Press Release of the Institute for Justice.
Re: filing of original complaint in Swedenburg v. Kelly, a suit challenging the constitutionality of New York State's laws which restrict Internet and other sales.
Date: February 3, 2000.
Source: Institute for Justice.

Uncorking Freedom:
Federal Lawsuit Seeks to End Prohibition On Interstate Wine Sales & Internet Speech Restrictions

WEB RELEASE: February 3, 2000
CONTACT:
John Kramer
Owen Brennan Rounds (202) 955-1300
[Economic Liberty]    

Washington, D.C.-In a national test case that will impact consumers' ability to purchase wines across state lines and over the Internet, a federal lawsuit filed today seeks to repeal New York state laws prohibiting the direct shipment of wine to consumers from out-of-state wineries. The suit also seeks to take off the books state laws that limit all advertising, including Internet advertising, for wines by out-of-state wineries. The Washington, D.C.-based Institute for Justice filed the suit on behalf of small wineries in California and Virginia as well as wine consumers from New York. The suit was filed in U.S. District Court for the Southern District of New York. New York is the second largest wine market in the country.

Thirty states currently have laws that prohibit the direct sale of wine from out-of-state wineries to consumers. In seven of the states (Florida, Georgia, Indiana, Kentucky, Maryland, North Carolina and Tennessee) this transaction is a felony. In the majority of the 30 states, consumers who visit wineries cannot even lawfully ship wine to themselves at home. Twelve states provide "reciprocal" shipping rights allowing shipment only from those states that also allow shipments. Eight states allow direct shipping with minimal restrictions.

The issue holds major Internet ramifications as state laws often not only prohibit such sales but any type of advertising as well, in blatant violation of the First Amendment. If states are allowed to protect parochial economic interests by stifling consumer information, the vast promise of the Internet will be stifled.

Clint Bolick, the Institute's litigation director, said, "This is the oldest gambit of American politics: economic protectionism. These laws are designed to preserve the monopoly of liquor wholesalers who control all out-of-state wine in New York."

Most states have what is called a "three-tier" system of alcohol distribution: producers may lawfully sell only to wholesalers, who sell to retailers, who sell to consumers. The wholesalers take about 18 to 25 percent of the price at which wines are sold to retailers.

Deborah Simpson, an attorney with the Institute, said, "The impact of these laws is greatest on small wineries. About 20 wineries produce 90 percent of all American wine. Of the 1,600 wineries in the United States, only about 50 are available in a typical retail store."

"For the vast majority of small wineries, direct sales are the only way to do business," declared Juanita Swedenburg, owner of Swedenburg Winery in Middleburg, Virginia and lead plaintiff in the lawsuit. "These direct shipment prohibitions are hurting small family-run wineries, and may drive them out of business."

"The Internet opened up a fantastic new way for boutique wineries to find new customers," added Bolick. "But under New York's laws, every winery or retailer who advertises on the Internet is an outlaw."

Unlike other lawsuits challenging interstate wine sales, this federal suit is the first to file First Amendment claims.

Bolick said, "When the framers created the U.S. Constitution, one of their primary goals was to do away with state restrictions that impeded free trade among the states. The Constitution created a free national market, in which states could no longer erect protectionist trade barriers to the detriment of consumers in their own states and producers of other states. Unfortunately, more than two hundred years later, the barriers are still with us, now throttling the free trade of wine more severely than since prohibition."

New York state officials cite temperance and taxes as justifications for these restrictions. Minors, they allege, will flood the Internet with wine orders. States will be deprived of precious tax revenues. However, aside from the sting operations, there is little if any evidence of minors ordering wine over the Internet. Just as one must show ID when purchasing wine at a liquor store, several states require shippers to secure adult signatures on wine shipments. In New York's case, the concern rings especially hollow: while out-of-state producers face prohibition, in-state wineries may freely ship to New York consumers.

The tax concerns apply to all interstate sales of products, not just e-commerce. And courts have held that those concerns do not justify discriminating against such commerce. But here again, the justification is a facade: wineries have agreed to submit to state licensing and tax collection requirements. States actually are foregoing tax revenues they could be receiving if they permitted direct wine shipments.

"For the wine enthusiast, ordering wines over the Internet, or directly from a winery, is an important means of obtaining favorite wines," said Patrick Fitzgerald M.D. from Elmira, New York. "Under New York's law, it's even illegal to visit a winery and ship wine back to yourself. That's oppressive."

The Institute for Justice is a libertarian public interest law firm that advances a rule of law under which individuals can control their own destinies as free and responsible members of society. The Institute was founded in September 1991 by William Mellor and Clint Bolick.