Second Circuit denies Modelo summary judgment over ambiguous terms in licensing agreement

In a dispute over definitions in a trademark licensing agreement, the US Court of Appeals for the Second Circuit has affirmed a district court’s denial of summary judgment, determining that the definition of ‘beer’ – which encompassed “other versions and combinations” of beer and malt beverages – was ambiguous (Cerveceria Modelo de Mexico S de RL de CV v CB Brand Strategies LLC, case 23/810, 25 March 2024, Cabranes, Wesley, Lohier, JJ).

Case background 

In 2013 Modelo granted a perpetual sublicence to Constellation Brands, allowing it to use Modelo’s CORONA and MODELO marks to sell beer in the United States. The sublicence defined ‘beer’ as “beer, ale, porter, stout, malt beverages, and any other versions or combinations of the foregoing, including non-alcoholic versions of any of the foregoing”. Several years later, Constellation launched Corona Hard Seltzer and Modelo Ranch Water – flavoured alcoholic seltzers derived from fermented sugar.

Modelo sued Constellation in 2021, alleging that its sales of Corona or Modelo-branded hard seltzers violated the sublicensing agreement because the licence for use of the CORONA and MODELO marks on beer did not include sugar-based hard seltzers. Modelo moved for summary judgment, which the district court denied after determining that the agreement’s definition of beer was ambiguous. At trial, the jury found that Modelo had failed to show that the seltzers were not “beer” as outlined in the sublicence. Modelo appealed.

The dispute

Modelo asserted that the district court erred in denying summary judgment. It argued that the agreement’s definition of beer was unambiguous and challenged the district court’s jury instructions and exclusion of certain evidence at trial. 

The Second Circuit agreed with the district court that the term ‘beer’ as used in the agreement was in fact ambiguous. The court noted that a motion for summary judgment in a contract dispute generally may only be granted when the relevant language has a definite meaning and is unambiguous. 

Modelo argued that the sublicence plainly excluded hard seltzers because they are not beer, malt beverages or versions or combinations of either. Modelo contended that the word “versions” in the agreement referred only to beverages with similar characteristics to beer and other malt beverages, and therefore excludes malt-free hops-flavourless hard seltzers.

Court decisions

The Second Circuit assumed for the purposes of the opinion that the plain and ordinary meanings of beer and malt beverages excluded seltzers, but reasoned that Corona Hard Seltzer and Modelo Ranch Water could plausibly be understood as versions of either. The court found Modelo’s limited view of the term ‘versions’ to be unpersuasive, given that the sublicence allowed for “nonalcoholic versions” of beer and malt beverages, even though dictionaries uniformly define ‘beer’ as containing alcohol. Since each party’s reading of “versions” was at least plausible, the court concluded that the relevant contract language was ambiguous and affirmed the district court’s summary judgment denial.

Further, Modelo argued that the district court failed to instruct the jury that undefined words should be given their plain and ordinary meanings, and that it improperly instructed the jury to ignore dictionary definitions. The Second Circuit rejected this argument, noting that the instructions properly informed the jury that it was entitled to interpret the contract with the natural and ordinary usage of its terms, extrinsic evidence and the purpose of the agreement.

Finally, the Second Circuit addressed the district court’s exclusion of evidence related to a 2013 judgment, in which Modelo agreed to sell its US-based business to Constellation. Modelo argued that the district court erred in excluding a 2020 correspondence between the DOJ and Constellation, in which the DOJ found that Corona Hard Seltzer was not beer under the terms of the 2013 judgment. 

The district court had excluded this evidence as irrelevant, reasoning that its probative value would be substantially outweighed by the risk of confusion and delay. The court found that the district court acted within its discretion in excluding the evidence, emphasising that its inclusion might have encouraged the jury to defer to the DOJ’s interpretation of ‘beer’.

Finding Modelo’s remaining arguments without merit, the court affirmed the district court’s judgment.