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Costco Appeal

May 3, 2005 - The Washington State Liquor Control Board announced today it intends to appeal the decision of U.S. District Court Judge Marsha Pechman, which struck down several key elements of the state's three-tier system regulating the distribution and sale of beer and wine in a suit brought by Costco.

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In announcing the appeal, the Liquor Control Board indicated it believes the judge's decision to overturn Washington laws designed to moderate alcohol consumption and promote a safer and healthier society was flawed.

The Board also believes the judge ruled incorrectly that Washington's right to regulate alcohol is subordinate to federal anti-trust laws designed to encourage commerce. The Board said the judge's ruling failed to balance legitimate societal concerns about the negative affect of alcohol consumption with the interests of large corporations that profit from the sale of alcohol.

During the trial, the state presented expert witness testimony showing that its price controls are effective in moderating consumption. The state also presented evidence to illustrate how its regulatory structure created an orderly market and efficient tax collection system.

Among the specific restraints the judge struck down was a ban on volume discounts. If the judge's ruling is allowed to stand, the Board said, deep discounting practices for beer and wine could become common in retail stores across the state, not just at Costco.

The judge ruled that one element of the state's regulatory system - a ban on the retailer-to-retailer sale of beer and wine - was valid because it is a unilateral restraint which does not violate federal anti trust laws. By allowing this restraint to stand, the judge barred Costco and other large retailers from acting as unregulated distributors of beer and wine.

The Costco suit is being watched closely by a diverse group of interested parties nationwide, including retailers, wholesalers, manufacturers, control and non-control states. If the judge's rulings in the case are upheld on appeal, they could force sweeping changes in the way alcohol is regulated in the United States, further reducing states' rights to manage alcohol as a controlled substance.


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