May 16, 2005
Supreme Court on Interstate Shipment of Wine--Granholm v. Heald
Granholm v. Heald, 544 U.S. __ (May 16, 2005). The US Supreme Court, in a 5-4 vote, has declared that states cannot discriminate between out-of-state wineries and in-state wineries in allowing direct-to-consumer sales. Such discrimination violates the dormant commerce clause. As the court says:
“The current patchwork of laws—with some States banning direct shipments altogether, others doing so only for out-of-state wines, and still others requiring reciprocity—is essentially the product of an ongoing, low-level trade war.”
Meanwhile, after an extensive historical and precedent review, the majority concluded that the discriminatory treatment is not saved by the general authorization of powers in the 21st amendment.
As a result, statutory schemes that required out-of-state wineries to sell through a three-tier distribution scheme (winery -> distributor -> retailer) but permitted in-state wineries to sell direct-to-consumer are unconstitutional. This appears to affect about half of the states.
While this is an entirely sensible result, the net effect is less clear. The court gives states the following options:
“A State which chooses to ban the sale and consumption of alcohol altogether could bar its importation; and, as our history shows, it would have to do so to make its laws effective. States may also assume direct control of liquor distribution through state-run outlets or funnel sales through the three-tier system.”
In addition, the court says that states can require permits as a condition of direct shipping, which can act as a way for the state to get taxing authority over out-of-state wineries.
So, the question is, which way will states go? Though they can no longer offer protectionist measures for their in-state wineries, will they go in the direction of erecting other barriers, such as requiring the use of three-tier distribution for everyone, or imposing onerous taxes on everyone? Or will this case finally cause the elimination of the regulatory barriers to the free interstate movement of alcohol, allowing unrestricted sale of alcohol over the Internet? Only time will tell, but I’m hoping we can move in the direction of improving consumer welfare rather than expanding an unnecessary and industry-protectionist bureaucracy.
Meanwhile, because of the differential treatment of in-state and out-of-state wineries and the funky language of the 21st amendment, unfortunately this case does not offer us deeper insights into the dormant commerce clause's application to the Internet. That will have to wait for another case.
UPDATE: Declan's story.