IMAGE: WINE BEING PACKED
Eric Risberg  /  AP
Wine is packed for shipment at Elan Vineyards in Napa, Calif., one of hundreds of small wineries that stand to benefit from Monday's Supreme Court ruling.
NBC, msnbc.com and news services
updated 5/16/2005 6:35:27 PM ET 2005-05-16T22:35:27

Raising the bar on states wanting to restrict online commerce, the Supreme Court ruled Monday that wine lovers may buy directly from out-of-state wineries, striking down laws banning a practice that has flourished because of the Internet and growing popularity of winery tours.

While the ruling only involves wine sales, industry groups expect that it will soon apply to beer and other alcoholic beverages currently regulated through state-licensed wholesalers and retailers.

Lawyers involved in the case say the ruling will also make it harder for states to restrict Internet commerce on other regulated items — from contact lenses to car insurance.

The 5-4 decision strikes down laws in New York and Michigan that make it a crime to buy wine directly from vineyards in another state. In all, 24 states have laws that bar interstate shipments.

The state bans are discriminatory and anti-competitive, the court said.

“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.”

'Evenhanded' policy required
“If a state chooses to allow direct shipments of wine, it must do so on evenhanded terms,” he wrote.

Kennedy was joined in his opinion by Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen Breyer.

At issue was the 21st Amendment, which ended Prohibition in 1933 and granted states authority to regulate alcohol sales. Nearly half the states subsequently passed laws requiring outside wineries to sell their products through licensed wholesalers within the state.

But the Constitution also prohibits states from passing laws that discriminate against out-of-state businesses. That led to a challenge to laws in Michigan and New York, which allow direct shipments for in-state wineries but not out-of-state ones.

Kennedy wrote that states do not have the authority to regulate liquor simply to protect their economic interests.

The decision puts in doubt laws in 24 states that ban out-of-state shipments, although the opinion suggests the laws will be upheld so long as in-state and out-of-state wineries are treated equally.

As a result, states could choose all wineries to sell to consumers directly, but could also bar all wineries from doing so.

Legislators in Michigan and New York, where local wine industries are rapidly expanding, will likely face pressure to upend their current shipping laws and allow out-of-state shipments. But in states like Connecticut and Florida, where few wineries are located, influential liquor wholesalers may have more success in shutting down all direct shipments.

Thomas writes dissent
In a dissent, Justice Clarence Thomas argued that the ruling needlessly overturns long-established regulations aimed partly at protecting minors. State regulators under the 21st Amendment have clear authority to regulate alcohol as they see fit, he wrote.

“The court does this nation no service by ignoring the textual commands of the Constitution and acts of Congress,” Thomas wrote.

He was joined in his opinion by Chief Justice William Rehnquist, as well as Justices Sandra Day O’Connor and John Paul Stevens.

Win for small wineries
The economic stakes are high in the $21.6 billion wine industry. Owners of small wineries, which have proliferated in recent years, say they can’t compete with huge companies unless they can sell directly to customers over the Internet or by allowing visitors to their wineries to ship bottles home.

"This does not by any means get us out of the woods entirely, but it does give us the full authority of the United States Supreme Court to say what you're doing is wrong," said David Sloane, executive director of WineAmerica, the wineries' national trade group. "It puts us on the moral high ground."

But states collect millions of dollars in alcohol taxes and say the established system helps stem fraud and underage drinking.

Nida Samona, chairwoman of the Michigan Liquor Control Commission, said she will recommend that legislators ban all shipments of wine, a position certain to draw fire from Michigan wineries who currently ship to in-state customers. "Face to face purchase of alcohol is the safest way for the safety and health of everyone," Samona told MSNBC.com. "I understand that they're going to be not to happy with my position."

The Washington-based Institute for Justice says the 24 states that ban direct shipments from out-of-state wineries are: Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Indiana, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Ohio, Oklahoma, Pennsylvania, New Jersey, New York, South Dakota, Tennessee, Utah and Vermont.

The cases are Granholm v. Heald, 03-1116; Michigan Beer & Wine Wholesalers Association v. Heald, 03-1120; and Swedenburg v. Kelly, 03-1274.

NBC News Legal Correspondent Pete Williams, MSNBC.com's Jon Bonne and The Associated Press contributed to this report.

Video: Wine bans overturned

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