SOUR GRAPES

By David S. Jackson/San Francisco

When Susan Shand, a journalist in Washington, needed wine for a dinner party she was hosting, she headed for the store to buy her favorite brand: Kendall-Jackson Vintner's Reserve Chardonnay. Later that evening, however, she discovered that she had bought Turning Leaf, a new Gallo wine, instead. "I looked like an idiot," she recalls.

A petit faux pas, at worst, certainly nothing to make a federal case out of--unless you happen to be Jess Jackson. The burly lawyer turned winemaker created a new market segment with Kendall-Jackson Vintner's Reserve Chardonnay. When mistakes are made like Shand's, he believes it's because Turning Leaf's owner, industry giant E. & J. Gallo Winery, has unfairly copied his bottle design. So Jackson is suing Gallo, claiming it has co-opted sales of his category-topping Vintner's Reserve. Gallo disputes the charges, but there is no disputing Turning Leaf's rousing success. It shot up to second place in less than two years in the premium varietal market.

The trial between Kendall-Jackson and Gallo over so-called trade dress infringement has vintners from California's Santa Barbara to the Alexander Valley aghast at the spectacle of two of the industry's more cantankerous personalities' slugging it out. Some of the biggest names in the business--Sebastiani, Mondavi and Wente--have been called as witnesses. "This is like wrestling with a gorilla 30 times your size," says Jackson. "But if I don't fight them, who will?"

Jackson has the ego and pocketbook to do the job, and his efforts have paid off in a rare, unfiltered glimpse into the inner workings of the family-owned Gallo empire, the country's largest vintner, with sales last year of $1.2 billion. Gallo's wines may vary in quality, but its marketing and distribution muscle is top shelf. Turning Leaf turns up everywhere, and with good reason. Aided by a series of confidential memos, Jackson's lawyers showed how Gallo executives, pressured by their demanding chairman Ernest Gallo, took careful aim at the leader of the popularly priced Chardonnay market. Gallo launched its new wine directly at Kendall-Jackson, propelled by a $10 million advertising blitz and enough consumer surveys to fuel a presidential campaign.

Kendall-Jackson, whose total ad budget is $1 million, never knew what hit it. By late 1995, after a heady decade of 15%-to-20% annual sales growth, Vintner's Reserve Chardonnay began to falter. Gallo's Turning Leaf, priced at $6, was cheaper than Kendall-Jackson's $10 bottle; but its packaging, from the flanged top, visible cork and thin, cigar-band neck wrapper down to its multicolored grape leaf, was strikingly similar.

As the internal documents illustrated, Gallo had methodically tested every element of the labels and packaging of Kendall-Jackson and other brands to see what consumers liked. At a January 1994 meeting, Ernest Gallo set his goal: "We want to do in one year what it took Kendall-Jackson 10 years to do in a field they had to themselves."

Gallo had no choice. The market for its flagship jug wines was shrinking, and it desperately needed some winners in the higher price ranges. But the Gallo name was a problem. Focus groups identified it with cheap wine and high-alcohol brands like Thunderbird.

When Turning Leaf hit the shelves in September 1995, the only hint of its origin was the Modesto, California, address; the word Gallo was nowhere to be found. Boosted by advertising, the wine sold 1.3 million cases in 1996, second to Kendall-Jackson. In April 1996, after hearing complaints that consumers thought Turning Leaf was his product, Jackson sued.

In court, Gallo officials insisted that Turning Leaf, with its lower price, was aimed at a different market from Vintner's Reserve. And they strenuously denied copying Kendall-Jackson or anyone else. They pointed to the dozens of bottles on exhibit--so many that the courtroom looked more like a tasting room than a legal chamber--to argue that Kendall-Jackson's look was neither unique nor distinctive.

Jackson, 67, and Gallo, 88, are well matched; both are stubborn and litigious. Jackson once sued his winemaker to keep him from divulging "trade secrets," and Gallo sued his own brother to prevent him from using the family name on a line of cheeses. "It's rare that you have the right combination of ego, money and enough at stake so that neither side is willing to compromise," says San Francisco trademark expert Melville Owen. "I don't think we'll see this kind of case again for 10 or 20 years."

Although Gallo didn't testify at the trial, Jackson did, and he lived up to his combative reputation. Asked why he didn't just pick up the phone and ask Gallo to change his design, he said it would have been "useless" to try. "Frankly, given his reputation, I didn't trust whatever he'd answer anyway." Jackson's flamboyant attorney, Fred Furth, a towering figure who strolled the courtroom corridors chewing on an unlit cigar the size of a flashlight, constantly jabbed at Gallo's "jug wine" reputation and drew a rebuke from the judge when he derided Gallo as the company whose wines "fry people's brains." Furth is in the business too: he owns the widely acclaimed Chalk Hill Winery.

The case is a toss-up. Me-too marketing happens in nearly every product category--think "ice" beer and "lite" everything. But there is a point when imitation becomes more than flattery. If Gallo is found guilty, it could be forced to redesign its Turning Leaf packaging and turn over millions in profits to Kendall-Jackson.

Jackson says a liable verdict "would be a step toward eliminating illegal activity in the industry, and there's a lot of it." But if he loses, he vows defiantly, "We'll appeal." In the meantime, read those labels carefully.