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US Supreme Court rules in favour of interstate shipping

In a decision that is likely to revolutionise the United States wine industry, the Supreme Court ruled today that Americans can buy directly from out-of-state wineries.

Delivering a 5-4 decision, the nation’s highest court, in Washington, struck down laws in New York State and in Michigan that make it illegal to buy wines this way.

The decision was a victory for small vintners and a defeat for wholesalers and distributors.

In writing the opinion for the majority, Justice Anthony M Kennedy declared: ‘States have broad power to regulate liquor. This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipments of wine, it must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our Commerce Clause jurisprudence, these regulations cannnot stand.’

The central issue was the 21st Amendment to the Constitution, which ended Prohibition in 1933 and authorised the states to regulate alcohol sales. One widespread result was that about half the 48 states then existing (there are 50 now) enacted legislation that required out-of-state wine producers to sell their goods through wholesalers and retailers.

On the other hand, the Constitution says, in its so-called Commerce Clause, that states cannot enact measures that discriminate against out-of-state businesses.

As a result, New York passed legislation that allowed New York wineries to ship wines directly to New York customers, and Michigan did the same for Michigan wineries and Michigan customers. But Michigan law bars shipments from out-of-state vintners to its customers, and New York law sets conditions that discourage such shipments.

The states that prevent shipments from out-of-state producers are Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Ohio, Oklahoma, Pennsylvania, New Jersey, New York, South Dakota, Tennessee, Utah and Vermont.

Justice Kennedy wrote that states do not possess the authority to regulate liquor simply to protect their own economic interests.

The Institute for Justice, a Washington-based libertarian organisation, which brought the case to the Supreme Court, said that the outcome had huge implications for both interstate and electronic commerce.

The Institute represented owners of a family farm in Virginia and in California who wanted to sell their wines out of state, and New Yorkers who wanted to buy their wines, but could not do so.

‘This is the best day for wine-lovers since the invention of the corkscrew,’ said Clint Bolick, its strategic litigation counsel. ‘This landmark ruling is a victory for consumers and small businesses and a defeat for economic protectionism. Now wine lovers all across the nation can obtain their favorite wines without having to commit an act of civil disobedience.’

Robert P Koch, president and chief executive officer of the California Wine Institute said, ‘This is a major victory in the 20-year battle to end discrimination against America’s small, family wineries that want to provide consumers with access to the wines of their choice. New York and Michigan can now choose to enjoy increased tax revenues from a more diverse and orderly wine market by adopting legislation similar to that which currently benefits consumers in the majority of states.’

Owners of boutique wineries, which have multiplied in all American Viticultural Areas, have yearned to sell their wines directly to out-of-state customers because, with small portfolios, big distributors are not willing to represent them.

How the decision will play out in many states, including New York, is unclear. Legislatures will face the question of whether to pass laws that allow all wineries – or none – to ship inside their states.

Nida Samona, who is chairwoman of the Michigan Liquor Control Commission, criticised the ruling as a setback for efforts by Michigan to combat underage drinking. She told the Associated Press that the commission would urge legislators to prevent direct shipments for both local and out-of-state wineries.

In briefs to the Supreme Court, states argued that the middleman system enabled them to collection millions of dollars in alcohol taxes and that it enabled them to prevent minors from drinking.

Critics of this position, which distributors endorsed, saw it as a red herring – as an argument designed to protect their control over the wine business and their profits.

Juanita D Duggan, president and chief executive officer of the Wine and Spirits Wholesalers of America, a trade organisation that opposed the vintners, said that the court ‘affirmed a state’s right to regulate the sale and distribution of alcohol and said in doing so they must treat in-state, out-of-state and presumably out-of-country producers all the same. That means states have a choice between supporting face-to-face transactions by someone licensed to sell alcohol or opening up the floodgates.’

Duggan said her organisation ‘supports state efforts to strengthen – not weaken – alcohol laws by making all producers play from the same set of rules that ensure accountable, responsible alcohol sales. Face-to-face ID checks by those licensed to sell alcohol are the best way to do that.’

Chief Justice William H Rehnquist was one of the four dissenters.

The United States wine market totalled nearly US$21.6bn in 2003, said the California Wine Institute. There are 3,500 wineries across the country. They are found in every state.

Written by Howard G Goldberg in New York

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