US case could mean wine price drop
- Wednesday 3 May 2006
The first anniversary of the US Supreme Court’s landmark decision liberalizing interstate wine shipping is approaching - and consumers’ champions are riveted on a Pacific Northwest regulatory case that could lead to reduced retail wine prices nationwide.
Wine industry members worry that the outcome may prove more revolutionary in America’s increasingly sophisticated wine culture than the 2005 ruling.
A US judge in Washington, the No. 2 wine-producing state after California, on April 21 junked certain state regulations governing wine sales. She said they violated national antitrust law that seeks to promote free trade.
The wine industry in 40 other states will study her ruling and the losing side’s planned appeal for potential legal and political challenges to already weakening alcoholic-beverage control systems. Newly powerful organized critics consider these systems archaic and anti-consumer.
The Seattle judge’s finding solidly favored the plaintiff, Washington-based Costco, America’s largest discount seller of fine wines, which sued the state’s Liquor Control Board in 2004.
Costco complained that state regulations artificially inflated wine prices. Agreeing, Judge Marsha Pechman declared, ‘The restraints . . . are plainly anticompetitive, and there is no dispute that these restraints increase the average cost of . . . wine in Washington.’
The Control Board argued that its restrictions were permitted by the 21st Amendment to the national Constitution, which ended Prohibition in 1933 and gave the states power to control alcohol.
Like many states, Washington created a three-tier system: producers have to sell to middlemen (distributors, wholesalers), who, adding markups, have to sell to retailers.
Crucially, the judge voided a regulation banning volume discounts for big buyers that stung Costco, which purchases in bulk, marks up branded items maximally 14 percent and passes savings to customers.
She junked rules forcing producers and middlemen to each mark up their wines at least 10 percent over cost; requiring them to post and hold their prices for a month; and obliging middlemen to charge all retailers the same prices.
The judge wrote that Washington State’s interests in efficient revenue collection, maintaining an ‘orderly’ market and promoting moderate consumption ‘do not trump the federal interests in promoting competition.’
This opinion echoed the Supreme Court’s conclusion last year that state law favoring in-state over out-of-state wineries in wine shipping was unconstitutional. A result is that consumers from coast to coast now obtain wines that had been long unavailable.