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Supreme Court clears way for online wine sales

State governments may not prohibit residents from ordering directly from out-of-state wineries, court rules.

Declan McCullagh Former Senior Writer
Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
Declan McCullagh
4 min read
Online shopping received a substantial boost on Monday when the U.S. Supreme Court ruled that state governments may not prohibit residents from ordering directly from out-of-state wineries.

In a 5-4 ruling, the court said that Michigan and New York had enacted protectionist laws that unconstitutionally discriminated against wineries from other states.

Justice Anthony Kennedy said that the states' claims of possible lost taxes or shipments to minors could not justify taking such strong measures against direct shipping. "The states have not shown that tax evasion from out-of-state wineries poses such a unique threat that it justifies their discriminatory regimes," Kennedy wrote for the majority.


What's new:
In a closely divided decision, the Supreme Court said that states may not prohibit direct sales of wine across state lines.

Bottom line:
The ruling opens the way for a more people to buy wine online from out-of-state vineyards and could set a precedent for easing regulations on Internet commerce more widely. But states may yet find ways to work around the ruling.

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Monday's ruling effectively means that oenophiles in states with protectionist laws--about half--will enjoy lower prices and more choices because they will be able to bypass distributors and order directly from a winery's Web site. It could also open the doors to direct beer and hard liquor shipments.

Juanita Swedenburg, the Middleburg, Va., vintner who was a plaintiff in the lawsuit brought by the Institute for Justice, applauded the ruling. "This opens up interstate markets just like our Founding Fathers envisioned," Swedenburg said. "They wanted us to be one nation when it comes to trade, not 50 states. This is a boon for America's wine-loving consumers who like to have various wines from throughout the nation."

The long-term effects of the court's decision promise to be even more significant. States have been claiming the authority to impose hefty regulations on out-of-state shipments of everything from cars to funeral caskets and contact lenses. The Supreme Court's logic indicates the justices likely will take a dim view of other protectionist measures.

Still, the high court's ruling may not usher in a complete free-for-all in the protectionist states. Because the justices were concerned only about discriminatory state laws favoring in-state wineries, a state could simply require that all alcohol sales take place face to face--and levy the same strict rule on its own wineries as well.

Nida Samona, chairwoman of the Michigan Liquor Control Commission, said she would recommend adopting such a rule even if it hurts Michigan's in-state wineries. "Obviously they're not going to be happy with this decision that I'm going to recommend to the legislature," Samona said. But "minors need to be protected."

"We anticipated this," said Steve DelBianco, director of a coalition that includes the American Vintners Association, eBay, AOL and the Wine Institute. "States might take this opportunity to close down Internet shipments of wine rather than opening it up to out-of-state. It's almost as if they're cutting off their nose to spite their face."

Arguments about protecting children are a "red herring," said DelBianco, who points to a July 2003 report prepared by the Federal Trade Commission. It surveyed states that permit out-of-state shipments and found that they've had no serious problems with minors buying through mail order. California reported that "for at least 20 years there was never a problem that was brought to our attention," the report said.

The 21st Amendment
At the heart of the current dispute before the justices is the 21st Amendment, which ended Prohibition and awarded states broad authority to regulate sales of "intoxicating liquors." States with legal barriers to out-of-state wine and beer shipments insist that the laws are needed to guard against unscrupulous vendors and against minors ordering booze online.

New York and Michigan were attempting to defend their laws in two separate cases that were combined before the high court. One appeals court found New York's rules to be acceptable; another struck down Michigan's by ruling against the Michigan Beer and Wine Wholesalers Association. New York's law says that "no alcoholic beverages shall be shipped into the state unless the same shall be consigned to a person duly licensed hereunder to traffic in alcoholic beverages."

That amounts to a protectionist law designed to favor in-state businesses over out-of-state ones, Kennedy said. "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 cannot stand," he wrote.

But a dissent by Justice Clarence Thomas argued that a federal law called the Webb-Kenyon Act explicitly permitted states to slap protectionist rules on alcohol shipments. "In sum, the Webb-Kenyon Act authorizes the discriminatory state laws before the Court today," Thomas wrote.

Even if the Webb-Kenyon Act did not exist, a proper reading of the 21st Amendment shows that it was meant to permit states to enact these sorts of restrictions, Thomas wrote.

While alcohol sales currently occupy only a small e-commerce niche, they're a sizable portion of the U.S. economy. The Beer Institute estimates the brewing industry employs about 1.7 million Americans and pays $47 billion a year in wages and benefits. Approximately 595 million gallons of wine were sold in the United States in 2002, according to the Wine Institute, up from 337 million gallons in 1972.