Costco’s victory in 2006 has turned into a victory for wholesalers, small retailers, alcohol regulators and a number of three-tier advocates yesterday after the Ninth Circuit Court of Appeals reversed almost all of the state regulations that had been overturned by lower District Court Judge Marsha Pechman in April 2006. Back then, the Costco case was considered a defeat by wholesalers after Judge Pechman ruled the state of Washington’s argument of temperance and orderly markets under the 21st Amendment did not save its laws from federal antitrust scrutiny from the Sherman Act.

Most of the provisions in Washington state alcohol law, including many that are shared with other states, were overturned, which had the whole country watching the case unfold. At least 30 other states and jurisdictions filed briefs in support of Washington. An adverse decision could not only have had a rippling effect on state alcohol laws in that Circuit, but it also could have dismantled three-tier laws throughout the country.

To put things simply, the Ninth Circuit Court determined it’s not really a federal court’s business to legislate from the bench. It acknowledged there may be other ways to conduct an orderly market and promote temperance, such as Judge Pemchman’s suggestion of raising excise taxes, but it’s not for the judicial branch to decide.

The Ninth Circuit court looked at each of the nine alcohol laws that Costco claims are anti-competitive. They include: uniform pricing for all distributors, required price posting, required price holding for 30 days, minimum 10% markup, ban on quantity discounts, ban on credit, required same delivered pricing for all accounts regardless of who provides freight, ban on retailer central warehousing, and finally, the only restraint held up by Judge Pechman’s District court, is the prohibition on retailers from reselling alcohol to each other.

Ninth Circuit upheld the District Court’s ruling allowing prohibition of retailer-to-retailer sales, and upheld the lower court’s ruling banning price posting and holding, but struck down all the rest. That means that Washington’s alcohol code is now considered constitutional under the 21st Amendment with the exception of post-and-hold, and does not fall under Sherman act scrutiny.

About 16 other states have post-and-hold provisions, where distributors must post their pricing in advance and not change them for a set period of time.

Judge Diarmuid O’Scannlain, writing for the three-judge panel, concluded the ruling with this:

“We affirm the district court’s rejection of Costco’s challenge to the retailer-to-retailer sales ban. We also affirm its conclusion that under our precedents, the post-and-hold scheme is a hybrid restraint of trade that is not saved by the state immunity doctrine of the Twenty-first Amendment.”

In all, the 9th Circuit Court of Appeals upheld eight out of nine provisions in Washington’s regulatory scheme, making it a huge win for states rights advocates.

The state of Washington is still deciding whether it will appeal the striking down of their price post-and-hold law. Costco attorneys are also mulling over whether to appeal. They have two weeks to appeal back to the 9th Circuit, or they have 90 days to appeal to the Supreme Court.

During a Costco shareholder meeting, Costco ceo Jim Sinegal said: “We are not particularly happy with the result. We don’t think the 9th Circuit was as thoughtful at protecting the consumer,” the Seattle Post-Intelligencer reports.

The decision in this case creates an important precedent for future courts to consider. As you’ll recall, this is the second federal circuit court to rule favorably for wholesalers and regulators. In October, the First Circuit handed down a decision backing up Maine’s alcohol laws which require face-to-face transactions and bans on direct shipping based on volume caps.

The WSWA called the Ninth Circuit Court decisions a “stunning victory”

“But the fact is that the deregulation of alcohol sought by Costco, which the court noted offered ‘limited selection’ in a ‘no frills’ environment, would have resulted in fewer choices for consumers, fewer independent retailers in the marketplace and fewer options for small- to mid-size suppliers who would be unable to penetrate a big box-dominated marketplace,” said ceo Craig Wolf in a statement.

“The fact that a third appellate court has now prominently acknowledged Granholm’s affirmation of the three-tier system is quite significant,” he continued.

SWEDISH GOVT. TRYING TO KEEP V&S ACQUISITION LOCAL?

Rumors have swirled this week that Vin & Sprit would prefer that Investor acquire the company over other bidders such as Fortune and Bacardi. Investor, which submitted a bid through its joint offer with private equity firm EQT, is run by the Wallenbergs, a well-to-do family in Sweden. The Swedish government is adamant about keeping V&S in tact, and fears companies such as Fortune would dismantle the Swedish drinks group, costing thousands of Swedish jobs.

DIAGEO REMAINS CONFIDENT AMIDST CREDIT CRUNCH

Paul Walsh said in a UK television interview that Diageo’s wide global presence puts it in a strong position, despite a slowing economy. Similar to Pernod’s managing director Pierre Pringuet’s comments, Paul said emerging markets such as India and China will help pull the company through tougher times. He also remarked that rewarding yourself with a premium and super-premium wine or spirit products is much cheaper then going on an expensive trip or buying an expensive car. Fortune’s chief, Bruce Carbonari, echoed the same sentiments during last week’s earnings report.

CALLING ALL TRUTH SQUADERS. We want to know what you’re thinking. It only takes a few minutes to fill out our Truth Squad survey, and allows us to understand the issues you’re facing in the industry. Help us help you. All answers are kept anonymous. Click here to take the survey: http://tiny.cc/nnda6. Thanks again to everyone who has participated.

WSD BRIEFS:

FOSTER’S GROUP appointed Angust McKay as its new CFO, effective immediately. Previously Finance Director, Australia, Asia and Pacific, Angus succeeds Pete Scott, who announced his intention to retire in August last year.

BROWN-FORMAN hired the C2Group to lobby the government, the AP reports, on issues such as tax reform.


Until tomorrow, Megan

“When ideas fail, words come in very handy.”
Johann Wolfgang von Goethe

——— Sell Day Calendar ———-
Today’s Sell Day: 21
Sell days this month: 22
Sell days this month last year: 22
This month ends on a: Thur
This month last year ended on a: Wed.
YTD sell days Over/Under: 0

Trackback URI | Comments RSS