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Appeals Court Reverses Washington Costco Decision

According to a breaking news press release I received from the National Beer Wholesalers Association (NBWA), the Ninth Circuit Court of Appeals has reached a verdict in the lower court’s earlier decision in Costco v. Hoen (Washington State Liquor Control Board), reversing a majority of it, which, according to the NBWA, “thereby affirm[s] the right of the states to regulate alcohol under the 21st Amendment – a system that works to protect the citizens of each state. While NBWA is still reviewing the totality of the Court’s opinion, it appears that state regulation has been validated.”

Disappointingly, the Seattle Post-Intelligencer‘s report on this begins with the following loaded sentence. “A federal appeals court Tuesday dealt Costco Wholesale Corp. a setback on whether the giant warehouse club operator could lower prices of beer and wine for its customers.” I realize that was in the business section, but so much for impartiality. Swallowing Costco’s propaganda entirely, to say they sued the state so they could lower prices to consumers is at best not telling the whole story and at worst and out and out fabrication.

Of the nine laws and regulations Costco claimed restricted competitive practices, U.S. District Court Judge Marsha Pechman agreed and ruled over a year ago in their favor. Today’s appeals ruling reversed eight of those, with the exception of the post-and-hold requirement. It appears likely that it may now be appealed to the Supreme Court. According to the PI, “The 9th Circuit Court of Appeals said the state Liquor Control Board could prohibit discounts, ban central warehousing of beer and wine by retailers, require wholesale distributors to charge uniform prices to all retailers and require a 10 percent markup. The state had said if Costco won it could put into question the systems other states use to control alcohol consumption and safeguard the collection of taxes. At least 30 other states or jurisdictions had filed briefs in support of Washington.”

Reuters, on the other hand, more even-handedly stated that Costco “lost a bid on Tuesday to overturn Washington state liquor rules that control pricing and discounts.”

The Seattle Times and the Wall Street Journal have also now weighed in with stories of their own.

From the Wall Street Journal:

Costco’s 2006 triumph attracted a lot of attention because it suggested that major changes might be in store for the nation’s complex system of regulating alcohol sales. Changes in Washington state could have a ripple effect, because most states have similar laws.

Costco is challenging a regulatory architecture that dates to the repeal of Prohibition and was designed partly to discourage overconsumption of alcohol. Makers of alcoholic beverages sell to a distributor, which marks up the price and trucks it to a bar, restaurant or store, which then sells it to a consumer.

Costco is deciding whether to appeal the ruling. “We are pleased that the central part of the anticompetitive restraints provisions was struck down,” said David Burman, a Seattle-based lawyer handling the case for Costco, referring to the “post and hold” provisions. “It will be good for Costco members and other consumers.”

Seventeen other states have post-and-hold laws, Mr. Burman said. He added that he thinks Washington lawmakers “will likely” consider overturning other provisions.

Washington alcohol regulators may appeal the part of the ruling favoring Costco. “The state got a pretty good deal. It has to decide whether it can live with a regulatory scheme that sort of has one component plucked out and thrown away,” said Richard Blau, a lawyer who specializes in alcohol law with GrayRobinson, a Florida law firm. Regulators could leave it up to state lawmakers to address that aspect of the court’s decision.

The other reason that this so-called “regulatory architecture” was partly created, in addition to discouraging overconsumption, is to level the playing field among different sizes of businesses so that advantages were not given to larger businesses by virtue of their superior bargaining position and resources to make larger buys. That was the real reason Costco went after these laws, not because they were concerned that their customers might be paying too much for the beer and wine they sold. You’d have to be pretty blind to reality to swallow that one as their motivation, yet in mainstream media story after story that continues to be the reason stated.


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