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How to Counterfeit Wine and Tom Jefferson’s Role

Posted in The Business of Wine

petrus.JPGBill Koch is very well known these days in the wine world.  Mr. Koch has been actively pursuing parties in the wine distribution chain.  He has alleged that he was sold counterfeit wine.  Mr. Koch named six different wine sellers, distributors and auctioneers in his lawsuits, the outcomes of which have attracted much attention and may have repercussions in the industry. 

            Counterfeiting by the bottle

Unfortunately, it is too easy to counterfeit using bottles.  Today, I could buy an empty bottle of 1996 Chateau Petrus on eBay for 99 cents – for a bottle that could sell for over $2,000 if filled with the real thing.  You can buy one just like the one in this picture.  Just fill that bottle up with some less expensive wine, cork it and you are in business to make a major profit!

Or take an old bottle, remove the cheapo label, put on an ancient looking label you have made on your word processor that calls it a great Bordeaux.  Look for a willing buyer or auction house to sell it for you.

            Counterfeiting the grape

Counterfeiting can also happen with grapes and can even fool the experts.  Recently, E & J Gallo revealed that it had purchased Shiraz and Merlot grapes that it had been told by growers was Pinot Noir.  These cheaper grapes went into Red Bicyclette “Pinot Noir.”   In all, twelve people were convicted of fraud by the French courts.

            Mr. Koch and the 1787 Thomas Jefferson Bottle   

Mr. Koch is a purchaser of the now infamous “Thomas Jefferson” wine, was sold to him.  The seller believed that the wine was a 1787 vintage and that the bottles’ etching of “Th. J” indicated Thomas Jefferson as the first owner.   However, after his purchase, Mr. Koch requested that the Jefferson Foundation verify the bottles came from Thomas Jefferson.  The Foundation declined.  In the end, significant evidence was presented that the etchings on the bottles were made within the last 100 years. 

                Legal Claims

Stung by the apparently counterfeit wine, Mr. Koch sued.  Being creative lawyers, Mr. Koch’s attorneys asserted claims against six different parties in the wine’s sales chain.  The claims that were asserted in some of the several lawsuits included: 

1.  Breach of Contract – With an agreement for sale and purchase, there is grounds for a claim that there was a contract for the sale of a specific famous wine.  If that statement is not true, the contract is breached.  Under laws of most states, an aggrieved party has 4 years to file a claim for breach of a written contract and 2 years for an oral contract.

2.  Breach of Warranty – It is common for sellers to describe their product as “excellent” or the “best.”  This sets up a potential for breach of a “warranty.”  Most auction houses sell wines “as is” and affirmatively state that they do not make any representation or guarantee.    Some courts will enforce these statements, but will look at other facts to decide if there is a warranty.

3.  Negligence – Buyers will argue that the seller is in a position of greater knowledge about what is in the bottle and must take care to be correct about descriptions.  This creates a “duty of care” in selling bottles to insure that the bottle contains what sellers say it contains.  This is normally a two year claims period after the sale.

4.  Fraud – When a seller knowingly sells counterfeit wine and a buyer can prove that he would not have purchased the bottle but for statements made by the seller, there is a claim for fraud.  Each state statute controls what has to be shown in order to prevail on a fraud theory.

5.  Negligent Misrepresentation – If a seller does not knowingly make fraudulent statements, they can still be sued under a negligent misrepresentation theory.  That theory states that a party makes an assertion of fact, without having a basis for the belief.  If that fact is incorrect and material, it forms the basis of a negligent misrepresentation lawsuit.

6.  Unfair Business Practices – Most states have statutes that prevent unlawful, unfair or fraudulent business practices.  These laws may differ by state.  A court would review the facts to determine if there is a business practice that does not pass legal muster. 

Sellers who wish to avoid liability under these theories must make it absolutely clear, both in writing and in all their oral statements, that they do not guarantee or warrant what they are selling.  If this is done sufficiently, a court is more likely to decide that this is a situation for applying the old adage – “buyer beware.” 

Bill Koch spent $500,000 for 4 bottles of hand blown glass with initials “TH. J.”, and, as yet, has failed to recover any of that money.  In fact, a U.S. Appeals Court just dismissed his suit against some parties, based on the passage of the statute of limitations.