18 May 2005

Granholm v. Heald (USSC 16 May 2005)

The US Supreme Court's decision in Granholm v. Heald, striking down State laws banning direct wine sales by out-of-state wineries, has received a lot of media attention. Just a few brief ideas and questions.

A first issue is the highly unusual make-up of majority and minority factions (Breyer and Scalia versus Chief Justice Rehnquist, for example), mentioned also by the Linda Greenhouse for the New York Times. As far as I can see, the case presented a congruence between flexible constitutional interpretation, limitations on States' rights and emphasis on free-market principles (favoured by the majority) versus textualism, full recognition of States' rights and economic protectionalism (chosen by the dissenters). Such an alignment cannot be all that rare, can it?

The Commerce Clause analysis itself - most interesting from a comparative (EU) perspective - seems not to have brought any innovations. The Michigan law at issue simply banned all direct sales by out-of-state wineries and so was patently discriminatory. The New York law required out-of-state wineries to establish a physical presence within the State of New York, which would obviously drive up their costs. This reasoning is not new in the US context and seems very similar to the ECJ's decision in Heimdienst (C254/98) of 2000. In Heimdienst, the European Court of Justice rejected an Austrian law that required door-to-door sellers of groceries to have an establishment within the disctrict they were selling in, or in an adjacent district.

The whole point for the minority in Granholm, however, was that the discriminatory nature of these measures was not a judicial concern because of the status of alcoholic products as "a special category" (per Justice Stevens), established by the 18th and 21st Amendments. There is some interesting rhetoric here on issues of "law and policy". Justice Stevens acknowledges that the Court's decision may represent "sound economic policy" and could be consistent with the policies of the Founding Fathers (not, however, with those of the generation framing the 18th and 21st Amendments). And Justice Thomas in his dissent, speaks of "policy choices" that had been taken away from the courts with the 21st Amendment.

1 comment:

  1. The ECJ has regularly been confronted with national laws that have elements in common with the New York & Michigan regulatory schemes, although the discriminatory nature of those laws was usually less flagrant. I am not sufficiently familiar with US commerce clause case-law to really offer a comparative EU/US analysis, but as a stepping stone for those who want to make the actual comparison, here is an overview of ECJ case-law which is likely to be of interest...
    Under EU law, a scheme that would only permit national wineries to directly ship alcohol to consumers but would limit other wineries to do so would be seen as a restriction of a ‘selling arrangement’ which does not ‘affect in the same manner … the marketing of domestic products and of those from other Member States’ (C-267/91 and C-268/91 Keck and Mithouard, §16). That type of restrictions comes within the scope of Article 28 EC. Indeed, the ‘in-state presence requirement’ in Heimdienst (C-254/98) is a good example. The ECJ regarded it as a restriction of a selling arrangement that was caught by Article 28 EC because it resulted in additional costs for goods from other Member States (§ 24-26). A difference with the New York regulation seems to be that the Austrian rule required a permanent establishment in an administrative district or in an adjacent municipality. As a consequence, the rule also hurt national operators who wanted to sell their goods door-to-door in another district; meanwhile it allowed door-to-door selling by operators who where established in an adjacent municipality in another Member State. (In fact, the company that had allegedly infringed the rule was established in Austria and the ECJ’s jurisdiction had been unsuccessfully challenged on the ground that there was no cross-border element; compare C-321/94 Pistre and Others and Case C-448/98 Guimont). Even so, the ECJ held the Austrian rule to be a discriminatory hindrance to intra-Community trade, because it impeded market access for products from other Member States more than it impeded market access for domestic products (§ 29).
    Another judgment worth mentioning – one from the pre-Keck era – is the one in Gyselinx (87 and 88/85) about the sales of medicinal products in Luxembourg. Suppliers could only sell through wholesalers established in Luxembourg. If they wanted to sell directly to pharmacies they had to have authorized premises in Luxembourg suitable for the storage of medicines. Here too the rule in principle applied to any supplier, whether national or foreign, but the ECJ held that it ‘in fact penalize[d]’ traders from other Member States (§16).
    Deutscher Apothekerverband (C-322/01) concerned German legislation prohibiting the direct sale of medicines by pharmacies over the internet. Again, the prohibition affected German and other pharmacies, but the ECJ held that it had a greater impact on pharmacies from other Member States, because ‘for pharmacies not established in Germany, the internet provides a more significant way to gain direct access to the German market’ (§74).
    Restrictions on sales channels or sales methods aren’t always considered more burdensome for ‘out-of-state’ traders who seek market access than for national traders. This is illustrated by the recent judgment in Burmanjer (C-20/03), regarding a Belgian law under which prior authorization is required for the itinerant sale of subscriptions to periodicals. It has been left for the national court to assess if the law affects the marketing of Belgian periodicals to a lesser degree than the marketing of periodicals from other Member States, but the ECJ – unlike AG Léger – did not seem very convinced. It indicated that, even if the law made the marketing of foreign products more difficult that the marketing of domestic products, the effect appeared to be too insignificant or uncertain to be regarded as an interference with trade between Member States (§29-31; AG Jacobs discussed the use of a ‘de minimis test’ in Article 28 EC in some of his Opinions – e.g. in C-412/03 Leclerc-Siplec at §42 and in C-112/00 Schmidberger at §65 with further references).
    When domestic and foreign products are equally affected by a national rule restricting a selling arrangement, the rule remains out of the reach of Article 28 EC (but other provisions may apply, see e.g. C-71/02 Karner; whether assessment under a different free movement principle would lead to a different outcome is a matter of debate – note e.g. that AG Léger thought Burmanjer ought to be reviewed under Article 49 EC).
    When a restriction of a selling arrangement forms a greater impediment to market access for foreign products than for domestic products it is not prohibited automatically, but it will be submitted to a balance test. The restrictions in Heimdienst and Gyselinx failed the balance test. Strictly speaking there was no balance test in Heimdienst because Austria did not have a valid justification (the rule aimed to support local business). In Deutscher Apothekerverband Germany argued that the prohibition of direct mail-order sales was justified on grounds of public health. The ECJ accepted that argument in respect of prescription-medicines, but not in respect of non-prescription medicines (§111 and following).
    A case where the ECJ had to balance the interest of limiting alcohol consumption with the principle of free movement of goods is Franzén (C-189/95). Franzén fits in the unusual category of cases on statutory monopolies – so a special treaty provision comes into play: Article 31 EC (see also recently C-438/02 Hanner). Franzén concerns the Swedish monopoly on the import and retail of alcoholic drinks (the ‘Systembolaget’). The ECJ assessed the rules on import licensing under Article 28 EC and the rules on the functioning of the retail monopoly under Article 31 EC. The retail monopoly was upheld (it was considered non-discriminatory) but the import licensing scheme did not survive the balance test. The Finnish counterpart to the Systembolaget was examined by the EFTA-Court in case E-1/94 (see http://www.eftacourt.lu/). New questions in connection with the Systembolaget were referred to the ECJ in the pending case of Rosengren (C-170/04). They arose in Swedish criminal proceedings on account of the import (without a license) of several boxes of Spanish wine which were ordered through a Danish website.