Prohibition Lives On Line

By SmallBusinessComputing Staff | Posted December 01, 2000
by Robert J. Wagman

The Internet thrives as a conduit for reasonably unfettered commerce. Although the online world has so far eluded most attempts at government interference, one area where government, particularly state government, fiercely regulates and limits Internet transactions is the interstate sale and shipping of wine and liquor. A recent ruling by a federal judge in New York State might be a first step in demolishing this barrier to e-commerce.

It is currently illegal in 30 states for an out-of-state wine seller, whether a vineyard, distributor, or retailer, to sell and ship directly to a consumer. Seven states -- Florida, Georgia, Indiana, Kentucky, Maryland, North Carolina, and Tennessee -- have made shipping wine a felony. In some of these states it is even illegal for an in-state winery to sell and ship directly to a consumer outside the state-controlled and state-regulated distribution system. The bans impose a huge impediment to open commerce via the Internet, and cost consumers hundreds of millions a year in higher prices.

The Institute for Justice, a Washington, D.C.-based interest group which promotes free trade and other constitutional issues, has filed suit (Swedenburg v. Kelly) in order to invalidate a New York state law which prohibits the shipping of wine into the state. In addition, the law prevents out-of-state wine makers from directly advertising their products.

The suit was filed on the behalf of two small wine makers, one in Virginia and one in California, and three consumers living in New York. The Institute for Justice seeks to have the ban on sales struck down for violating the Commerce Clause of the Constitution, and the advertising ban overturned on First Amendment grounds.

Lawyers for the State of New York sought to have the suit thrown out as meritless. But Federal District Judge Richard M. Berman rejected the state's arguments, and has ordered the suit to go to trial. In his ruling, the judge said that the state's right to regulate liquor sales does not give it the right to discriminate.

"We're delighted to have this validation of our argument," said Institute for Justice spokesman Clint Bolick. "Now we have to go win the case."

That will not be easy. On almost the same day Judge Berman issued his ruling in New York, the U.S. Court of Appeals for the Seventh Circuit issued a ruling on another case affirming the right of the State of Indiana to regulate out-of-state beer, wine, and liquor sales. The Indiana suit raised the same Commerce Clause issues as the New York suit. Courts in several other states, including Texas, are also weighing very similar lawsuits.

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