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On Tuesday, U.S. District Judge Richard Berman breathed some life into the dormant commerce clause by refusing to dismiss a lawsuit challenging the constitutionality of direct wine sales in New York State. New York, like 29 other states, currently prohibits out-of-state wineries from selling directly to consumers. Predictably, the result of such practice has meant higher prices and poorer selection for consumers.
The case will now proceed with either summary judgment or a full trial. Either way, the NY State Liquor Authority, and the state’s four largest wholesalers, will be hard pressed to explain how the “Direct Shipment and Advertising Ban” is consonant with the commerce clause’s prohibition on state laws that restrict trade.
The NY State Liquor Authority, and the state’s four largest wholesalers, will be hard pressed to explain how the “Direct Shipment and Advertising Ban” is consonant with the commerce clause’s prohibition on state laws that restrict trade.
Their defense is largely based on the 21st Amendment, which repealed prohibition. Although the amendment gave states the power to regulate the sale of alcohol, as Judge Berman noted in his decision, it did not “empower local states to favor local liquor industries by erecting barriers.” The defendants have little to offer beyond this legal justification.
The proliferation of communication networks and information technology has transformed the American economy by greatly reducing the cost of information. Now that this information advantage has been taken from them, middlemen must not look to government to protect their monopoly; instead they must find innovative ways to be relevant.
It is harmful to consumers when a wholesaler is able to charge 25 percent more for a product simply because a law prohibits its direct sale. However, even in the new economy middlemen can find new ways to benefit consumers. For instance, there are many wines that consumers may not be familiar. By providing a search and sorting function, many wholesalers may thrive in the new economy by alerting patrons to new wines or by refining their own distribution methods.
The ramifications of this decision could be very beneficial to consumers that have been held hostage by protectionist laws for too long. It is time for middlemen to learn to adapt to the realities of the new economy and stop seeking state-granted monopolies that harm consumers.