Crafting a Case to Protect Property Rights in Texas

March 5, 2015

Benjamin Franklin is famously attributed as saying, “beer is proof God loves us and wants us to be happy.” And the growing popularity of craft beer around the U.S. only further proves his point. Consumers favor craft beer for its rich flavor, authentic ingredients and the care with which individual brewers create new and innovative beers.

But even though everyone loves craft beer, being a craft brewer is a challenging and highly competitive business. And in Texas, it is a lot more challenging thanks to a meddling government.

IJ is fighting for the property rights of small brewers in a case that will help determine whether the Texas craft beer renaissance continues. Austin’s Live Oak Brewing, Fort Worth’s Revolver Brewing and Dallas’ Peticolas Brewing are challenging a new law that requires brewers to give away a valuable part of their business for free to politically-connected beer distributors. Live Oak, Revolver and Peticolas have worked tirelessly to grow their businesses, and they should get to keep what they’ve built.

Brewers have historically contracted with distributors to deliver beer outside of their local markets. Under Texas law, this distribution agreement must be exclusive, which means that only a single distributor can sell the beer to a bar, restaurant or retail store in a particular city or territory. Prior to 2013, distributors would pay brewers a substantial amount of money for these distribution rights. Brewers would reinvest this money in new equipment and more staff in order to keep up with increasing demand. It was this model of growth that convinced many entrepreneurs that craft beer was a viable business to start. It provided a clear and sustainable path toward building a thriving craft brewery.

Everything changed in 2013, when Texas passed a law requiring brewers to give away their distribution rights to distributors for free. Brewers that charge for these rights will lose their licenses and be put out of business. Even more galling, distributors get these distribution rights for free, but then can turn around and sell the rights for a profit.

Texas is forcing brewers to give away their distribution rights to distributors who never earned them and don’t deserve them. Distributors are profiting from the hard work that brewers have put into building their businesses and the risks they have taken along the way. Because they can no longer sell this part of their business, the law makes it substantially more difficult for craft brewers to grow and enter new markets. And that means fewer beer options in refrigerators and on-tap around the state.

The Texas Constitution does not allow Texas to force brewers to give their property away for free. That is why Live Oak, Revolver and Peticolas Brewing have joined with IJ in this lawsuit, making it IJ’s fifth National Food Freedom Initiative case. Brewers should be able—as they have been historically—to negotiate for the value of their distribution rights on the open market. This case will establish that the Texas Constitution protects the property rights that someone owns in a business they’ve built and it will keep the taps of entrepreneurship flowing in the Lone Star State.

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