Costco Fighting to Free Liquor Sales

SEATTLE, May 11, 2006 — -- It could be the biggest battle over alcohol since Prohibition.

Big-box retailer Costco has challenged how states control the sale of beer and wine. If the company wins its fight, consumers could benefit from cheaper prices.

Costco won the first round when a U.S. District Court judge ruled in the retailer's favor on April 21 in its lawsuit against Washington state. But Washington struck back with an appeal of the ruling announced on May 3.

Costco sells a ton of wine. The company wants to buy in bulk, cut prices, sell more wine and make more money. But Washington state doesn't want to let the company do that. State law does not allow the type of volume discounts on alcohol that Costco wants to implement.

In its suit, Costco said Washington state's ban on volume discounts violates anti-trust laws, because the state regulates the liquor industry too strictly.

The state of Washington said it has the right to promote temperance -- that means reduce consumption by keeping the price high. U.S. District Court Judge Marsha Pechman didn't buy the state's argument. She wrote, "Washington does not seek to promote temperance ... indeed the state actively promotes its domestic beer and wine industries." The state makes about $4 billion in liquor taxes. State run liquor stores recently opened on Sundays.

The judge's decision, and an earlier Supreme Court case, cuts the knees out from under the 21st Amendment -- the Prohibition-ending act that gives the states the right to regulate alcohol. At least that's the opinion of the man who argued the case for Washington state, Washington Assistant Attorney General David Hankins.

"The judge basically said that if a state says it's OK to sell beer and wine, then that's it. The state cannot interfere with open commerce," Hankins said. He added that he thinks this could be just the beginning.

"It opens the door -- you will see more lawsuits around the country," Hankins said.

When the federal Government gave up on the idea of prohibiting the sale of alcohol in 1933, the states stepped in. Washington, and 20 states control the sales of alcohol, and many have monopoly control over hard liquor.

If you buy from a state-run liquor store there's many others like you. But those who can buy wine, beer or a bottle of gin from a supermarket may also feel the effect of state control. Many states set the price of alcohol, tax it and control its distribution.

When the laws were written in the 1930s, legislators worried about what a law from the era referred to as "public health, welfare, safety and peace." They wanted to make sure sales were controlled by "honest, able and qualified" professionals.