A New Age for Wine Sellers

The Supreme Court has overturned laws that bar out-of-state wine shipments. That's good news for small vintners and consumers

May 16, 2005, will go down as one of the vintage days in the history of American winemaking. In a landmark ruling that further enshrines the principle of unrestricted interstate commerce, the Supreme Court struck down Michigan and New York state laws that banned out-of-state wineries from sending wine directly to consumers, while allowing in-state wineries that right.

It was a close call -- a 5-4 split decision. In a dissent, Justice Clarence Thomas argued that the 21st Amendment, which ended Prohibition in 1933 and granted states authority to regulate alcohol sales, takes precedence over interstate commerce. But the ruling is a huge victory for the wine industry -- and for consumers, who are likely to see an expansion of choices and lower wine prices. It's also a boon for the Internet and electronic commerce, which depend on a free and open market even more than bricks-and-mortar stores.

The losers in this fight? The alcohol wholesaler industry, which maintains a tight grip on the booze distribution system. It's also a huge blow to the state attorneys general, who argued that direct shipping would make it easier for minors to get alcoholic beverages -- and for merchants to avoid sales taxes. The court majority would have none of those arguments, however. "The states provide little concrete evidence for the sweeping assertion that they cannot police direct shipments by out-of-state wineries," wrote Justice Anthony Kennedy for the majority.

JUST THE BEGINNING? The wine industry and some independent legal experts say the strongly-worded ruling will help the wine industry in its attempts to convince more states to allow direct shipping of wine to consumers. Right now, 27 states allow some form of direct shipping, including California, Washington, and North Carolina. On May 11, Texas, the fourth-largest wine-consuming state, joined the club by passing its own direct-shipping law. Twelve states, including New Jersey and Florida, ban all forms of direct shipping, in-state or out-of-state, and they aren't affected by the Supreme Court ruling. They can keep their bans.

Still, "the potential is that this will result in the opening of more markets to wineries," says Matthew Botting, an attorney with San Francisco law firm Nixon Peabody. "I do think this will influence more [states] in favor of direct shipment."

Now, the 11 states that allow in-state wineries to ship to consumers but disallow shipments from out-of-state producers will either have to rewrite their laws to ban all forms of direct shipping or allow direct shipping. "We look for a half a dozen other states to open up over time," says Robert Cook, chief executive of the Wine Institute, a trade group that represents more than 800 California wineries.

TIGHTENING THE RULES. The Wine & Spirits Wholesalers of America, an industry group, says direct shipping to consumers isn't the best way to promote accountable and responsible alcohol sales. "Face-to-face ID checks by those licensed to sell alcohol are the best way to do that," the group's President and CEO, Juanita Duggan, says in response to the ruling.

Echoing those concerns, Michigan State Liquor Regulator Nida Samona says she would advise that the state legislature ban all direct shipping of liquor. "My recommendation would be to tighten the regulations," she says. Declaring the court's decision a "victory for everyone who believes alcohol should be regulated," Samona says she believes Wolverine State Governor Jennifer Granholm, a Democrat who brought the case when she was the state attorney general, will support that position. "I would think that would be the position she would want me to take," Samona said during a conference call. "Protecting minors is the key."

Not all experts see the issue as taking priority, however. Since the high court shot down the state's arguments that the existing law protected minors and that the change would hurt tax collection, some think it will make it more difficult for Samona and other state regulators to rely on such legal underpinnings. "Now the legislatures will say, 'Show us the evidence,'" says Botting. "It will influence [the states] more in favor of direct shipment."

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