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The Facts
Anheuser-Busch InBev attempted to purchase one of its distributors. The deal was blocked by the Illinois Liquor Control Commission, with a threat of pulling the distributor’s license. A-B and the distributor then sued the Illinois Liquor Control Commission, arguing that the panel was discriminatory against out-of-state beer producers in its ruling.
Huh?
When I first read the basis of the suit, I wondered what chance, if any, A-B would have. Discrimination against out-of-state producers? That is a very weak attack on the panel’s action, that is, at first glance, upholding the three tier system in Illinois.
The Facts
Anheuser-Busch InBev attempted to purchase one of its distributors. The deal was blocked by the Illinois Liquor Control Commission, with a threat of pulling the distributor’s license. A-B and the distributor then sued the Illinois Liquor Control Commission, arguing that the panel was discriminatory against out-of-state beer producers in its ruling.
Huh?
When I first read the basis of the suit, I wondered what chance, if any, A-B would have. Discrimination against out-of-state producers? That is a very weak attack on the panel’s action, that is, at first glance, upholding the three tier system in Illinois.
While the discrimination against inter-state commerce argument has worked for wineries and direct shipping, the wineries in those cases were not trying to vertically integrate with distributors. They were only attempting to do what in-state wineries already had the ability to do: act as a retailer.
The basic foundation of the three tier system is that producers cannot own distributors. Brewers sell to distributors, who sell to retailers, who then sell to consumers. The wine industry has won a reprieve from this system, and wineries are allowed to sell and ship wine directly to consumers. Even breweries in most states may sell to consumers directly from their premises. But, in many states, neither a winery nor a brewery may actually own the distributor. The idea being that vertical integration causes over promotion of alcohol, and leads to over consumption.
The Illinois Liquor Control Act
The Illinois Liquor Control Act, however, does not prohibit brewers from owning a distributor. Winemakers and distillers are specifically prohibited. In rejecting A-B’s bid to purchase the distributor (which it already owns an interest in), the commission staff relied on a general rule against the practice and the preservation of the three tier system, but did not cite any authority. It stated that out-of-state producers cannot own in-state distributors. And, this is the key.
Discrimination
The commission is specifically discriminating against out-of-state brewers, since in-state brewers can vertically integrate with their middle tier. A-B might have a good chance of winning based on its discrimination argument. The recent court cases mentioned above, have shown that state laws discriminating against out-of-state producers will not be tolerated, even if they are not discriminatory on their face, but have the effect of discrimination.
It will be very interesting to see where this case leads. Will it lead to a collapse of the three tier system in Illinois? Perhaps a change to the Illinois laws not allowing any brewery to own a distributor?
The basic foundation of the three tier system is that producers cannot own distributors. Brewers sell to distributors, who sell to retailers, who then sell to consumers. The wine industry has won a reprieve from this system, and wineries are allowed to sell and ship wine directly to consumers. Even breweries in most states may sell to consumers directly from their premises. But, in many states, neither a winery nor a brewery may actually own the distributor. The idea being that vertical integration causes over promotion of alcohol, and leads to over consumption.
The Illinois Liquor Control Act
The Illinois Liquor Control Act, however, does not prohibit brewers from owning a distributor. Winemakers and distillers are specifically prohibited. In rejecting A-B’s bid to purchase the distributor (which it already owns an interest in), the commission staff relied on a general rule against the practice and the preservation of the three tier system, but did not cite any authority. It stated that out-of-state producers cannot own in-state distributors. And, this is the key.
Discrimination
The commission is specifically discriminating against out-of-state brewers, since in-state brewers can vertically integrate with their middle tier. A-B might have a good chance of winning based on its discrimination argument. The recent court cases mentioned above, have shown that state laws discriminating against out-of-state producers will not be tolerated, even if they are not discriminatory on their face, but have the effect of discrimination.
It will be very interesting to see where this case leads. Will it lead to a collapse of the three tier system in Illinois? Perhaps a change to the Illinois laws not allowing any brewery to own a distributor?
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