August 11, 2010

Opposition Mounts Against Measure To Limit Interstate Wine And Beer Sales

A bill introduced in the House this spring to allow states greater authority to regulate the interstate shipment of alcohol is facing growing opposition.

In the latest declaration against the bill, the California Assembly last week unanimously passed Senate Joint Resolution 34, urging Congress to defeat H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010.

The CARE Act is a short measure – no more than 450 words, titles included – which would “reaffirm and protect the primary authority of States to regulate alcoholic beverages.”  The Act gives lip service to the bar against states discriminating against out-of-state producers – but only “without justification.”  The Act would eliminate existing law which requires that regulation of out-of-state shipments be only “to the same extent and in the same manner” as in-state production.  The law would also impose a “presumption of validity” upon state law, restricting legal challenges to state laws governing the interstate shipment of alcohol.

The bill would allow states greater leeway to impose protectionist regulations and to block alcohol e-commerce while protecting traditional distributors.  The bill is supported by wholesalers of beer, wine and spirits who seek to protect the “three-tier system” in which wholesalers serve as middlemen between breweries, wineries, and distilleries and retailers.  

In 2005, the Supreme Court, in Granholm v. Heald, struck down laws in New York and Michigan which discriminated against direct shipments from out-of-state producers in favor of those in-state.  Granholm relied on the once dormant Commerce Clause, but the immunity offered by the CARE Act might extend to federal antitrust laws.

The Granholm Court relied heavily upon a July 2003 FTC Staff Report finding that internet wine sales provided “an important alternative to the traditional tightly-regulated, three-tiered system of producers, licensed wholesalers, and retailers.”  The Report concluded that “many states, however, ban or severely restrict the direct shipment of wine to consumers, thereby creating an entry barrier for numerous, particularly small, wineries seeking to sell their products online.”  The Report noted that “states could significantly enhance consumer welfare by allowing the direct shipment of wine,” citing the fact that many wines available to consumers online are not available in local retail outlets, and that competition from online retailers lowers prices.  The Report found no systematic evidence of problems of internet-related shipments to minors.

Categories: Legislative Updates

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