Court Ruling Paves Way for Wine Industry Growth

In America, there are 3,700 wineries — many of them small, family-owned operations — and wine is a $21 billion business. Monday's Supreme Court ruling opened the door to making it a bigger business, by striking down laws banning interstate wine shipments.

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In America, wine is big business, and the Supreme Court has opened the door to making wine a bigger business, as NPR legal affairs correspondent Nina Totenberg reports.

NINA TOTENBERG reporting:

In a country where Manischewitz used to be the best-known name in wine, Wine Spectator is now a hot magazine and Pinot Noir is the star of a hit Hollywood movie called "Sideways."

(Soundbite of "Sideways")

Unidentified Actor: Oh, its flavors. They're just the most haunting and brilliant and thrilling and subtle and...

TOTENBERG: Today wine is a $21 billion business in America. There are 3,700 wineries nationwide, most of them small, family owned operations, and the tourists who used to flood the Napa and Sonoma valleys in California now are trekking to wineries from West Virginia to the Willamette Valley in Oregon, too. Trouble is, the tourists can taste, but they can't take. Bill Brinton owns Charles Creek Vineyards in the Sonoma Valley and bottles 12,000 cases a year.

Mr. BILL BRINTON (Charles Creek Vineyards): We have 10 to 15 people a week that come into the tasting room and cannot buy wine because they live in the wrong state.

TOTENBERG: In fact, 24 states do not allow out-of-state wineries to ship directly to consumers, and small wineries like Charles Creek can't afford to market through a distributor. Now if wine were any other kind of product, there would be no question that states could not restrict the market this way. The Constitution guarantees the free flow of commerce across state lines. But when Congress and the states amended the Constitution to repeal Prohibition in 1933, the 21st Amendment explicitly gave states the power to regulate the sale and importation of alcohol within the state's borders, and ever since the states have relied on that as their authority to regulate as they wish.

Yesterday, however, the US Supreme Court ruled by a 5-to-4 vote that states are not free to discriminate against out-of-state wineries. The court's decision came in test cases from Michigan and New York. Writing for a five-justice majority, Justice Anthony Kennedy said that states may ban direct shipments altogether, but if direct shipment is permitted for in-state wineries, it must be permitted for out-of-state wineries, too. The 21st Amendment, said Kennedy, was never intended to trump the provision of the Constitution guaranteeing that in-state and out-of-state traders be treated evenhandedly.

Allied with Kennedy was an unusual ideological array of justices: Scalia, Souter, Ginsburg and Breyer.

Dissenting was an equally odd group: Justices Stevens, O'Connor, Thomas and Chief Justice Rehnquist. They said the 21st Amendment was carved out as an exception to the free trade rules of the Constitution.

However slim the court victory for wineries, it is expected to have a broad impact with the Internet, the next frontier for wineries. And there's an even bigger question, says James Niven, the chairman of the Wine Institute.

Mr. JAMES NIVEN (Wine Institute): Can big companies like Wal-Mart and Costco just totally ignore and disregard the distribution system and buy directly, and thereby sell their products at much cheaper prices? That's the 800-pound gorilla that is still in the closet.

TOTENBERG: Distributors, however, will be fighting for their lives and have enormous political clout by virtue of their longtime and large campaign contributions, so says Matt Kramer, contributing editor of Wine Spectator magazine.

Mr. MATT KRAMER (Wine Spectator): The distributors have a lot of power and a lot of money, and I think it would be a very big mistake to underestimate their aggressiveness and their commitment, because this is a pocketbook issue for them.

TOTENBERG: Teamed up with the distributors in opposing direct shipment of wine is a broad coalition of groups from the National Council of Evangelicals to Mothers Against Drunk Driving. Indeed, Nida Samona, chair of the Michigan Liquor Control Board, says if the choice is to crack down or loosen restrictions, she will urge a crackdown.

Ms. NIDA SAMONA (Michigan Liquor Control Board): Tighten those reins to ensure the public safety, health and welfare of the state of Michigan and, in particular, the minors, is protected.

TOTENBERG: But few doubt that in the long run wine will become more accessible and the market more competitive. Wine Spectator's Matt Kramer.

Mr. KRAMER: Once wineries begin to recognize they really have no choice but to answer the specific needs of their customers, then you, in turn, when you finally visit that winery, suddenly get offered a smorgasbord of options.

TOTENBERG: So if you want a screw-off top instead of a cork, or a personalized label or wine from one kind of keg vs. another, that will probably all be available, though maybe not for 10 years or so. Nina Totenberg, NPR News, Washington.

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