The Wall Street Journal-20080130-Politics - Economics- Costco Challenge to Beer-and-Wine Distribution Law Is Delivered Setback

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Politics & Economics: Costco Challenge to Beer-and-Wine Distribution Law Is Delivered Setback

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A federal appeals court in San Francisco dealt a blow to Costco Wholesale Corp.'s effort to upend decades-old beer-and-wine distribution laws.

The U.S. Court of Appeals for the Ninth Circuit overturned most of a 2006 district-court ruling that strongly favored the Issaquah, Wash., discount retailer. The case, in which Costco challenged its home state's distribution laws, has been watched closely because it could lead to lower beer and wine prices for U.S. consumers.

The appeals court handed a victory to Washington state alcohol regulators, upholding key laws, including a ban on volume discounts and a rule keeping retailers from taking delivery of beer and wine at a central warehouse. The lower court had struck down eight of the nine legal provisions that Costco contested; the three-member appellate panel said the lower court erred on six of those eight points.

The appeals court agreed with the district court that provisions requiring each beer and wine distributor to post its wholesale prices and hold to them for at least 30 days violated federal antitrust law.

Costco's 2006 triumph attracted a lot of attention because it suggested that major changes might be in store for the nation's complex system of regulating alcohol sales. Changes in Washington state could have a ripple effect, because most states have similar laws.

Costco is deciding whether to appeal the ruling. "We are pleased that the central part of the anticompetitive restraints provisions was struck down," said David Burman, a Seattle-based lawyer handling the case for Costco, referring to the "post-and-hold" pricing provisions. Seventeen other states have post-and-hold laws, Mr. Burman said.