The Wine Institute

May 16, 2005

Supreme Court Rules To End Discrimination Against Out-Of-State Wineries By New York And Michigan — Wine Lovers and Small Family Wineries Nationwide to Benefit

SAN FRANCISCO - The U.S. Supreme Court ruled today that discriminatory bans on interstate, direct-to-consumer wine shipments in New York and Michigan are unconstitutional, paving the way for the third and tenth largest wine consuming states to join 27 other states that allow for direct shipping of wine to consumers.

"This is a major victory in the 20-year battle to end discrimination against America's small, family wineries that want to provide consumers with access to the wines of their choice," said Robert P. Koch, President and CEO of Wine Institute, the trade association of California wineries. "The states of New York and Michigan can now choose to enjoy increased tax revenues from a more diverse and orderly wine market by adopting legislation similar to that which currently benefits consumers in the majority of states."

New York and Michigan both have laws that allow in-state wineries to ship directly to adult consumers within their borders but prohibit out-of-state wineries from shipping to those same consumers. Today's ruling is a major defeat for the nation's wholesaler associations which have waged a misguided battle defending these and other discriminatory laws that have protected their distribution stronghold for decades and stifled consumer choice.

In an opinion written by Justice Kennedy, the Court ruled that restricting the ability of out-of-state wineries to ship directly to consumers violates the U.S. Constitution dormant Commerce Clause in light of Section 2 of the 21st amendment. "States have a broad power to regulate liquor," he wrote. "This power, however, does not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipment of wine, it must do so on evenhanded terms. 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."

As a vestige of the 21st Amendment, which repealed Prohibition, wine entering a state must typically be sold through a three-tier system of producer-wholesaler-retailer before reaching the consumer. During the past two decades, the wholesale tier has experienced dramatic consolidation while there has been explosive growth in the number of wineries - more than 3,500 at last count throughout the country - as well as a proliferation of new labels. Since large wholesalers tend to focus on major, nationally-distributed brands, consumers have not been able to purchase the wines of most small wineries or limited-production labels.

California was the first state to address the issue in 1985 when it passed legislation allowing for direct interstate shipment of wine to the state's consumers. Since then, 26 other states have adopted legislation creating a regulatory structure for the direct shipment of wine to consumers. However, the vast majority of wine, 98 - 99 percent, still is distributed through wholesalers and retailers.

"We will continue to work with the legislatures and winery associations of New York, Michigan and the remaining states to put in place direct shipping which will benefit consumers, wineries and the states," noted Koch.

Wine Institute is the public policy advocacy association representing 840 California wineries and affiliated businesses. Since 1985, the organization has worked on legislative and regulatory solutions for direct shipping. Wine Institute submitted a "Friend of the Court" amicus brief to the U.S. Supreme Court on the successful implementation in many states of a model direct shipping bill.