Maurer School of Law: Indiana University Digital Repository @ Maurer Law Articles by Maurer Faculty Faculty Scholarship 2007 E-Commerce in Wine J. Alexander Tanford Indiana University Maurer School of Law, [email protected] Follow this and additional works at: https://www.repository.law.indiana.edu/facpub Part of the Commercial Law Commons Recommended Citation Tanford, J. Alexander, "E-Commerce in Wine" (2007). Articles by Maurer Faculty. 489. https://www.repository.law.indiana.edu/facpub/489 This Article is brought to you for free and open access by the Faculty Scholarship at Digital Repository @ Maurer Law. It has been accepted for inclusion in Articles by Maurer Faculty by an authorized administrator of Digital Repository @ Maurer Law. For more information, please contact [email protected]. 2007] E-COMMERCE IN WINE James Alexander Tanford 1. INTRODUCTION ......................................................................... 276 I. B ACKGROUND .......................................................................... 278 A. The Commerce Clause ............................................................. 278 1. States may not discriminate against interstate commerce..279 2. States may not engage in economic protectionism ............ 282 3. States may not directly regulate interstate commerce ........ 283 4. States may not unnecessarily burden interstate commerce283 B. Commerce in Alcoholic Beverages .......................................... 284 1. Free Trade in the Nineteenth Century ................................ 284 2. The Wilson Act and its interpretation: 1891-1912 ............ 285 3. The Webb-Kenyon Act of 1913 ......................................... 287 4. Prohibition .......................................................................... 289 C. The Twenty-First Amendment and the Repeal of Prohibition.290 D. Commerce in Alcoholic Beverages After the Twenty-First Amendment .................................................. 295 1. The early "broad power" cases .......................................... 296 2. The modern "limited power" cases .................................... 297 3. Dicta in non-Commerce Clause cases ............................... 300 4. The (brief) re-emergence of the Webb-Kenyon Act .......... 301 I1. THE WINE WAR ........................................................................ 302 A . B ackground ............................................................................... 302 1. History of the three-tier system ......................................... 302 2. The wine industry today .................................................... 303 3. The Internet opens new supply routes, but the wholesalers close them ...................................................... 304 B. Granholm v. Heald.................................................................... 305 1. The case ............................................................................. 305 2. The plaintiffs' argument: discrimination violates the Commerce Clause ........................................................ 307 3. The States' argument ......................................................... 308 4. Plaintiffs' rebuttal: Reasonable nondiscriminatory alternatives ........................................................................ 3 12 5. The problem of enforcement .............................................. 313 6. The economic argument .................................................... 315 7. The Granholm decision ..................................................... 319 IV . W HAT N EXT? ......................................... .. .. .. .. .. .. .. 322 A. Does It Matter How States Level The Playing Field? .............. 322 B . R eciprocity Law s ...................................................................... 325 C. How Far Can Granholm Be Extended? .................... ................326 JOURNAL OF LAW, ECONOMICS AND POLICY [VOIL. 3:2 1. T he easy cases ....................................................................326 2. The interm ediate cases ....................................................... 327 3. The hard cases .................................................................... 328 V . C ONCLUSION ............................................................................ 329 I. INTRODUCTION The first major battle of the wine war is now history. The rebels un- expectedly routed the States' forces and their powerful wholesaler allies and won a convincing victory in Granholm v. Heald.' Trade barriers block- ing e-commerce in wine that once seemed invincible have been tom down, or at least damaged. The assault on wine trade barriers began in 1998 in Indiana, of all places. Two lawyers from the Hoosier state and a handful of wine consum- ers declared war on laws that prohibited ordering wine over the Internet and denied them access to hundreds of small producers. Somewhat unexpect- edly, the plaintiffs won the initial battle.' News of the victory spread through the wine world, and new recruits began arriving. Cases were filed in Florida, Michigan, North Carolina, Texas, Virginia and New York. The wine industry, which had at first been reluctant to get involved, joined the fray. The intoxicating feeling of victory was quickly replaced by the hang- over of three defeats in a row. The plaintiffs lost in Florida3 and Michigan,4 and suffered a devastating defeat as the Seventh Circuit reversed and va- * Professor of Law, Indiana University-Bloomington, and Counsel of Record for the plaintiffs in Granholm v. Heald. My co-counsel in Granholm was Robert D. Epstein, who helped develop every one of these issues over nearly eight years of litigation. I also owe debts of gratitude to Clint Bolick, Ken Starr, Jim Seff, Kathleen Sullivan, and Tracy Genesen, all of whom participated with us in crafting the Supreme Court argument, and to the army of legal scholars and lawyers who wrote a total of 26 briefs in the case-including Paul Bender, Susan Estrich, Stuart Banner, Steven Diamond, Drew Days, Miquel Estrada, Carter Phillips, Viet Dinh, and the firms of Dickstein Shapiro, Gibson Dunn & Crutcher, Mor- rison & Foerster, Jenner & Block, Sidley & Austin, Patton Boggs, Pillsbury Winthrop, King & Spal- ding, and Kirkland & Ellis. As counsel of record, I read every one of those briefs. It is inevitable that some of the ideas, citations, and phrases used in this Article should properly be attributed to them but are not because I have misplaced the mental citation. Finally, special thanks to Dean Lauren Robel who supported my work on the Granholm case and defended me when I was attacked personally by the wine wholesalers. I Granholm v. Heald, 544 U.S. 460 (2005). 2 Bridenbaugh v. O'Bannon, 78 F. Supp. 2d 828 (N.D. Ind. 1999). 3 Bainbridge v. Bush, 148 F. Supp. 2d 1306 (M.D. Fla. 2001). 4 Heald v. Engler, 2001 U.S. Dist. LEXIS 24826 (E.D. Mich. 2001). 2007] E-COMMERCE IN WINE cated the plaintiffs' initial victory in Indiana.5 The trade barriers held. Momentum shifted to the states. Wine industry support faltered, and rebel supplies ran low-one more defeat, and the revolution would be over. That one additional defeat never happened. The rebels won the next eight decisions-in the district courts of Virginia,6 North Carolina,7 Texas,8 0 2 and New York,9 and in the courts of appeals for the Fourth," Fifth,"' Sixth, and Eleventh 3 Circuits. State officials in Texas and North Carolina surren- dered, but others fought on. Then, the Second Circuit surprisingly upheld New York's law to set up a split in the Circuits, 4 and the battleground shifted to the Supreme Court. Fighting in the Supreme Court is unlike any other kind of litigation. It is covered on the front pages of the New York Times and Wall Street Journal. It is fought behind the scenes at the highest levels of government. Alliances must be formed because you need all the friends you can get to support you with amicus briefs. 5 It is politics writ large. Luckily for the rebels, former Solicitor-General Kenneth Starr ar- rived in the nick of time, bringing with him his small band of Washington troops who were experienced in this kind of in-fighting. 6 The Federal Trade Commission (FTC) also supplied much-needed ammunition in the form of a strong, and judicially noticeable, report on the anti-competitive effects of state barriers to e-commerce in wine and the availability of non- discriminatory regulatory alternatives. 7 The forces converged on the Su- preme Court, filing 26 briefs. Then, on May 16, 2005, the Court released its decision. The rebels had won a decisive and unequivocal victory for consumers and the free market. In a broad and sweeping decision, the Su- 5 Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th Cir. 2000). Ironically, this anti-free market opinion was written by J. Frank Easterbrook, who was one of the founding scholars of the law and economics movement. 6 Bolick v. Roberts, 199 F. Supp. 2d 401 (E.D. Va. 2002). 7 Beskind v. Easley, 197 F. Supp. 2d 464 (W.D.N.C. 2002). 8 Dickerson v. Bailey, 212 F. Supp. 2d 673 (S.D. Tex. 2002). 9 Swedenburg v. Kelly, 232 F. Supp. 2d 135 (S.D.N.Y. 2002). 10 Beskind v. Easley, 325 F.3d 506 (4th Cir. 2003). 11 Dickerson v. Bailey, 336 F.3d 388 (5th Cir. 2003). 12 Heald v. Engler, 342 F.3d 517 (6th Cir. 2003). 13 Bainbridge v. Turner, 311 F.3d 1104 (1 1th Cir. 2002). 14 Swedenburg v. Kelly, 358 F.3d 223 (2d Cir. 2004) (the court acknowledged that it was taking the disfavored position and setting up a split in the Circuits). 15 Perhaps the oddest allies in this case were the liquor