December 7, 2004 8:10 AM PST

The uncorking of online alcohol sales

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Juanita Swedenburg is an unlikely Internet revolutionary. The owner of a small family winery on a 130-acre cattle farm in Middlesburg, Va., she admits she doesn't browse the Web or even own a computer.

"That's for the younger generation," she said.

Yet a lawsuit that Swedenburg has filed could revolutionize the way alcohol is sold over the Internet. On Tuesday, the U.S. Supreme Court began hearing arguments in the case, brought jointly by the Swedenburg Winery and the Lucas Winery in Lodi, Calif.

News.context

What's new:
A lawsuit brought by a small family winery could revolutionize the way alcohol is sold over the Internet.

Bottom line:
The economic stakes could be even higher, as states have been claiming the authority to impose hefty regulations on out-of-state shipments of everything from cars to funeral caskets and contact lenses.

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Dozens of states have slapped strict rules on interstate shipments of beer and wine, effectively erecting a formidable barrier that prevents out-of-state wineries like Swedenburg's from shipping directly to residents of those states.

Critics charge that such laws are little more than protectionist measures backed by local liquor distributors that enjoy fat markups and don't have room to stock less-known brews or vintages.

If Swedenburg prevails, the high court's ruling would likely doom state laws outlawing direct shipping and provide a tremendous boost to online and mail-order sales of wine, beer and perhaps hard liquor as well. A decision is expected by early July 2005.

While alcohol sales currently occupy only a small e-commerce niche, they're a sizable portion of the U.S. economy. The Beer Institute estimates the brewing industry employs about 1.7 million Americans and pays $47 billion a year in wages and benefits. Approximately 595 million gallons of wine were sold in the United States in 2002, according to the Wine Institute, up from 337 million gallons in 1972.

The economic stakes could be even higher. States have been claiming the authority to impose hefty regulations on out-of-state shipments of everything from cars to funeral caskets and contact lenses. A victory by Swedenburg could go a long way in overturning those laws as well.

At the heart of the current dispute before the justices is the 21st Amendment, which ended Prohibition and awarded states broad authority to regulate sales of "intoxicating liquors." States with legal barriers to out-of-state wine and beer shipments insist that the laws are needed to guard against unscrupulous vendors and against minors ordering booze online.

"New York has concluded that direct shipment of alcoholic beverages into the state by unlicensed entities would significantly impede enforcement of its laws by creating an unregulated channel for the sale of alcohol," New York Attorney General Eliot Spitzer argued in a brief. "The oversight enabled by these record-keeping and access rules is especially important for the prevention of sales to minors through direct shipment."

New York and Michigan are defending their laws in two separate cases that have been combined for the oral arguments. One appeals court found New York's rules to be acceptable; another struck down Michigan's by ruling against the Michigan Beer and Wine Wholesalers

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