Law and Wine (Part 1)

Now that the harvest is in, the winemakers and sellers can get back to their second favorite activity: litigation. Here in Washington state, mighty Costco is assaulting the state's wine-distribution system in the name of the Sherman Antitrust Act, while in the other Washington, the Supreme Court is considering tossing such systems out for being in violation of the Commerce Clause of the U.S. Constitution.

To get the 21st Amendment ending Prohibition through enough state legislatures, the federal government left virtually everything to do with regulating the sale and consumption of alcohol in any form up to state and local authorities. The result was a patchwork of rules and exceptions to rules complex and self- contradictory enough to make strong men weep and lawyers order another bottle of Mumm's. One rule, however, was adopted in one form or another by about half the states: Out-of-state producers of alcoholic beverages were not permitted to distribute their own products or to sell directly to consumers.

There's a problem with this; the Commerce Clause of the Constitution reserves a number of powers to the federal government, to prevent one state from discriminating against another state's products through taxation, regulation, etc. If I can buy a bottle of wine from the winery in Washington but have to buy an Oregon wine from a distributor (paying the distributor's markup in the process), the playing field is obviously not level. As soon as federal courts became willing to consider just how far the 21st Amendment prevailed against the Commerce Clause, the so-called three-tier (producer- distributor-consumer) distribution system was sure to attract unwelcome attention.

It's too early to say just how the system's going to change, but some observers are betting that three tier is toast. Costco's case basically charges that forcing the company to buy wine through local distributors raises prices for consumers unfairly because Costco can do its own distribution more cheaply. The state's mandate gives distributors a kind of monopoly, and monopolies are forbidden by the Sherman Antitrust Act. If some winemaker in Yakima makes that claim, nobody pays any attention. When the company responsible for selling half the quality wine America drinks annually makes a charge like that, courts are likely to give the argument a hearing.

rdowney@seattleweekly.com

Next week: The Supreme Court takes a hand.