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May 3, 2006
OLYMPIA - The Washington State Liquor Control Board announced today
it intends to appeal the decision of U.S. District Court Judge Marsha Pechman, which struck down several
key elements of the state’s three-tier system regulating the distribution and sale of beer and wine in
a suit brought by Costco.
In announcing the appeal, the Liquor Control Board indicated it believes the judge’s decision to
overturn Washington laws designed to moderate alcohol consumption and promote a safer and healthier
society was flawed.
The Board also believes the judge ruled incorrectly that Washington’s right to regulate alcohol
is subordinate to federal anti-trust laws designed to encourage commerce. The Board said the judge’s
ruling failed to balance legitimate societal concerns about the negative affect of alcohol consumption
with the interests of large corporations that profit from the sale of alcohol.
During the trial, the state presented expert witness testimony showing that its price controls are
effective in moderating consumption. The state also presented evidence to illustrate how its regulatory
structure created an orderly market and efficient tax collection system.
In addition, expert witness testimony supported the state’s contention that eliminating price
controls would result in increased alcohol consumption. It is well documented that states with higher
consumption rates incur higher health, social and economic costs related to alcohol use.
Among the specific restraints the judge struck down was a ban on volume discounts. If the judge’s
ruling is allowed to stand, the Board said, deep discounting practices for beer and wine could
become common in retail stores across the state, not just at Costco.
“We do not believe these outcomes are consistent with our state’s strong support for improved
health, wellness, families, and workers,” the Board said.
Assistant Attorney General David Hankins, who represented WSLCB at trial, explained:
“This case is about Washington state’s right under the 21st Amendment to regulate alcohol sale
as the citizens see fit. The judge failed to properly balance this important right against federal
policy to promote interstate commerce.”
The state will seek to stay the judge’s decision pending review by the U.S. Ninth Circuit Court
of Appeals.
The judge ruled that one element of the state’s regulatory system – a ban on the retailer-to-retailer
sale of beer and wine - was valid because it is a unilateral restraint which does not violate federal
anti trust laws. By allowing this restraint to stand, the judge barred Costco and other large
retailers from acting as unregulated distributors of beer and wine.
The Costco suit is being watched closely by a diverse group of interested parties nationwide,
including retailers, wholesalers, manufacturers, control and non-control states. If the judge’s
rulings in the case are upheld on appeal, they could force sweeping changes in the way alcohol is
regulated in the United States, further reducing states’ rights to manage alcohol as a controlled
substance.
The state will not appeal a December ruling by Judge Pechman that its law banning direct shipment
to retailers from out-of-state beer and wine producers violated the Commerce Clause. Legislation
passed this session revised the law to permit direct shipment to retailers by both in-state and
out-of-state producers.
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