Costco Decision!

Huge victory for three-tier as federal court strikes down Costco case

In a huge decision affecting the craft brewers and the three-tier system at-large, a federal appeals court in San Francisco dealt a blow to Costco Wholesale Corp.’s effort to upend decades-old beer-and-wine distribution laws.

The U.S. Court of Appeals for the Ninth Circuit overturned most of a 2006 district-court ruling that strongly favored the Issaquah, Wash., discount retailer. The case, in which Costco challenged its home state’s distribution laws, has been watched closely industry-wide because it had broad implications that could have reshaped the sales and distribution landscape dramatically.

The appeals court handed a victory to Washington state alcohol regulators, upholding key laws, including a ban on volume discounts and a rule keeping retailers from taking delivery of beer and wine at a central warehouse. The lower court had struck down eight of the nine legal provisions that Costco contested. Six of those eight were upheld in yesterday’s decision.

The appeals court did agreed with the district court that provisions requiring each beer and wine distributor to post its wholesale prices violated federal antitrust law. This will likely bring an end to “price posting” in those states that currently mandate a distributor (or distributing brewer) post their prices as public information, and hold that given price for a given period of time; usually 30 days.

Costco’s 2006 triumph attracted a lot of attention because it suggested that major changes might be in store for the nation’s complex system of regulating alcohol sales. Changes in Washington state could have had a significant and broad ripple effect, because most states have similar laws.

Costco is deciding whether to appeal the ruling. “We are pleased that the central part of the anticompetitive restraints provisions was struck down,” said David Burman, a Seattle-based lawyer handling the case for Costco, referring to the “post-and-hold” pricing provisions.