Cross-Border Internet Wine Sales Get High Court Blessing

In what could be a huge boost for some e-commerce players, the U.S. Supreme Court today struck down state laws barring consumers from buying wine and having the seller ship it across state borders.

The 5-4 decision, handed down early today, dealt directly with state laws in Michigan and New York but it also clears the way for direct-to-consumer, cross-border wine sales to greatly expand into some two dozen additional states — from Arizona and Arkansas to Massachusetts Ohio and Pennsylvania — where it had previously been off-limits because of state regulations.

That in turn could provide a major boost to some niche players in the wine sales field, from small vineyards that have set up their own e-commerce sites to the largest online wine sales site, Wine.com.

No Fundamental Change

Earlier this month, Wine.com struck a deal with e-tail giant Amazon.com to sell wine on the Amazon site, a sign that many analysts took as confidence that the Supreme Court would rule in a manner that would provide for expanded online wine sales. Because the Internet is borderless, the cross-border shipping issue is critical to online sales of wine.

Wine.com CEO George Garrick said the fundamental nature of the wine sales industry — with the vast majority of wine being sold through wholesalers and getting into the hands of consumers at retail outlets — will not change because of the ruling.

Garrick said there won’t be a “free-for-all for retailers to ship direct to consumers who order via phone or the Internet” and said that state laws regulating the sales of wine at the retail level will remain in effect. Those laws vary significantly from state to state, requiring diligence on the part of retailers who use the Web to cross borders.

The court ruled that the existing laws were discriminatory and anti-competitive. Under the statutes, a state’s residents could buy liquor directly from a winery within the state’s borders, but the winery could not ship the product outside the state.

One Size Fits All

“States have broad power to regulate liquor,” Justice Anthony Kennedy wrote for the majority. “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 shipments of wine, it must do so on evenhanded terms.”

The case pitted state’s rights to limit access to alcohol versus free-trade provisions of the Constitution, with enormous stakes for the US$21.6 billion-per-year wine industry, one that’s enjoying a surge in popularity in recent times.

While Wine.com, which traces its roots back to the early days of the dot-com era, is seen as a winner, small wineries might also get a boost for their sales, which have often relied heavily on direct sales to consumer who visit them.

Small winery owners were among those who pursued the case to the high court, with backing from the Institute for Justice and other groups. The cases were defended by the attorneys general in each state and largely argued that such restrictions were necessary to maintain limits on underage drinking and to preserve states’ ability to tax liquor sales.

Liquor wholesalers emerged as potential losers in the case, as did some state coffers that would lose out on tax revenue.

Freedom in a Bottle

Clint Bolick, the strategic litigation counsel for the Institute for Justice, which represented plaintiffs in the cases, called the ruling “a victory for consumers and small businesses and a defeat for economic protectionism.”

Bolick said the case could be a sign that the court supports freedom for interstate commerce conducted over the Web, which could translate to the loosening of other regulations in the future. “It demonstrates that in the era of the Internet, the Court will vindicate the principles of free trade that made this country great,” he added.

Toronto-based lawyer and lawsof.com Managing Editor Javad Heydary recently told the E-Commerce Times that having clear rulings in cases, such as the state laws on wine sales, is an important ingredient for continued e-commerce growth and success.

The existing landscape of varying regulations complicates broad scale e-commerce, he added, especially as various cases and challenges have wended their way up the appeals ladder, often with different appeals courts making differing and conflicting rulings. In those cases, he said, the online solution is “either federal legislation or some guidance from the Supreme Court.”