Down by Law

When Seattle law firm Perkins Coie filed suit against the Washington State Liquor Control Board on behalf of local retailing behemoth Costco, they made some pretty broad charges. Washington's compulsory "three-tier" distribution system for alcoholic beverages, the suit said, violated not only the Sherman Antitrust Act but the Commerce Clause of the U.S. Constitution. By requiring virtually all alcohol sales from producers to consumers to pass through a third party—a licensed wholesale distributor—the state created and enforced an artificial monopoly; and by allowing local winemakers to sell directly to consumers while forbidding some out-of-state wineries to do so, the system also interfered with the federal government's constitutional authority to regulate interstate trade. The state attorney general, on the other hand, contends that the 21st Amendment handed over sale and distribution of alcohol to the states to regulate as each sees fit, and that Washington's "three-tier" system is an essential element in making sure that alcohol taxes are properly collected and that alcohol does not end up in the hands of minors. But in a pair of unrelated cases this spring, the U.S. Supreme Court rejected both arguments, saying that neither could justify arbitrary limitations on interstate wine trading. With their traditional arguments in support of the 70-year-old Washington system pulled out from under them, the Liquor Board and the state AG have retreated to regroup, and the Perkins Coie partner in charge of the case, David Burman, thinks the momentum is definitely on his side. "We're still in the discovery stage right now, reviewing state archives, taking depositions from state employees, but we should be ready to file our motions with the judge by August. If all goes according to expectations, she'll rule on our and the state's motions for summary judgment by November or December." If the judge decides there's enough substance in either side's argument, the case will most likely go to trial in March. As far as Burman is concerned, the U.S. Supreme Court's decision rejecting state regulation in New York and Michigan has made Washington's law impossible to justify. "The court said that consumers have a right to buy wine from properly licensed sellers from out of state. If a consumer can, so can a retailer. Costco is a retailer." If Costco wins its suit, the prices will be set by the open market, which usually means the bigger the store, the better the deal. The price of Château Lafite Rothschild isn't going to change, or not much; nor will those of bargain-basement quaffs like Franzia or Three-Buck Chuck. But everybody in between is going to be exposed to direct price competition for the first time in 72 years. Shakeout? You better believe it.

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