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In addition to taking familiar shots at franchise laws and 3-tier blockages against self-distribution and direct shipping, Brewers Assn roped in exclusive distrib territories as among the "most egregious" examples of state laws that "raise costs and harm markets in the beer industry" in comment submitted to US Dept of Justice this wk. Penned by govt affairs veep Marc Sorini, the 5-page comments respond to a DOJ call for input on "state laws significantly and adversely affecting the national economy or interstate commerce." This "series of state laws" specifically regulating brewer and distributor relations fit that bill, in Marc and the BA's view. Such laws are "often justified as methods to control over-consumption and prevent underage drinking," the org's letter notes. But in its view "many" of them are merely "thinly-veiled mechanisms for favoring large, entrenched economic actors at the expense of consumers and healthy competition." In that way, the comments reflect the kinds of arguments typically seen in fed lawsuits claiming state alc bev laws unconstitutionally restrict interstate commerce in violation of the dormant Commerce Clause. Lawsuits on the topic have found that such restrictions can be supported with concrete evidence that they protect public health and safety instead of as mere protectionism. In courts, that's a fact-based showing that can get expensive. Most courts have agreed that the facts support such justifications for laws barring retailers from shipping across state lines. These comments suggest that a similar showing may be more challenging for other laws, in Marc's view.Outside of mandatory label disclosures, there's no "express preemption" of fed law over most state alc bev laws, Marc acknowledges in letter to DOJ. Yet certain antitrust statutes could be used to overturn state laws deemed anticompetitive, in his view. As a more simple matter, DOJ should consider how state laws could impact the results of proposed mergers & acquisitions during its usual review process, including providing remedies that might allow for terminations "without regard to any contrary state laws," Marc urges.Dynamics that Justified "So-Called" Franchise Laws Flipped; 3-Tier Mandates Restrict Options State franchise laws "make it all-but-impossible for a brewery to terminate a wholesaler," the BA's comments explain, reiterating familiar critiques of these and other laws. While initially passed to protect small local distribs from large dominant suppliers, "those days are long gone," he argues. That may be part of the reason he refers to them as "so-called" franchise laws, finding use of the word "franchise" to be "quite misleading." Usually, a franchisee is "completely or at least substantially dependent on its relationship with the franchisor." But in beer, such laws "provide legal advantages to the wholesaler even where the brewer represents a tiny fraction of the wholesaler's business."In practice, attempts to terminate distrib agreements are always fact-intensive and therefore both expensive and time-consuming in ways that few small brewers can afford, Marc argues. And during those disputes, the distrib's biz may not be impacted, but the brewer is stuck, he continues. Such laws also "empower consolidation" since blocking or rejecting a deal by a supplier sets up the same dynamic. Overall, the "impact" of these laws "cannot be overstated," in Marc's view. Sure, brands move, but "the wholesaler holds all the cards and can treat a brewer's brand or brands as its own property that it can sell or trade virtually at will."Meanwhile, mandatory 3-tier laws restricting self-distribution and direct sales can "foreclose or severely limit the ability of small brewers to respond to a constricted and consolidating wholesaler tier by finding their own route to market," according to Marc. That said, vertical integration is a concern. AB has distrib branches, he reminds, and in those territories small brewers are limited to "a single effective distribution option," which he describes as "a monopoly." While he's at it, Marc throws in potential anticompetitive impacts of exclusive territories too. As he sees it, "states help enforce a strict non-compete regime between wholesalers, ensuring that no retailer can pit one wholesaler against another when seeking to obtain better pricing or services with respect to a given brand."DOJ, Other Fed Agencies Picked Up What BA Put Down in Past; But Now? Taking aim at franchise laws and 3-tier restrictions by Marc and the BA shouldn't surprise. The comments merely re-up a position the org's taken for some time and offer them to a potentially sympathetic audience. Indeed, Marc specifically cites a 2020 letter co-authored by the DOJ and the FTC and sent to lawmakers in California over a proposal to amend the state's franchise law. According to that letter, the agencies were concerned the proposal would "diminish competition" in the middle tier "and increase manufacturers' costs of obtaining distribution services."The same agencies, alongside the TTB, echoed similar concerns about the potential that state laws, including franchise laws, could adversely impact competition in the 2022 report they published on the topic, which extensively cited comments submitted by the BA. But this summer, a Trump Admin exec order rescinded the Biden Admin exec order that instructed these agencies to seek public comment and compile that report, among dozens of other federal actions. NBWA actively advocated for that action, org shared after the fact, and Beer Inst touted the move; both orgs vocally opposed many of the report's findings, recall.This particular request for comments by the DOJ, issued in Aug, is part of the Trump Admin's broad "deregulatory efforts," it explained. Given references to other related exec orders, the dept appears mainly focused on energy policy (i.e. state laws restricting the activity of energy cos). But it does ask for comments about the potential impact on economic activity by state laws writ large. So BA joined the fray, submitting comments alongside over 150K other individuals and orgs, just 250 of which are public at this time.

State Laws Hinder Competition, BA Tells DOJ, Adding Exclusive Territories into Mix with Franchise Laws

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