SEATTLE — Costco Wholesale Corp.’s effort to beat Washington’s post-Prohibition liquor laws in hopes of driving down prices for beer and wine came up short Tuesday, with a three-judge federal appeals court panel saying most of the rules are valid.
The ruling from the 9th U.S. Circuit Court of Appeals largely overturned decisions in 2005 and 2006 by U.S. District Judge Marsha Pechman, who found most of the rules — including minimum price markups — to be in violation of federal antitrust law.
Costco, based in Issaquah, sued the state in 2004, arguing that the rules blocked it from using its vast buying power to make beer and wine cheaper for Washington customers. Regulators insisted that the 21st Amendment, which ended Prohibition, gives states wide powers to regulate the sale and distribution of alcoholic drinks.
“It’s a real win for the state,” said assistant attorney general Martha Lantz. “As I see it, it’s affirming the choices the state has made for the past 70 years.”
Washington has a three-tiered system for distributing beer and wine. Breweries and wineries sell to wholesalers, at a minimum markup of 10 percent, and wholesalers sell to retailers, such as Costco, again at a minimum markup of 10 percent.
At issue in the case were nine laws governing the distribution of beer and wine; the appeals judges upheld seven of them, including the automatic markups, a ban on sales from one retailer to another, a ban on having alcohol delivered to a warehouse, and a ban on quantity discounts — Costco’s cup of tea.
The judges also upheld a requirement that manufacturers sell to all wholesalers at the same price, and that wholesalers sell to all retailers at the same price.
But the judges invalidated a requirement that manufacturers and distributors post their prices with the state in advance, and keep prices the same for a month.
David Burman, a lawyer for Costco, called that a central tenet of the state’s regulatory system and welcomed the decision to strike it down.
“I think it means the distributors will have to compete with each other more than they have in the past. … Distributors won’t be able to rely on that to keep prices high and stabilized,” Burman said. “Costco should be able to pass more of the discount on to its members.”
Burman acknowledged he was otherwise disappointed with the ruling, but said no decision had been made about whether to ask the 9th Circuit for a rehearing of the case.
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