US Cross-Border Commerce Ruling Could Affect I-Gaming

A U.S. Supreme Court ruling dealing with the sale of wine across state lines could have implications to the online gambling industry.

"States have broad power to regulate liquor. This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipments of wine, it must do so on evenhanded terms."

- Justice Anthony Kennedy
US Supreme Court

Monday's decision in the consolidated cases of Granholm v. Heald from Michigan and Swedenberg v. Kelly from New York, encompassed the interpretation of the Constitution, the intent of the 1933 amendment to end prohibition and changing personal tastes in the age of the Internet.

In what could be a precedent-setting decision, the court ruled (5-4) that a number of states have laws that are discriminatory and anti-competitive to some wineries. At the center of the cases was whether a state can prohibit the online sale of wine to its residents from an out-of-state winery, while allowing in-state wineries to sell their products, as long as they didn't ship those products across state borders.

Small winery owners were among those who pursued the cases, with backing from the Institute for Justice and other groups. Each state's attorney general argued that cross-border restrictions are necessary to maintain limits on underage drinking and to preserve the states' ability to tax liquor sales.

The court ruled, however, that such laws are anti-competitive and in direct violation of the Commerce Clause of the U.S. Constitution, and while the cases focused on the states of New York and Michigan, the ruling could open up the interstate wine market to another 20 or so states that prohibit the practice.

Clint Bolick, the strategic litigation counsel for the Institute for Justice, which represented plaintiffs, called the ruling "a victory for consumers and small businesses and a defeat for economic protectionism."

He said it could be a sign that the court supports freedom for interstate commerce conducted over the Web, which could translate to the loosening of other regulations in the future.

"It demonstrates that in the era of the Internet," Bolick explained, "the court will vindicate the principles of free trade that made this country great."

If indeed the decision ushers in a new era of free trade in the e-commerce world, at least one online betting company is looking to be at the forefront of the revolution.

Jeff True, the general manager for the western region for Youbet.com, said the court ruling could enable his company to offer its services in the nine states where it is prohibited.

"We are able to accept bets from 41 states right now," True said, "and we think this decision could go a long way in allowing us to operate in those other nine."

Those hopes are hung on a portion of the opinion, written by Justice Anthony Kennedy, arguing that if in-state companies are allowed to partake in a form of commerce among in-state companies, it must be opened up to out-of-state companies as well.

"States have broad power to regulate liquor," Kennedy wrote for the majority. "This power, however, does not allow states to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously authorizing direct shipment by in-state producers. If a state chooses to allow direct shipments of wine, it must do so on evenhanded terms."

Kennedy also wrote that laws blocking some businesses from a market while allowing others to access it are in direct violation of the Commerce Clause.

"If a state is going to allow it, then they should allow it for everyone, regardless if the provider of the service is using the Internet, telephone or an OTB facility to handle the wagers. We have always believed in this, but went along with the status quo because it was the right thing to do. But this decision might change the way we see the picture."

- Jeff True
Youbet.com

"Laws such as those at issue contradict the principles underlying this rule by depriving citizens of their right to have access to other states' markets on equal terms," he wrote.

When the case was argued before the court on Dec. 7, 2004, lawyers for New York and Michigan asserted that the prohibition-ending 21st Amendment to the Constitution gave states such wide authority over the importation of alcohol that it trumped the principle embodied in the Commerce Clause: that the states may not, without congressional authorization, discriminate against one another.

The court rejected this argument, however, and True said the principles of Kenney's position are applicable to interstate race wagering.

"If a state is going to allow it, then they should allow it for everyone, regardless if the provider of the service is using the Internet, telephone or an OTB facility to handle the wagers," he said. "We have always believed in this, but went along with the status quo because it was the right thing to do. But this decision might change the way we see the picture."

He added, "As a publicly traded company, we have to answer to our shareholders. We are obligated to explore all of our options that would make the most sense for us, and this case might give us the ammunition to do that in areas that had been off limits to us prior to this case."

Kennedy, who was joined by Justices Antonin Scalia, David Souter, Ruth Bader Ginsburg and Stephen Breyer, said New York and Michigan "provide little evidence for their claim that purchasing wine over the Internet by minors is a problem."

Moreover, the majority said, the states could devise tax-collection procedures without resorting to discrimination in interstate commerce.

Chief Justice William Rehnquist and Justices John Paul Stevens, Sandra Day O'Connor and Clarence Thomas dissented.