Texas Craft Breweries Take Alcohol Distribution Law to State Supreme Court

Institute for Justice · February 14, 2018

Austin, TX.—Does the Texas Constitution protect the right of all Texans to earn an honest living free from unreasonable government interference or just some? That is the subject of a Texas Supreme Court petition filed late yesterday by the Institute for Justice (IJ) on behalf of three Texas craft breweries. The breweries and IJ first teamed up in 2014 to challenge a law that makes it illegal for craft breweries to sell distribution rights to distributors.

The 2013 law forbids breweries from selling the right to distribute their beer. This sale prohibition was enacted at the behest of distributors, who want breweries forced to surrender their valuable distribution rights for free. No one supported this law except the distributors. In fact, the Texas Alcoholic Beverage Commission told legislative staffers that letting craft breweries sell their distribution rights enhanced competition, indicating it was good for the beer industry and the public. The law is so skewed to distributor interests that once a brewery assigns its distribution rights for free, the distributor remains free to sell those valuable rights to other distributors.

In 2016, IJ and the craft brewers won at the trial court when a Travis County judge declared the law unconstitutional. But in December 2017, the Third Court of Appeals in Austin reversed, holding that the craft brewers had no constitutional claim because the law did not completely prevent them from operating. In other words, according to the appeals court, unless an economic regulation puts you entirely out of business, you have no constitutional rights. This is like ruling that the First Amendment right to free speech is triggered only if the government bans a whole book, rather than just censoring a chapter.

Craft brewers are now asking the Texas Supreme Court to take up the case. “The appellate ruling is a profound threat to the economic liberty of all individuals, entrepreneurs and business owners in Texas,” said Arif Panju, managing attorney of IJ’s Texas office. “If left standing, the ruling would insulate most economic regulations from constitutional review.”

Added IJ Senior Attorney Jeff Rowes: “In 2015, the Texas Supreme Court resolved decades of confusion by ruling that the Texas Constitution protects the economic liberty all Texans from oppressive regulation. The Texas Supreme Court should take up the craft brewers’ case to make clear again that the government may not pass a law at the expense of entrepreneurs and the public just to benefit the financial interests of connected industry insiders.”

IJ is representing Austin-based Live Oak Brewing; Revolver Brewing, located in Fort Worth; and Peticolas Brewing in Dallas.

Texas has until March 15, 2018, to file a response.