27 
CFR 4.39(i), which applies to brand names in commercial use prior to 
July 7, 1986, is ``fundamentally unfair'' because it ``requires all 
owners of brand names containing a geographical term of viticultural 
significance used under certificates of label approval approved after 
July 7, 1986 * * * to change their business plan, marketing strategy 
and grape sources immediately upon the creation of a new AVA 
incorporating such geographic term, no matter how long such * * * COLA 
has been in use.'' The commenter went on to state that a ``brand owner 
may have chosen a name without any knowledge of its (potential) 
geographic significance'' and that ``brand owners should have some 
assurance that their geographic brand name, perhaps used for years, 
will not be canceled by a newly created AVA.'' Finally, he argued that, 
if the Calistoga region were such a noted viticultural area for over 
100 years, those concerned about protecting the use of its name would 
have filed a petition for establishment of the Calistoga viticultural 
area sooner. He stated that he believes the ``failure to file until 
2005 should be taken into consideration when determining how pre-
petition geographic brand names should be treated.''
    Along the same lines, Compliance Service of America suggested that 
vintners commenting in opposition to the Notice No. 77 proposals may 
not realize that their own brand names hold the same potential for 
being limited by the creation of a viticultural area. The commenter 
gave as an example the Eola Hills viticultural area proposal, asserting 
that the winery that developed the viticultural significance of the 
region found that a petition had been submitted for the establishment 
of the viticultural area which would have caused the Eola Hills winery 
to lose the right to use its brand name on wines made with grapes 
sourced from outside the proposed viticultural area boundaries. The 
resolution was a modification of the proposed viticultural area name 
and of the term designated as viticulturally significant, which were 
agreed to by the petitioners and label holder. This commenter went on 
to note, with regard to the Calistoga viticultural area, that the 
``history of the Calistoga name does not support the argument that it 
had so much viticultural significance that the equities favor the AVA 
name over the brand name.''
    Out of the 184 nonform-letter comments, 110 specifically addressed 
the Notice No. 77 grandfather provision, 99 of which expressed 
opposition to it. Many of these commenters asserted that, because the 
TTB regulations have included a grandfather provision since 1986, at 27 
CFR 4.39(i)(2), which prohibits the use of brand names on labels unless 
those labels were approved on certificates of label approval issued 
prior to July 7, 1986, Calistoga Cellars should have known better than 
to use a brand name containing a geographic name, should have been 
aware that they could lose the use of their brand name, and ``did not 
do their due diligence in choosing the name.'' One commenter, a winery 
owner, recalled attending numerous seminars and reading information 
regarding geographic brand names and, after ``doing his homework'' 
decided against using a geographic brand name for his winery. Another 
commenter stated that ``responsible vintners know the risk in choosing 
to name a winery after a township or geographic region (of potential 
conflict with future AVA designations) and the benefits (immediate 
brand recognition).''
    Napa Valley Vintners (NVV) argued that TTB's approval of the labels 
bearing a ``Calistoga'' brand name was done so contrary to TTB guidance 
regarding geographic brand names appearing in the Beverage Alcohol 
Manual for Wine (BAM). NVV pointed out that the BAM

[[Page 64610]]

states that ``[i]f the brand name includes the name of a geographic 
area that actually exists and is described in at least two reference 
materials as a grape growing area, the wine cannot be labeled with such 
a brand name.'' The NVV included in its comment a number of references 
to the Calistoga area appearing in wine-related publications and, based 
upon those references, asserted that the COLAs issued for labels 
bearing the ``Calistoga'' brand names were mistakenly issued as 
Calistoga was a clearly established term of viticultural significance 
appearing in multiple reference sources at the time of the approval. 
Further, the NVV pointed to the TTB regulations in 27 CFR part 13 
setting forth procedures by which specific COLAs may be revoked as the 
appropriate means for addressing labels that TTB may have erroneously 
approved.

TTB Response

    As noted above, in the preamble of Notice No. 77 TTB set forth the 
reasons why we proposed the step of including a limited grandfather 
provision in the proposed regulatory text. We explained that we 
recognized in the Calistoga case a rare instance in which a conflict 
between approved COLAs and the approval of a petitioned-for AVA hinged 
upon a specific term of viticultural significance in such a way that an 
appropriate compromise between the affected parties regarding the term 
could not be reached. We believe that the comments that attempt to 
define the equities in this case by portraying the different parties as 
``large'' or ``small'', or that describe the Notice No. 77 proposal as 
``protecting'' one entity over another, raise points that are not 
germane to the fundamental issue that Notice No. 77 addressed.
    The present rulemaking raised the question of what to do about 
viticultural area petitions that are received long after the issuance 
in 1986 of Sec.  4.39(i) on the use of geographical brand names of 
viticultural significance where the petition proposes a name that 
results in a conflict with a brand name first used on an approved COLA 
not covered by the grandfather provision in Sec.  4.39(i). Such a 
circumstance may occur for legitimate reasons because exact terms of 
viticultural significance are not always universally agreed upon, and 
relevant facts and issues regarding terms and areas of viticultural 
significance are not always brought forward until a petition is 
published for rulemaking. Notice No. 78 addressed this issue in general 
terms. In the present rulemaking, TTB has to resolve it in the context 
of the Calistoga name.
    We do not agree that, in light of statements appearing in the BAM, 
the COLAs for labels bearing the ``Calistoga'' brand names were 
mistakenly issued. The BAM was published as guidance to assist the 
industry in understanding the pertinent regulatory provisions, in this 
case, those appearing at Sec.  4.39(i)(3) pertinent to the use of 
geographic brand names on wine labels. As we have noted, that 
regulation provides that a name has viticultural significance when it 
is the name of a State or county (or the foreign equivalent), when 
approved as a viticultural area in accordance with the regulations in 
27 CFR part 9, or by a foreign government, or when found to have 
viticultural significance by the appropriate TTB officer under Sec.  
4.39(i)(3). The regulations specifically provide discretion to the 
Bureau with regard to making such determinations. Regardless of whether 
TTB or its predecessor agency should have done so, the fact remains 
that, when labels containing the ``Calistoga Cellars'' brand name or 
the ``Calistoga Estate'' brand name were approved, no specific 
determination had been made by TTB that the name ``Calistoga'' was 
viticulturally significant.
    In the past, TTB and its predecessor agency looked at the proposed 
names of the AVAs to determine whether they would mislead the consumer 
taking into account existing brand names (see Stags Leap, Spring 
Mountain, Diamond Mountain, Oak Knoll, etc.). Where the proposed AVA 
name did not lead to a likelihood of confusion, for example because the 
proposed name included an additional word such as ``District'' or 
``Hills'' that distinguished it from another identical name (such as a 
brand name), the name was approved. Alternatively, where the proposed 
name would likely lead to confusion, the assessment turned to 
alternative names proposed by the petitioner or commenters. In the 
present rulemaking, neither situation is present. The proposed name 
Calistoga would conflict with the existing brand names and a 
satisfactory alternative name has not been proposed by the petitioner 
or commenters nor found by TTB.
    Notwithstanding the considerations noted above, we have concluded 
for the reasons set forth below that the adoption of a specific, 
limited grandfather provision would not be appropriate in this case.
    We believe that, consistent with the purpose behind the labeling 
provisions of the FAA Act and existing regulations, in particular Sec.  
4.39(i) which would preclude the use of a brand name that does not 
conform to the requirements for use of the AVA name, a change that 
would permanently affect the application of Sec.  4.39(i) would not be 
warranted in this case. Moreover, a specific grandfather provision for 
one winery is an approach that TTB and its predecessor have not used in 
the past. We believe in this matter that a label with the proposed 
disclaimer may not provide a consumer with adequate information as to 
the identity of the product but rather may result in the consumer being 
misled as to the true origin of the grapes used to produce the wine. 
Section 4.39(i) has been in effect for over 20 years, and its 
application and effect have been well understood over that period of 
time. That is, when it cannot be otherwise avoided the government may 
make a choice between competing commercial interests by requiring 
existing labels' compliance with regulations establishing a new AVA.
    Furthermore, the use of a grandfather provision would result in the 
application of multiple standards for the use of one name on wine 
labels, leading to potential consumer confusion and thus potentially 
frustrating the consumer protection purpose of the FAA Act labeling 
provisions. In the present case, we conclude that it is preferable as a 
matter of consumer protection for ``Calistoga'' to have only one 
meaning and association for viticultural area purposes. Accordingly, in 
this final rule we are not adopting a grandfather provision in the new 
Sec.  9.209 text, and, as a consequence of this decision we are not 
adopting the proposed conforming amendment to Sec.  4.39(i).

Whether the Proposed Action Would Result in a Taking of Property

    One commenter suggested, in the context of Calistoga Estate, that 
the proposal would take away the label and that therefore the brand, as 
property, would be taken away by the government.

TTB Response

    We do not agree that applying the regulations set forth at Sec.  
4.39(i) constitutes a ``taking'' of property. TTB and its predecessor 
agency have long held that the certificate of label approval was never 
intended to convey any type of proprietary interest to the certificate 
holder. Indeed a statement to that effect was made in T.D. ATF-406 
published in the Federal Register (64 FR 2122) on January 13, 1999, 
which set forth the procedures by which specific COLAs may be revoked. 
Moreover, the form required for use in applying for label approval, TTB 
F 5100.31, Application

[[Page 64611]]

for and Certification/Exemption of Label/Bottle Approval, states, 
``This certificate does not constitute trademark protection.'' In 
addition, we note that affected wineries may continue to use the labels 
in question if they configure their wines so that at least 85 percent 
of the wine is produced from grapes grown within the Calistoga 
viticultural area.
    We note that a ``taking'' may occur under the Fifth Amendment, 
inter alia, when the government restricts some of the owners' uses of 
private property even though the owner is left with a substantial 
economic use. Consistent with the Supreme Court's decision in Penn 
Central Transp. Co. v. New York City, 438 U.S. 104 (1978), three 
considerations may be applied in this situation to conclude that the 
government's action is not a taking. First, the nature of the 
government action to protect consumers from misleading labels and to 
prevent new conflicting brand names from coming into use after the 
establishment of a viticultural area is sound public policy. The brand 
names ``Calistoga Cellars'' and ``Calistoga Estate'' may continue to be 
used but simply must be used in a manner that conforms to the 
requirements of Sec.  4.39(i) to ensure that consumers are not misled. 
That is, these brand names must be used in a truthful manner. See 
Bronco Wine Co. v. Jolly, 129 Cal.App.4th 988, 29 Cal.Rptr.3d 462, 
(Cal. Ct. App. 2005), review denied, 2005 Cal LEXIS 9470 (Aug. 24, 
2005) and cert. denied, 546 U.S. 1150 (2006). Second, the negative 
economic impact on the affected brand names is mitigated by the fact 
that the government action leaves significant value in the brand name 
when it is used with grapes from Calistoga, or when the brand name is 
sold to a winery for use on wine eligible for the Calistoga 
viticultural name, and the brand name also may gain enhanced value from 
the new viticultural area designation. See Andrus v. Allard, 444 U.S. 
51 (1979). Finally, the investment-back expectations are not derogated 
because all affected brand names came into use after publication of the 
current rule in Sec.  4.39(i) and the approval of COLAs by TTB or its 
predecessor did not imply that the brand name could be used in every 
situation.

Whether Affected Wineries Should Be Allowed a Time Period To Phase Out 
Noncompliant Labels

    NVV asserted that it would be reasonable to allow Calistoga Cellars 
to phase out, over a 3-year period, its use of the Calistoga Cellars 
brand name on wine not complying with the appellation of origin 
requirements for the Calistoga viticultural area. NVV pointed out that 
a similar sunset principle was provided for varietal names and for the 
implementation of the original appellation of origin rules in T.D. ATF-
53, 43 FR 37672 (Aug. 23, 1978). An attorney commenting on behalf of 
Calistoga Estate also argued that, should TTB decide to establish an 
AVA for the Calistoga area that does not permit Calistoga Estate to 
continue using the Calistoga Estate brand name on wine produced from 
grapes purchased elsewhere in the Napa Valley, TTB should provide 
Calistoga Estate a minimum 3-year phase-out period to allow the 
establishment of a new brand. The commenter argued that a minimum 3-
year transition period would allow Calistoga Estate to ``fully inform 
wholesalers, brokers, control state buyers, retailers and consumers 
about its new name, allowing it to transition the goodwill now 
associated with the Calistoga Estate wine to another brand name.'' In 
addition, the commenter cited other factors in support of a 3-year 
transition period, including the need to use up existing label stocks, 
the need to design new labels and receive TTB approval of those labels, 
and the need to test consumer acceptance of any new brand name. The 
commenter cited other TTB rulemaking actions that allowed for a 3-year 
transition period.

TTB Response

    We agree with the comments received, and accordingly we believe 
that a 3-year use-up period would be sufficient and appropriate to 
transition the affected brand labels without unnecessary disruptions or 
economic costs. Therefore, we are providing for a 3-year transition 
period for the affected brand labels. As pointed out in the comments, 
there is agency precedent for such a transition period. In addition to 
the commenter's reference to the 5-year transition period for the 
original appellation of origin rules, among others, TTB provided a 1-
year transition period for brand labels affected by the change in the 
name of the Santa Rita Hills AVA to the Sta. Rita Hills AVA, T.D. TTB-
37, 70 FR 72710 (Dec. 7, 2005). We are providing this 3-year transition 
period to allow the use-up of existing label stocks, to provide time 
for the design of new labels, to submit labels and receive label 
approvals from TTB, and to allow each affected brand label holder the 
opportunity to consider other changes required of its business model in 
light of this rulemaking, including whether to begin sourcing 85 
percent or more of its grapes from the new Calistoga viticultural area 
in order to continue to use its brand name or to transition to a new 
brand name.

TTB Finding

    After careful consideration of the evidence submitted in support of 
the petition and the comments received, for the reasons set forth 
above, TTB finds that the evidence submitted supports the establishment 
of the proposed viticultural area. The petitioners submitted sufficient 
evidence of the viticultural distinctiveness of the Calistoga area, and 
the comments did not include contradictory evidence. TTB also finds 
that ``Calistoga'' is the most appropriate name for the area. The 
evidence clearly shows that ``Calistoga'' is the name by which the area 
is locally and regionally known and that the term ``Calistoga'' by 
itself has been associated historically with viticulture, specifically 
Napa Valley viticulture.
    TTB finds that the evidence submitted by the petitioners 
establishes that designation of the Calistoga viticultural area is in 
conformity with applicable law and regulations. Therefore, under the 
authority of the Federal Alcohol Administration Act and part 4 of our 
regulations, we establish the ``Calistoga'' viticultural area in Napa 
County, California, effective 30 days from the publication date of this 
document with a 3-year transition period for the use of existing 
approved COLAs for labels containing ``Calistoga'' in the brand name on 
wine that does not qualify for the ``Calistoga'' designation.

Boundary Description

    See the narrative boundary description of the viticultural area in 
the regulatory text published at the end of this final rule.

Maps

    The maps for determining the boundary of the viticultural area are 
listed below in the regulatory text.

Impact on Current Wine Labels

    Part 4 of the TTB regulations prohibits any label reference on a 
wine that indicates or implies an origin other than the wine's true 
place of origin. With the establishment of this viticultural area and 
its inclusion in part 9 of the TTB regulations, its name, 
``Calistoga,'' is recognized under 27 CFR 4.39(i)(3) as a name of 
viticultural significance. The text of the new regulation clarifies 
this point. Consequently, wine bottlers using ``Calistoga'' in a brand 
name, including a trademark, or in another label reference as to the 
origin of the wine, must ensure that the product is eligible to use the 
viticultural area's name as an appellation of origin or meets the

[[Page 64612]]

requirements for application of the existing Sec.  4.39(i) 
``grandfather'' provision.

Regulatory Flexibility Act

    We certify that this regulation will not have a significant 
economic impact on a substantial number of small entities. This rule 
would impact only a small number of existing entities. In addition, 
this regulation imposes no new reporting, recordkeeping, or other 
administrative requirement. Any benefit derived from the use of a 
viticultural area name is the result of a proprietor's efforts and 
consumer acceptance of wines from that area. While we received comments 
suggesting that two small wineries might be adversely impacted by the 
adoption of the Calistoga AVA without some sort of relief, the final 
rule provides such relief in the form of a three-year period to allow 
the use-up of existing labels, to transition to new labels, or to 
consider other options for changing business practices to comply with 
the regulatory provisions. A search of the COLA database disclosed that 
several other brand names incorporating the name ``Calistoga'' appear 
on approved labels and the holders of those brand names did not comment 
on the proposal. It may be that these brand names are used on wines 
that are eligible for Calistoga AVA requirements or otherwise comply 
with Sec.  4.39(i). In any case, to the extent those names are limited 
by the establishment of the Calistoga AVA, they are eligible for the 
continued use allowed under the transition period. Therefore, no 
regulatory flexibility analysis is required.

Executive Order 12866

    This rule is not a significant regulatory action as defined by 
Executive Order 12866 (58 FR 51735). Therefore, it requires no 
regulatory assessment.

List of Subjects in 27 CFR Part 9

    Wine.

The Regulatory Amendment

0
For the reasons discussed in the preamble, we amend 27 CFR, chapter 1, 
part 9, as follows:

PART 9--AMERICAN VITICULTURAL AREAS

0
1. The authority citation for part 9 continues to read as follows:

    Authority: 27 U.S.C. 205.

Subpart C--Approved American Viticultural Areas

0
2. Subpart C is amended by adding Sec.  9.209 to read as follows:


Sec.  9.209  Calistoga.

    (a) Name. The name of the viticultural area described in this 
section is ``Calistoga''. For purposes of part 4 of this chapter, 
``Calistoga'' is a term of viticultural significance.
    (b) Approved maps. The appropriate maps used to determine the 
boundary of the Calistoga viticultural area are four United States 
Geological Survey 1:24,000 scale topographic quadrangle maps. They are 
titled:
    (1) Mark West Springs, Calif. (1993);
    (2) Calistoga, CA (1997);
    (3) St. Helena, Calif. (1960, revised 1993); and
    (4) Detert Reservoir, CA (1997).
    (c) Boundary. The Calistoga viticultural area is located in 
northwestern Napa County, California. The boundary beginning point is 
on the Mark West Springs map at the point where the Napa-Sonoma county 
line intersects Petrified Forest Road in section 3, T8N/R7W. From this 
point, the boundary:
    (1) Continues northeasterly along Petrified Forest Road 
approximately 1.9 miles to the road's intersection with the 400-foot 
contour line near the north bank of Cyrus Creek approximately 1,000 
feet southwest of the intersection of Petrified Forest Road and State 
Route 128 on the Calistoga map;
    (2) Proceeds generally east-southeast (after crossing Cyrus Creek) 
along the 400-foot contour line to its intersection with Ritchey Creek 
in section 16, T8N/R6W;
    (3) Follows Ritchey Creek northeast approximately 0.3 mile to its 
intersection with State Route 29 at the 347-foot benchmark;
    (4) Proceeds east-southeast along State Route 29 approximately 0.3 
mile to its intersection with a light-duty road labeled Bale Lane;
    (5) Follows Bale Lane northeast approximately 0.7 mile to its 
intersection with the Silverado Trail;
    (6) Proceeds northwest along the Silverado Trail approximately 
1,500 feet to its intersection with an unmarked driveway on the north 
side of the Silverado Trail near the 275-foot benchmark;
    (7) Continues northeasterly along the driveway for 300 feet to its 
intersection with another driveway, and then continues north-northeast 
in a straight line to the 400-foot contour line;
    (8) Follows the 400-foot contour line easterly approximately 0.7 
miles to its intersection with an unimproved dirt road (an extension of 
a road known locally as the North Fork of Crystal Springs Road), which 
lies in the Carne Humana Land Grant approximately 1,400 feet southwest 
of the northwest corner of section 11, T8N/R6W on the St. Helena map;
    (9) Continues northerly along the unimproved dirt road 
approximately 2,700 feet to its intersection with the 880-foot contour 
line in section 2, T8N/R6W;
    (10) Follows the meandering 880-foot contour line northwesterly, 
crossing onto the Calistoga map in section 2, T8N/R6W, and continues 
along the 880-foot contour line through section 3, T8N/R6W, sections 34 
and 35, T9N/R6W, (with a brief return to the St. Helena map in section 
35), to the 880-contour line's intersection with Biter Creek in the 
northeast quadrant of section 34, T9N/R6W;
    (11) Continues westerly along the meandering 880-foot contour line 
around Dutch Henry Canyon in section 28, T9N/R6W, and Simmons Canyon in 
section 29, T9N/R6W, to the contour line's first intersection with the 
R7W/R6W range line in section 30, T9N/R6W;
    (12) Continues northerly along the meandering 880-foot contour line 
across the two forks of Horns Creek and through Hoisting Works Canyon 
in section 19, T9N/R6W, crossing between the Calistoga and Detert 
Reservoir maps, to the contour line's intersection with Garnett Creek 
in section 13, T9N/R7W, on the Detert Reservoir map;
    (13) Continues westerly along the meandering 880-foot contour line, 
crossing between the Calistoga and Detert Reservoir maps in sections 13 
and 14, T9N/R7W, and in the region labeled ``Mallacomes or Moristul y 
Plan de Agua Caliente,'' to the contour line's intersection with the 
Napa-Sonoma county line approximately 1.1 miles northeast of State 
Route 128 in the ``Mallacomes or Moristul y Plan de Agua Caliente'' 
region, T9N/R7W, of the Mark Springs West map; and
    (14) Proceeds southerly along the Napa-Sonoma county line to the 
beginning point.
    (d) Transition Period. A label containing the word ``Calistoga'' in 
the brand name approved prior to December 8, 2009 may not be used on 
wine bottled on or after December 10, 2012 if the wine does not conform 
to the standards for use of the label set forth in Sec.  4.39(i) of 
this chapter.


[[Page 64613]]


    Signed: December 1, 2009.
John J. Manfreda,
Administrator.

    Approved: December 1, 2009.
Timothy E. Skud,
Deputy Assistant Secretary (Tax, Trade, and Tariff Policy).
[FR Doc. E9-29217 Filed 12-3-09; 4:15 pm]
BILLING CODE 4810-31-P