A U.S. appeals court upheld a 2023 decision that Constellation Brands can sell Modelo-branded hard seltzer drinks, dealing a blow to Grupo Modelo owner AB InBev.
The dispute, which dates back to 2021, hinged on whether hard seltzer could be classified as “beer.”
AB InBev’s Mexican arm Grupo Modelo filed the lawsuit against Constellation accusing the company of violating a brand licensing agreement when it launched Corona Hard Seltzer. The lawsuit said the agreement only allowed Constellation to use Corona in the U.S. for beer. (AB InBev owns the rights to Corona in Mexico and the rest of the world.) Constellation countered that the licensing deal allowed it to sell other alcoholic drinks.
Last year, a Manhattan jury agreed that Constellation’s license to distribute Corona and Modelo branded beverages allowed it to sell products such as Corona Hard Seltzer and Modelo Ranch Water.
The U.S. Court of Appeals for the Second Circuit reaffirmed that decision this week. The three-judge panel said both companies’ definitions of what drinks constitute “beer” are plausible. As a result, it is unclear whether Corona Hard Seltzer could not be classified as beer under the contract, as Grupo Modelo claimed.
“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,” the appeals court decision read.
After AB InBev took full control of Grupo Modelo in 2013, AB InBev had to divest Corona, among other Mexican brews sold in the U.S., to Constellation, following a deal with regulators who were concerned its market share would have been too high. A predecessor of Constellation started distributing Modelo’s beers in 1996.
Grupo Modelo said it will continue to enforce commercial agreements on the Modelo brand.
“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,” a Grupo Modelo spokesperson told Vinepair this week.
In a statement to Brewbound, Constellation said it is pleased the court reaffirmed the decision and that it looks forward to “putting this issue behind us and focusing on driving the continued success of our business.”