U.S. Fifth Circuit - The FindLaw 5th Circuit Court of Appeals Opinion Summaries Blog

Texas Craft Brewers Sue Over New Beer Distribution Law

We're living in a golden age of beer. Gone are the days when the question was "Budweiser or Coors?" There are literally thousands of "craft" breweries all over the country these days, responding to what's been more or less a duopoly of the Big Two beer makers. (Coors bought Miller in 2007; together Anheuser-Busch and MillerCoors own 65 percent of the U.S. beer market.) Craft beers are made in smaller batches and don't garner nationwide attention, so some people think they're higher quality products.

Not that the Texas legislature cares, which is why craft beer makers are suing the Texas Alcoholic Beverage Commission over its distribution regulations.

They're Just Giving Those Rights Away

Three "craft" breweries -- Live Oak, Revolver, and Peticolas Brewing Companies -- sued in Texas state court to overturn a Texas law requiring each of the parts of the beer supply chain to remain separate. Brewers, distributors, and retailers can't be affiliated with one another under state law. (Why? Most likely for the same reason Tesla can't sell directly to customers: Middle men -- the distributors -- lobbied for laws to protect their businesses.)

The law also mandates that only one distributor can serve a given brewery in a given territory. That's all bad enough, but according to the complaint, a 2013 law made things even worse. S.B. 639 prohibited brewers from selling territorial distribution rights to distributors; now, they have to give those rights away. Distributors don't have the same prohibition, so they can resell those same rights to another distributor at a profit.

Because state law forces a brewery to grant a single distributor the right to distribute that brewery's beer in a given area, that contract has economic value. The plaintiffs here claim that S.B. 639 interferes with their property rights in violation of the state constitution.

David v. Goliath

The law was ostensibly designed to prevent large breweries from using their might to dictate terms to distributors, but it's having the opposite effect. Small breweries are claiming they can't expand if they don't have the ability to sell territorial distribution rights (breweries that produce fewer than 125,000 barrels annually can self-distribute. To give you an idea of what that looks like, Anheuser-Busch produces 125 million barrels each year).

Beer economics received some notoriety in 2013 when the Justice Department said it was investigating the merger of Grupo Modelo, the Mexican maker of Negra Modelo, and Anheuser-Busch. The merger would create "the appearance of competition without any real competition," the DOJ said, because the large companies own hundreds of brands. (It's likely that what you think is a "craft" beer is just one of the many brands of the large companies. Blue Moon? Yeah, that's MillerCoors.)

As the economy becomes more decentralized in certain aspects, more lawsuits will pop up like the Texas beer makers' and Tesla's, challenging vestigial laws that protect old methods of product distribution.

Related Resources: