“This law is like the government forcing authors to give the rights to their books to publishers for free”

Even the Free-Market Jesus Paradise has regulatory issues once in a while.

Wednesday, three Texan craft breweries joined with the Institute for Justice to file suit against the state of Texas and specifically, the Texas Alcoholic Beverage Commission.

Passed in 2013, Senate Bill 639 faces a Constitutional challenge because it, “strips breweries of their traditional right to sell their distribution rights and instead forces them to surrender those rights to distributors without compensation,” according to the Institute for Justice. “It is unconstitutional for Texas to force brewers to give distributors property that they never earned and don’t deserve,” said Matt Miller, managing attorney for the Institute for Justice’s Texas office.

More specifically, the plaintiffs claim:

Texas cannot force them to give away their territorial rights—a part of their business—for free to distributors. They bring two claims: a takings claim under Article I, Section 17 of the Texas Constitution,[xii] which protects private property rights; and a substantive due process claim under Article I, Section 19 of the Texas Constitution, which protects economic liberty—the right to earn an honest living free from unreasonable government interference.

“For the last 18 years, I’ve poured my life into this business,” said Chip McElroy, president of Live Oak Brewing. “I’m proud to have been part of the Texas craft beer Renaissance. When Texas passed this law, not only did it give away part of what my employees and I built—it took my beer off the shelves in Dallas-Fort Worth, San Antonio and other parts of Texas where Live Oak beer would otherwise be available.”

SB 639 was designed to:

maintain the integrity of the three-tier system of alcohol regulation in which manufacturers, wholesalers and distributors, and retailers are kept formally, legally separate. This regulatory framework is important to the state and to the industry, as it guarantees the state’s ability to exercise oversight over the alcohol industry and collect taxes while providing large and small manufacturers access to multiple markets.

Republican State Senator John Corona, who authored the bill, did not win his bid for re-election.

The problem is an archaic one, rooted in post-Prohibition legislation. As the Institute for Justice explained:

When Prohibition ended in 1933, states passed laws creating what is known as the “three-tier” system for regulating the distribution of alcoholic beverages. Under this system, producers, distributors, and retailers—the three tiers of the supply chain—must remain independent from one another. This means these businesses cannot share ownership interests or otherwise coordinate their activities.

With most legislation there’s a definite beneficiary who reaps the rewards from the legislation’s restrictions on other parties. In this case, distributors are the big winners.

A similar law was passed in Kentucky this year.

The Institute for Justice has taken up this particular case as part of their National Food Freedom Initiative which includes among other things, a free speech win over Oregon’s raw milk advertising ban.

[Featured image a still from minidocumentary Craft Beer — A Hopumentary]

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