On The Horizon: The Internet And The 21st Amendment - InformationWeek
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On The Horizon: The Internet And The 21st Amendment

Use technology for a solution to Internet versus states' interests.

In 1784, aside from the risk of a split cask or a broken bottle or two, shipping wine wasn't a legal issue. For Thomas Jefferson, wine was a passion and he was indeed a connoisseur. He regularly shipped wine all over the world -- to Paris, to Monticello, his home in Virginia, and even to the White House.

Today, however, it's illegal in 26 states to ship wine interstate from the winery directly to the home of a consumer. In Maryland and a few other states, it's a felony.

The 21st Amendment, which repealed Prohibition, gave back to the states broad authority to regulate the intrastate and interstate sale and distribution of "intoxicating liquors." Out of this authority grew all the various state liquor laws and a system that essentially makes distributors and retailers the states' enforcement arm for the dual purpose of collecting state taxes and keeping liquor out of the hands of minors.

The problem is that the states' interests here aren't necessarily perceived any more as adding value for consumers. The Internet has changed the way consumers interface with producers. It has become a great medium for the sale and distribution of products, and in many cases, such as in wine sales, it has forced the middleman to face the potential of disintermediation. Unlike 1784, most wine consumers today never come in contact with a distributor or wholesaler. Moreover, the Internet can do what distributors and wholesalers can't -- provide access to all wineries large and small across all geographic boundaries.

Consumers want the option of buying via the Internet, and their demand is causing a grassroots legal battle -- one in which the wineries have teamed with consumers and free-trade groups against the distributors and retailers. One argument that opponents of these state bans on interstate shipments are using is that the regulations violate the Commerce Clause, which gives Congress the sole authority to regulate interstate commerce and prohibits state discrimination against nonresident businesses. The question the courts now are confronting is whether the 21st Amendment, by providing that "transportation or importation into any state ... for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited," trumps the Commerce Clause. That's an issue that will almost certainly have to be decided by the Supreme Court.

Instead of arguing about the law, distributors might want to think about what Bill Gates had to say about adding value to transactions. "If the Internet is about to disintermediate you, one tack is to use the Internet to get back into action," he says in Business @ The Speed Of Thought (Warner Books, 1999). Distributors "need to create some new online programs that take advantage of the Internet" and so do the retailers, Gates says.

States do have a legitimate interest relative to the sale of alcohol, but enforcing the old system may no longer be viable. The technology community is quite capable of supplying workable solutions to create a new system that would allow for Internet sales but also support the states' interests relative to the 21st Amendment. In this case, maybe the distributors need fewer lawyers and more software engineers.

David Post is a Temple University law professor and senior fellow at the National Center for Technology and Law at the George Mason University School of Law. Reach him at postd@erols.com. Bradford C. Brown is chairman of the National Center for Technology and Law at the George Mason University School of Law. Reach him at bbrown2@gmu.edu.

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