T Nation

Wine Online

For you oenophiles, you will now be happy to know it is legal to purchase your wine direct from your favorite winery. For you legal geeks, you’ll be happy to know the Dormant Commerce Clause is alive and well…

High Court Bars State Limits
On Direct Shipment of Wines

Associated Press
May 16, 2005 10:27 a.m.

WASHINGTON – The Supreme Court ruled Monday that states may not pass laws blocking outside wineries from shipping directly to customers.

The 5-4 decision strikes down laws in New York and Michigan that make it a crime to buy wine directly from vineyards in another state. In all, 24 states have laws that bar interstate shipments.

The state bans are discriminatory and anticompetitive, the court said.

“States have broad power to regulate liquor,” Justice Anthony Kennedy wrote for the majority. “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,” he wrote.

Justice Kennedy was joined in his opinion by Justices Antonin Scalia, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.

At issue was the 21st Amendment, which ended Prohibition in 1933 and granted states authority to regulate alcohol sales. Nearly half the states subsequently passed laws requiring outside wineries to sell their products through licensed wholesalers within the state.

But the Constitution also prohibits states from passing laws that discriminate against out-of-state businesses. That led to a challenge to laws in Michigan and New York, which allow direct shipments for in-state wineries but not out-of-state ones.

In a dissent, Justice Clarence Thomas argued the ruling needlessly overturns long-established regulations aimed partly at protecting minors. State regulators under the 21st Amendment have clear authority to regulate alcohol as the see fit, he wrote. “The court does this nation no service by ignoring the textual commands of the Constitution and acts of Congress,” Justice Thomas wrote.

He was joined in his opinion by Chief Justice William H. Rehnquist, as well as Justices Sandra Day O’Connor and John Paul Stevens.

Juanita Swedenburg, a Middleburg, Va., vintner, challenged the restrictive shipping laws.

Copyright ? 2005 Associated Press

WOOHOOO!!!

I bet you are wondering why I am so excited about this.

My family owns a premier Sparkling Wine winery in Massachusetts. Because of Californias stranglehold on the distribution system it has relatively hard to break into new markets…

Not any more :slight_smile:

JF

Jesusfreak,

Bush lied, Jesus died!

[quote]Jesus_Freak wrote:
WOOHOOO!!!

I bet you are wondering why I am so excited about this.

My family owns a premier Sparkling Wine winery in Massachusetts. Because of Californias stranglehold on the distribution system it has relatively hard to break into new markets…

Not any more :slight_smile:

JF[/quote]

You aren’t affiliated with Westport are you? That’s some good stuff – and if you aren’t with Westport, I’m sure yours is good as well… =-)

Some more stuff that is interesting to those who follow the Supreme Court:

http://www.professorbainbridge.com/2005/05/supreme_court_s.html

Supreme Court strikes down discriminatory bans on interstate wine shipment

From CNN:

http://www.cnn.com/2005/LAW/05/16/scotus.wine.shipments.ap/index.html

[i]“States have broad power to regulate liquor,” Justice Anthony Kennedy wrote for the majority. “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,” he wrote in an opinion joined by Justices Antonin Scalia, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.[/i]

This is more or less as I predicted ( http://www.techcentralstation.com/121004B.html ), with the court narrowly invalidating these laws on grounds that they discriminate against interstate commerce. As a result, Glenn Reynolds may not be able to enjoy “a better market for wine than Tennessee’s rather protectionist setup has heretofor permitted” and Ohioan Jonathan Adler still may not “be able to order wine direct from out-of-state.”

Indeed, it’s not at all certain that consumers in the 24 states that had banned direct to consumer sales will soon be able to buy wine on the internet and have it shipped to their home or office. If the states chose to change their laws so as to ban direct-to-consumer sales by both out-of-state and in-state wineries, those laws almost certainly would be upheld as within the states’ powers under the 21st Amendment. Given the considerable power wielded in most of those 24 by the wholesalers and retailers who benefit from bans on direct-to-consumer shipments, as well as lingering Prohibitionist sentiment in some of the more Southern and rural of them, I expect many of the 24 to enact nondiscriminatory bans on direct-to-consumer shipments.

Update: The majority consisted of Justices Anthony Kennedy, Antonin Scalia, David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer. The 4 dissenters included Justices John Paul Stevens, Clarence Thomas, Sandra Day O’Connor, Chief Justice William H. Rehnquist. ( http://www.washingtonpost.com/wp-dyn/content/article/2005/05/16/AR2005051600441.html )

Even casual followers of the Supreme Court will note that this is a VERY unusual lineup. According to the Harvard Law Review’s statistical analysis of the Supreme Court’s 2003 term (available to Westlaw subcribers), in non-unanimous cases, Stevens and Thomas vote together only 16.4% of the time. Conversely, Scalia and Souter voted together in only 20.4% of non-unanimous cases. In none of the 19 5-4 decisions handed down in the 2003 term did the Justices align as they did in this case (the 5 justice majority consisted of Rehnquist, O’Connor, Scalia, Kennedy, and Thomas in 9 of the 19 cases and of Stevens, O’Connor, Souter, Ginsburg, Breyer in 5.)

Even more strikingly, out of the 175 5-4 decisions handed down in the ten terms between 1994 and 2003, the Harvard Law Review reports (again available only to Westlaw subscribers) that the Court has never - not once - broken out as it did in this case. Think about that: The 5 justice majority had never voted together in a 5-4 case once in the last 10 years.

It just goes to show how unusual were the ideological and doctrinal issues presented by this case. You’ve got federal judicial power lined up against state legislative authority. You’ve got the original text of the constitution (albeit a principle extracted therefrom mainly by negative implication) versus an amendment tacked on validly but motivated by the worst sort of rent seeking. And so on.

I expected Ginsburg, Breyer, and Souter to bein the majority. All are federal judicial supremacists who have shown little reluctance to wield the power vested in them by the dormant commerce clause and other provisions of the constitution. All have expressed doubts about the new federalism being espoused by Rehnquist.

In contrast, I expected Rehnquist and O’Connor to dissent. Both are strong states rights-types with equally strong law-and-order streaks. I expected the states’ argument to appeal to them.

It was the other four who were harder to peg. Kennedy’s a Californian who was born in Sacramento, right next door to the intellectual capital of the wine indusiry (i.e., UC Davis). Plus, lately he’s become something of a federal judicial supremacist. His decision in Lawrence, which lashed out generally at morals legislation, suggested that he could be swayed to the pro-shipment side if the bans on direct-to-consumer sales could be painted as antiquated moralizing and rent-seeking relics of Prohibition.

As for Stevens, Scalia, and Thomas though … I must admit I’m surprised at how they sorted themselves out. Over the last ten terms, Scalia and Thomas voted together over 86% of the time. Thomas’ dissent ( http://scotus.ap.org/scotus/03-1116p.zd1.pdf ) is an interesting attempt at originalism as applied to the 21st amendment (Steven’s dissent ( http://scotus.ap.org/scotus/03-1116p.zd.pdf ) is sort of a mood piece reminiscing on the evils of demon rum as perceived by many of those who allowed the 21st amendment to pass). So maybe the really interesting question is why Scalia went with the majority? Maybe just to get the rare opportunity to be the senior justice in the majority and so have the right to assign the opinion’s drafting? Probably not. Although Scalia is no fan of the dormant commerce clause, he has written that:

http://straylight.law.cornell.edu/supct/html/93-141.ZC.html

… I will, on stare decisis grounds, enforce a self executing “negative” Commerce Clause in two situations: (1) against a state law that facially discriminates against interstate commerce, and (2) against a state law that is indistinguishable from a type of law previously held unconstitutional by this Court.

Since the state laws in question here demonstrably fell into the former category, and we can infer that Scalia was not persuaded by Thomas’ account of the 21st amendment, stare decisis required him to vote to strike down these laws.

Which is how we got this very unusual lineup.

BB:

I have no problem with this new law. I don’t have a problem with the Internet gambling either. But, to tell you the truth I am still trying to figure out how a business can run a gambling web site legally. I know it’s off shore, but the people who use the service live in the States, arn’t they subject to prosecution?

Sorry for going off topic, but honestly I don’t get it.

[quote]ZEB wrote:
BB:

I have no problem with this new law. I don’t have a problem with the Internet gambling either. But, to tell you the truth I am still trying to figure out how a business can run a gambling web site legally. I know it’s off shore, but the people who use the service live in the States, arn’t they subject to prosecution?

Sorry for going off topic, but honestly I don’t get it.[/quote]

Honestly, I don’t know either – I’ve never looked into it.

I suppose it would depend on how the gambling is regulated – specifically where the actual act of gambling is defined to have taken place.

And then there are enforcement issues, particularly w/r/t offshore websites. States would have a rough time trying to enforce their prohibitions against businesses based in foreign countries. At best I suppose they could enforce their laws against their own residents who gambled on the sites, but without access to computer records or bank records they wouldn’t really have a lot to go on. The states could also refuse to enforce claims on funds by the gambling websites on its citizens, but the websites could easily get around such problems by requiring people to fund their bets up front.

So in short, I don’t know if they’re technically legal, but there are myriad problems for states in enforcing any prohibitions.

[quote]BostonBarrister wrote:
Jesus_Freak wrote:
WOOHOOO!!!

I bet you are wondering why I am so excited about this.

My family owns a premier Sparkling Wine winery in Massachusetts. Because of Californias stranglehold on the distribution system it has relatively hard to break into new markets…

Not any more :slight_smile:

JF

You aren’t affiliated with Westport are you? That’s some good stuff – and if you aren’t with Westport, I’m sure yours is good as well… =-)
[/quote]

That is exactly who I am affiliated with :). I used to work with my family there, but my wife and I left to go to school here in PA. My brothers run the winery now, and my Mom and Dad are working over at our other busines… Buzzards Bay Brewing ! :slight_smile:

JF

so do i have this right ? :

if a state allows wineries to direct ship within it’s borders it must now allow wineries outside to ship into the state as well ?

and what if the state does not allow shipment within ? does it now ?

i think it’s a great opportunity for smaller producers.why is it so difficult to get distributed ? is it just a matter of volume ? if the wine is good doesn’t it create its own demand ?

personally i wouldn’t buy wine online unless i already knew the product. i wouldn’t be keen on having it bake at a ups depot either. and what about the bad bottles ?

still it’d be nice if you go to a vineyard and want to send stuff home.

BB,

Threads like this are interesting for me as it allows me to get a better idea of how different the States and Australia really are, even though on the surface there are so many similarities.

In Australia, I buy all of my wine, and much of my spirits, online. I click a button and 5 to 7 days later, it turns up. It never occurred to me that in the US, this wouldn’t be possible in half of the states. Admittedly, the US has a bit of a different history with Alcohol (prohibition) than Australia does (The Rum Rebellion).

Another eye opener - Cheers.

[quote]Jesus_Freak wrote:
BostonBarrister wrote:
Jesus_Freak wrote:
WOOHOOO!!!

I bet you are wondering why I am so excited about this.

My family owns a premier Sparkling Wine winery in Massachusetts. Because of Californias stranglehold on the distribution system it has relatively hard to break into new markets…

Not any more :slight_smile:

JF

You aren’t affiliated with Westport are you? That’s some good stuff – and if you aren’t with Westport, I’m sure yours is good as well… =-)

That is exactly who I am affiliated with :). I used to work with my family there, but my wife and I left to go to school here in PA. My brothers run the winery now, and my Mom and Dad are working over at our other busines… Buzzards Bay Brewing ! :slight_smile:

JF
[/quote]

Well that’s awesome. I’ve toured your facilities – you guys make some good “champagne” and some darn good beer too.

[quote]swivel wrote:
so do i have this right ? :

if a state allows wineries to direct ship within it’s borders it must now allow wineries outside to ship into the state as well ?

and what if the state does not allow shipment within ? does it now ?

i think it’s a great opportunity for smaller producers.why is it so difficult to get distributed ? is it just a matter of volume ? if the wine is good doesn’t it create its own demand ?

personally i wouldn’t buy wine online unless i already knew the product. i wouldn’t be keen on having it bake at a ups depot either. and what about the bad bottles ?

still it’d be nice if you go to a vineyard and want to send stuff home.[/quote]

swivel –

The gist of the ruling is that states can’t discriminate against out-of-state producers. This is what the challenged laws did – they allowed in-state vineyards to ship direct to customers within the state, but banned out-of-state producers from doing the same.

That’s the essence of the so-called “Dormant Commerce Clause” – states aren’t allowed to discriminatorily burden interstate commerce, because only Congress has the power to regulate interstate commerce, and it was granted that power precisely to stop the states from discriminating against the products/producers from other states.

So, for example, I could have Chrysallis Vineyards here in VA ship me wine, but I couldn’t order from Mondavi in CA.

Unfortunately, as Professor Bainbridge pointed out, states could now decide to prohibit their citizens from receiving direct shipments from in-state or out-of-state producers. Hopefully they won’t though – we’ll see.

As for me, I think I’m going to order me some Westport Sparkling Wine while the gettin’ is good…

[quote]Massif wrote:
BB,

Threads like this are interesting for me as it allows me to get a better idea of how different the States and Australia really are, even though on the surface there are so many similarities.

In Australia, I buy all of my wine, and much of my spirits, online. I click a button and 5 to 7 days later, it turns up. It never occurred to me that in the US, this wouldn’t be possible in half of the states. Admittedly, the US has a bit of a different history with Alcohol (prohibition) than Australia does (The Rum Rebellion).

Another eye opener - Cheers.[/quote]

Massif,

Glad you enjoy it. I always find that there are a lot of little differences that one wouldn’t expect in countries that have such similar foundations – there are lots of them among the “Anglosphere” countries (GB, Canada, NZ, Australia and the U.S.). Heck, even the language almost seems different when you compare some of the more pronounced regional dialects.

Some related articles:

Will Buying Wine Get Easier?

Impact of Court Ruling
Will Be Muted at First;
Where You Can Order From
By KATY MCLAUGHLIN
Staff Reporter of THE WALL STREET JOURNAL
May 17, 2005; Page D1

Like many fine wines, yesterday’s Supreme Court ruling on wine shipping may take some time before it can be enjoyed by consumers. But small wineries and wine aficionados are heralding the decision as a landmark moment in a long effort to make wine-buying easier.

The Supreme Court decision addressed a type of law, common in a number of states, that makes it harder for people to order wine through the mail. Specifically, some states allow wineries within their borders to ship to local consumers – but block out-of-state wineries from sending bottles to their residents. The court, focusing on laws in New York and Michigan, said these laws are unconstitutional. The ruling comes as many states are easing restrictions on shipping wine, an increasingly common practice as Web sales take off.

Wine-industry experts expect the court’s ruling to eventually have a major impact on laws in six other states – Florida, Vermont, Massachusetts, Connecticut, Indiana and Ohio – that give some preference to their local wineries over out-of-state ones. There are 15 more states that essentially don’t allow any direct shipping at all. Because they aren’t treating in-state and out-of-state wineries differently, they won’t be compelled to change their laws as a result of this ruling.

At least some state legislatures will now have to align their laws with the Supreme Court ruling. The court decision makes the old state laws unconstitutional, effectively rendering them unenforceable.

But consumers who try immediately to get direct shipments from their favorite out-of-state wineries will probably be disappointed. That is because wineries say they want to see new legislation before they start shipping to consumers’ doors. The Wine Institute, a lobbying group for 821 California wineries, says it is advising its members not to attempt direct shipping to the states affected by the Supreme Court ruling until the new rules are clear. And even if wineries were shipping, they may have trouble finding someone to deliver it. As state wine regulations have evolved, package carriers like UPS and FedEx have tended to wait for absolute clarity about the laws before agreeing to ship wine through their services.

Those who ultimately stand to benefit from the new laws are people like Andrea Bennett, one of a growing number of wine hobbyists in the U.S. Ms. Bennett, who lives in Longboat Key, Fla., goes on a wine-tasting vacation to Napa and Sonoma valleys in California about once a year. She can’t have any of the wine she buys there shipped to her, because that is a felony in Florida. So she hauls cases back on the airplane, asks friends to stash bottles in their bags, and even has some wine sent to her brother in Denver. “When he comes to visit, he brings me a couple bottles of my wine,” says Ms. Bennett, an insurance consultant.

Ms. Bennett is free to order from Florida wineries – but that isn’t the wine she wants.

The ruling comes as the movement to ease state laws governing wine shipping – an effort led by wineries – has been picking up speed. Ten years ago, just four states allowed out-of-state wineries to ship directly to consumers; today, 27 states allow for some form of direct shipping. In 2003 alone, three states – Virginia, South Carolina and North Carolina – introduced legislation that allows for direct shipping.

Just last week, the governor of Texas signed a bill that allows direct shipping from wineries to consumers in all parts of the state, effective immediately. Texas is the fourth-largest wine-consuming state, after California, New York and Florida, according to Free the Grapes, a California group that advocates changing wine-shipping laws.

The main opponent of loosening the state laws is the Wine and Spirits Wholesalers of America, a trade group that represents wholesalers. The wine sellers argue that the new laws reduce states’ abilities to collect taxes and keep alcohol out of the hands of minors.

But there could be a twist to yesterday’s ruling. Instead of easing the rules on out-of-state wine shippers to give them the same benefits enjoyed by in-state wineries, some states may instead decide to get tougher with both groups.

The Supreme Court said only that states should treat in-state and out-of-state wineries the same. Last year, New Jersey headed off a suit charging discrimination by simply abolishing direct shipping for everyone, including its own in-state wineries. Industry experts generally believe that most states will avoid that route, for fear of upsetting their wineries and consumers.

The ruling, as well as recent changes in law in various states, are limited in scope, and alcohol remains a strictly regulated product. Consumers, for example, still can’t buy a bottle of wine, pack it up, and send it through the mail or a common carrier. Neither the post office nor package shippers allow that. Only wineries were addressed by the ruling; it most likely won’t change anything for retailers.

For consumers, there are several benefits to being able to order bottles directly from wineries. The Wine Institute, a lobbying group for California wineries, says that 83% of all wineries aren’t represented by a distributor in every state. That means that in some cases the only way to taste many wines made by small, family-run businesses is to order it from the maker. Wineries that direct ship to consumers know who is buying their wine, and often send newsletters, emails and invitations to events or sales. Direct shipping also allows people vacationing in, say, Michigan, Virginia, New York or, of course, California (where about 65% of the nation’s wine is produced) to try wine in a tasting room, buy a case, and not have to lug it home.

But direct shipping is unlikely to ever account for a major piece of the $23.2 billion U.S. retail wine market (that figure includes foreign wine). Direct shipping represents a tiny portion of the market – an estimated 1% to 3% of all wine sold. The number of consumers motivated enough to seek out special, winery-specific wines is limited. Also, direct shipping is expensive because wine is heavy and needs to be sent in temperature-controlled conditions.

Most wine gets to consumers through the “three-tier” system, which means that wineries sell to wholesalers, who sell to retailers.

In the past few years, Internet shopping, along with growth in the number of small wineries, has spurred interest in selling and buying wine direct without a middleman. As a result, a cottage industry of logistics companies have cropped up to help wineries understand laws, get permits, and move their wines through the three-tier system. New Vine Logistics, a four-year-old Napa, Calif., company, shipped a million bottles last year, about four times as much as in 2003.

In states where direct shipping isn’t allowed, logistics companies and some of the bigger wine Web sites are often able to get wine to consumers by selling it to a wholesaler in the consumer’s state, and setting up an in-state retail office.

The downside is that it can take as long as six weeks for consumers to get their wine and it can be expensive for the winery, says Lesley Berglund, CEO of Winetasting Network, a company that runs a retail Web site, winetasting.com, that sells wine from 150 small wineries. Winetasting Network is a unit of 1-800-flowers.com.

High Court Ruling Prioritizes
Spirit of Interstate Commerce
May 17, 2005 6:58 a.m.

Prohibition may have ended more than 80 years ago, but its echoes could still be heard in yesterday’s Supreme Court ruling to let vintners sell directly to consumers across the U.S., which made wine akin to any other product in some ways and thus subject to the fair-trade rules for interstate commerce in this Internet age.

The 5-4 decision struck down laws in New York and Michigan on the grounds that they discriminated against out-of-state wineries by prohibiting them from selling directly to the consumers who could shop from local wine makers, a victory for, among others, California’s $15 billion-a-year wine industry, the Los Angeles Times says ( http://www.latimes.com/news/nationworld/nation/la-na-scotus17may17,0,3143833.story?coll=la-home-headlines ). For the majority, the Constitution’s commerce clause trumped the post-Prohibition 21st Amendment, which handed states explicit power to regulate alcohol imports, the Legal Times explains ( http://www.law.com/jsp/dc/PubArticleDC.jsp?id=1116246913659 ). That amendment gives states “broad power,” Justice Anthony Kennedy wrote, but “does not supersede other provisions of the Constitution and, in particular, does not displace the rule that states may not give a discriminatory preference to their own producers.” ( http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=03-1116 ) But Justice Kennedy was careful to say that the ruling doesn’t upset the three-tier distribution system for alcohol ? producer to wholesaler to retailer ? that governs sales nationwide.

And despite the celebratory mood within the industry, it only narrowly diminishes the power of the states to regulate the sale of alcohol, the Times says: States can still ban the sale of alcohol products entirely, or any direct vinter-to-consumer commerce. Still, the ruling is important for hundreds of small wineries and likely to spur sales on the Internet. About half of California’s 1,200 wineries sell less than 5,000 cases a year, the Times says, and they struggle to get their vintages onto store shelves and wine lists. It also may give restaurants and wine shops around the nation a new and cheaper way to stock an assortment of distinctive wines. The big loser in the case is the wholesale liquor industry, which is now likely to expend considerable resources to preserve its niche in a market in which direct sales have been growing rapidly, the New York Times says ( http://www.nytimes.com/2005/05/17/politics/17wine.html ).

The ruling is the latest in a series of legal and regulatory decisions that have weakened state and local government protections of local vendors. And The Wall Street Journal says it could embolden consumer demands for changes in fields ranging from beer to mortgage brokers to contact lenses ( http://online.wsj.com/article/0,,SB111625232721734572,00.html ). Among other things, the court brushed aside concerns from local authorities that boosting Internet sales could make it harder to collect taxes from far-away vendors. And the ruling fueled speculation over another case, Costco Wholesale’s suit against the Washington State Liquor Control Board ( http://seattlepi.nwsource.com/business/224590_scotuswine17.html ). The discount retailer is challenging the state’s specific three-tier distribution system, which requires that wine producers funnel their goods through distributors for at least a 10% markup, and that those distributors must in turn sell to retailers for at least a 10% markup, the Seattle Post-Intelligencer reports. Costco argues the rules violate antitrust law. Meanwhile, consumers who try immediately to get direct shipments from their favorite out-of-state wineries will probably be disappointed, the Journal says. Wineries want to see new legislation from the states before they start shipping to consumers’ doors ( http://online.wsj.com/article/0,,SB111628785198735249,00.html ).

how’s the service ordering on line ? do they take care of the product are the shipping costs high for extra care etc ?
what do you do if you get some bad bottles ? thanks. -swivel

[quote]Jesus_Freak wrote:
BostonBarrister wrote:
Jesus_Freak wrote:
WOOHOOO!!!

I bet you are wondering why I am so excited about this.

My family owns a premier Sparkling Wine winery in Massachusetts. Because of Californias stranglehold on the distribution system it has relatively hard to break into new markets…

Not any more :slight_smile:

JF

You aren’t affiliated with Westport are you? That’s some good stuff – and if you aren’t with Westport, I’m sure yours is good as well… =-)

That is exactly who I am affiliated with :). I used to work with my family there, but my wife and I left to go to school here in PA. My brothers run the winery now, and my Mom and Dad are working over at our other busines… Buzzards Bay Brewing ! :slight_smile:

JF
[/quote]

J F

Sounds like you got the market covered!

Love the Beer. Haven’t tried the wine.

This is an excellent analysis of the decision:

http://www.techcentralstation.com/051705G.html

Free the Grapes?

By Stephen Bainbridge

Both oenophiles and constitutional law scholars eagerly awaited the Supreme Court’s decision in Granholm v. Heald ( http://scotus.ap.org/scotus/03-1116p.zs.pdf ), in which the Court was expected to decide the constitutionality of state bans on direct-to-consumer shipments of wine (and other types of alcohol). On Monday of this week, the Court by a 5-4 vote narrowly invalidated these bans.

In my home state of California, I can hop on the internet and order wine directly from thousands of wineries or from the growing number of on-line retailers of alcoholic beverages, who would then ship my purchases directly to my home or office. Before Monday, the law in 24 states prohibited such direct-to-consumer sales. In those states, you were limited to licensed retailers who in turn had bought only from licensed wholesalers.

These laws were justified by an unholy alliance of liquor wholesalers, bricks-and-mortar retailers, and Prohibitionists as being necessary to keep booze out of the hands of minors. The argument was specious, of course. California and other free shipping states controlled sale to minors by requiring that the deliveryman obtain an adult signature before delivering the order.

Instead, these laws were an antiquated relic of Prohibition that remained on the books mostly because they benefited in-state wholesalers and retailers. As Ken Starr explained:

“Who could possibly support these discriminatory laws? Those who have the most to lose from repeal: the liquor distributors, known in the trade as the ‘booze boys.’ These distributors exact massive, and in many areas oligopolistic, profits from wineries as a price for distributing their products to retail stores – and in some cases, refuse to distribute wine from smaller wineries at all. Like pirates exacting a ransom, they add no value. But they have a powerful incentive to keep the current system in place.”

The prospect of online sales and direct-to-consumer shipments terrifies the “booze boys,” because they would lose their local monopolies.

In contrast, it was clear that consumers would benefit from striking down these laws. A study of Virginia’s direct-to-consumer sales ban by Alan Wiseman and Jerry Ellig ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=402360 ) found that “Virginia’s direct shipment ban reduces the varieties of wine available to consumers and prevents consumers from purchasing some premium wines at lower prices online.”

As I predicted, however, the Supreme Court did not strike these laws down on grounds that they were special-interest rent-seeking legislation. After all, whatever one makes of substantive due process arguments, the 21st amendment to the Constitution clearly authorizes the states to regulate alcohol sales as they see fit:

Section 2. The transportation or importation into any state, territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.

Instead, a five-justice majority (as I discussed on my blog, the lineup of justices in this case was highly unusual) struck down the direct-to-consumer bans on narrow Commerce Clause grounds.

The New York and Michigan direct-to-consumer sales bans challenged in the Granhold case were discriminatory and protectionist. In New York, for example, it was perfectly legal for in-state wineries to ship their products directly to consumers, but it is a crime for out-of-state wineries to do so. Obviously, this rule had trade protectionist consequences. The numerous wineries on Long Island and around the Finger Lakes were protected from direct-to-consumer competition by out-of-state wineries.

It was this discriminatory/protectionist effect that raised the most legitimate Constitutional issue in this case, by creating a conflict between the 21st amendment’s seemingly sweeping grant or regulatory power to states and the negative implications of the Constitution’s Commerce Clause. Under the so-called dormant Commerce Clause, inferred by the courts from the Clauses’ negative implications, state laws that discriminate against out-of-state producers are subject to strict scrutiny and, in effect, a strong presumption of unconstitutionality.

As I predicted in an earlier TCS column ( http://www.techcentralstation.com/121004B.html ), the majority in Granholm concluded that the 21st amendment did not trump the Commerce Clause and thus did not authorize states to discriminate in favor of local producers. As Justice Anthony Kennedy wrote for the majority ( http://scotus.ap.org/scotus/03-1116p.zo.pdf ):

States may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses. This mandate “reflect[s] a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.” Hughes v. Oklahoma, 441 U. S. 322, 325-326 (1979).

At least to that limited extent, in other words, the United States is a singular noun. As for whether the 21st amendment and related federal legislation was intended to trump the presumption against “economic Balkanization,” candidly both the relevant legislative history and the older precedents are a mess. Even an ardent Originalist likely would end up having to flip a coin to choose between Justice Kennedy’s version of the history and that advanced by Justice Thomas in his dissent ( http://scotus.ap.org/scotus/03-1116p.zd1.pdf ). The modern precedents, however, clearly favor Kennedy’s position. It would have been a significant break with stare decisis, both as to negative Commerce Clause and alcohol regulation precedents, for the Court to have reached any other result.

The narrowness of the Supreme Court’s holding, however, suggests that Glenn Reynolds likely will not be able to enjoy the “better market for wine than Tennessee’s rather protectionist setup has heretofore permitted” ( http://instapundit.com/archives/023016.php ) that he anticipated and that Ohioan Jonathan Adler still may not “be able to order wine direct from out-of-state.” ( http://www.nationalreview.com/thecorner/05_05_15_corner-archive.asp#063168 )

If the states chose to change their laws so as to ban direct-to-consumer sales by both out-of-state and in-state wineries, those laws almost certainly would be upheld as within the states’ powers under the 21st Amendment. Given the considerable power wielded in most of those 24 by the wholesalers and retailers who benefit from bans on direct-to-consumer shipments, as well as lingering Prohibitionist sentiment in some of the more Southern and rural of them, I expect many of the 24 will enact nondiscriminatory bans on direct-to-consumer shipments. At least now, however, their in-state wineries will be on the side of those who favor “freeing the grapes.” In states like New York, where there is an important in-state wine industry to counter-balance the power of Ken Starr’s “booze boys,” direct-to-consumer sales may yet prevail.