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Supreme Court Rules on Direct Shipping Ban

May 17, 2005 - The Supreme Court handed a major victory to wine producers and consumers, striking down as unconstitutional state laws that had blocked out-of-state wineries - but not in-state ones - from shipping directly to residents.

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The court said that laws in Michigan and New York were unconstitutional because they were designed to give in-state wineries "a competitive advantage over wineries located beyond the state's borders."

In a 5-4 decision, the court threw out as anti-competitive, laws in New York and Michigan. Justice Anthony Kennedy, writing for the majority said that states that ban direct shipping violate the Commerce Clause of the Constitution, outweighing states rights to regulate the sale of alcohol as they deem fit, which was granted at the repeal of prohibition,

There are complex implications for both beer and the wholesaler tier.

Although beer is not specifically mentioned in the ruling, it is almost certain that brewers will be allowed to ship direct as well. This may be a slight advantage to craft brewers, particularly those who market expensive, esoteric styles available in large bottles, in which the shipping cost of about $20 per case might be reasonable to consumers seeking hard to find beers. But the impact will not be nearly as great as it will in the wine industry, where some boutique wineries sell as much as 10% of their products by mail even under the previous restrictions.

The decision was a big blow to wholesalers who have been fending off a number of legal cases attacking wholesaler protections. A pending case in Washington State was filed by Costco and seeks to eliminate laws that mandate retailers buy from licenses wholesalers, rather than direct from suppliers. It's hard to imaging how the Supreme Court could allow suppliers to ship direct to the consumer but not to retailers. But the heart of yesterdays ruling is not so much the right of the suppliers to ship direct, as much as the fact that states can not discriminate between who can and can not ship direct. If that reasoning holds true as the basis for the courts ruling, it would have no bearing on the Costco case. The Costco case is expected to make it to the Supreme Court as well, and could have major and long-lasting implications for how beer and wine is distributed to the retail trade.

Wholesalers were not too alarmed by yesterdays outcome. The Supreme Court had the option to determine that the whole system of alcohol regulation was discriminatory and that direct sales should be the law of the land. Instead, the ruling simply says that states can not allow in-state wineries to ship to consumers, while not allowing out-of-state wineries to do the same. The decision will have no impact on 15 sates that already ban direct shipping altogether.


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