High Court Favors Online Wine Sales

In a decision loaded with implications for e-commerce, the U.S. Supreme
Court ruled today that states cannot prohibit their citizens from buying
wine from out-of-state vintners.

In a 5-4 decision opening the door for online wine sales, the court said the 23 states that currently ban direct wine
sales from other states constitutionally discriminate against interstate
commerce. In those states, direct sales are allowed from in-state wineries,
but out-of-state sales are prohibited.

“The mere fact of non-residence should not foreclose a producer in one state
from access to markets in other states,” Justice Anthony Kennedy wrote in
the majority opinion. “States may not enact laws that burden out-of-state
producers or shippers simply to give a competitive advantage to in-state

The case reached the high court late last year after a lengthy journey
through the legal system. The Supreme Court consolidated disputed cases in
New York and Michigan.

Both states regulate the sale and importation of alcohol through a
three-tier distribution system of producers, wholesalers and retailers. The
scheme allows in-state wineries to obtain a license for direct sales.
Out-of-state wineries, on the other hand, cannot.

“The differential treatment between in-state and out-of-state wineries
constitutes explicit discrimination against interstate commerce,” Kennedy

Michigan and New York contended that, among other things, the direct shipment of
wine undercuts their ability to police underage drinking and to collect taxes
on alcohol, one of the most heavily taxed commodities in the United States.

“The states provide little evidence that the purchase of wine over the
Internet by minors is a problem,” Kennedy wrote. “Indeed, there is some
evidence to the contrary.”

Two years ago, the Federal Trade Commission (FTC) produced a report finding
that sales to minors is not a problem in states that allow direct shipments of wine.

As for tax collections, Kennedy again dismissed the states’ arguments.

“If licensing and self-reporting provide adequate safeguards for wine
distributed through the three-tier system, there is no reason to believe
they will not suffice for direct shipments.”

The FTC also concluded in the report that direct wine sales lower prices and
increase choices for consumers.

“In wine and other marketsanti-competitive barriers to e-commerce are
depriving consumers of those benefits,” the FTC report concluded.

“Today’s decision is a tremendous victory for e-consumers. Not only will
wine lovers in Michigan and New York benefit from the choice, convenience
and savings e-commerce provides, but the decision could also threaten other
protectionist state laws around the country,” Steve DelBianco, executive
director of NetChoice, said in a statement. NetChoice filed an amicus brief
in the case.

According to NetChoice, “protectionist, anti-competitive regulations” such
as New York’s and Michigan’s are expected to cost American consumers more
than $44 billion a year.

“This ruling makes it harder for states to maintain discriminatory barriers
that prevent the kind of competition enabled by e-commerce,” DelBianco said.
“Look for more barriers to fall in markets like cars, contact lenses and
funeral caskets.”

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