    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

       COMPREHENSIVE ALCOHOL REGULATORY EFFECTIVENESS (CARE) ACT OF 2010

    =======================================================================

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 5034

                                   __________

                               SEPTEMBER 29, 2010

                                   __________

                               Serial No. 111-152

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

                                   ----------
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    58-477 PDF                       WASHINGTON : 2010

    For sale by the Superintendent of Documents, U.S. Government Printing
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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
    MAXINE WATERS, California            DARRELL E. ISSA, California
    WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
    STEVE COHEN, Tennessee               STEVE KING, Iowa
    HENRY C. ``HANK'' JOHNSON, Jr.,      TRENT FRANKS, Arizona
      Georgia                            LOUIE GOHMERT, Texas
    PEDRO PIERLUISI, Puerto Rico         JIM JORDAN, Ohio
    MIKE QUIGLEY, Illinois               TED POE, Texas
    JUDY CHU, California                 JASON CHAFFETZ, Utah
    TED DEUTCH, Florida                  TOM ROONEY, Florida
    LUIS V. GUTIERREZ, Illinois          GREGG HARPER, Mississippi
    TAMMY BALDWIN, Wisconsin
    CHARLES A. GONZALEZ, Texas
    ANTHONY D. WEINER, New York
    ADAM B. SCHIFF, California
    LINDA T. SANCHEZ, California
    DANIEL MAFFEI, New York
    JARED POLIS, Colorado

           Perry Apelbaum, Majority Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel

                                C O N T E N T S

                                  ----------

                               SEPTEMBER 29, 2010

                                                                       Page

                                    THE BILL

    H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness
      (CARE) Act of 2010.............................................     2

                               OPENING STATEMENT

    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Chairman, Committee on the
      Judiciary......................................................     1

    The the Honorable William D. Delahunt, a Representative in
      Congress from the State of Masachusetts, and Member, Committee
      on the Judiciary...............................................    58

                                   WITNESSES

    The Honorable Mike Thompson, a Representative in Congress from
      the State of California
      Oral Testimony.................................................     6
      Prepared Statement.............................................     8

    The Honorable Peter DeFazio, a Representative in Congress from
      the State of Oregon
      Oral Testimony.................................................     9
      Prepared Statement.............................................    11

    The Honorable Bruce Braley, a Representative in Congress from the
      State of Iowa
      Oral Testimony.................................................    13

    The Honorable Edolphus Towns, a Representative in Congress from
      the State of New York
      Oral Testimony.................................................    14
      Prepared Statement.............................................    16

    The Honorable George Radanovich, a Representative in Congress
      from the State of California
      Oral Testimony.................................................    17
      Prepared Statement.............................................    19

    The Honorable Gary G. Miller, a Representative in Congress from
      the State of California
      Oral Testimony.................................................    33
      Prepared Statement.............................................    35

    The Honorable Mark L. Shurtleff, Attorney General for the State
      of Utah
      Oral Testimony.................................................    62
      Prepared Statement.............................................    65

    Ms. Nida Samona, Chairperson, Michigan Liquor Control Commission
      Oral Testimony.................................................    69
      Prepared Statement.............................................    71

    Mr. Richard A. Doyle, Chairman and CEO, Harpoon Brewery
      Oral Testimony.................................................    76
      Prepared Statement.............................................    78

    Mr. Stephen M. Diamond, Professor of Law, University of Miami
      Oral Testimony.................................................    82
      Prepared Statement.............................................    84

    Mr. Einer Elhauge, Petrie Professor of Law, Harvard Law School
      Oral Testimony.................................................   102
      Prepared Statement.............................................   104

    Ms. Tracy K. Genesen, Partner, Kirkland & Ellis, LLP
      Oral Testimony.................................................   133
      Prepared Statement.............................................   136

    Ms. Michele Simon, Research and Policy Director, Marin Institute
      Oral Testimony.................................................   145
      Prepared Statement.............................................   147

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Material submitted by the Honorable George Radanovich, a
      Representative in Congress from the State of California........    21

    Material submitted by the Honorable Mike Thompson, a
      Representative in Congress from the State of California........    40

    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, and
      Chairman, Committee on the Judiciary...........................    52

    Prepared Statement of the Honorable William D. Delahunt, a
      Representative in Congress from the State of Masachusetts, and
      Member, Committee on the Judiciary.............................    60

       COMPREHENSIVE ALCOHOL REGULATORY EFFECTIVENESS (CARE) ACT OF 2010

                                  ----------

                         WEDNESDAY, SEPTEMBER 29, 2010

                              House of Representatives,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Committee met, pursuant to notice, at 11:12 a.m., in
    room 2141, Rayburn House Office Building, the Honorable John
    Conyers, Jr. (Chairman of the Committee) presiding.
        Present: Representatives Conyers, Watt, Delahunt, Johnson,
    Quigley, Deutch, Gonzalez, Schiff, Maffei, Polis, Smith,
    Sensenbrenner, Coble, Goodlatte, Lungren, Issa, King, Poe,
    Chaffetz, Rooney, and Harper.
        Staff present: (Majority) Danielle Brown (Counsel); Travis
    Chapman (Detailee); Anant Raut, Counsel; Reuben Goetzl, Staff
    Assistant; (Minority) Stewart Jeffries, Counsel.
        Mr. Conyers. The Committee will come to order.
        Good morning, colleagues--so good to see all of you. Only
    six Members here today--not much interest in this measure here,
    apparently.
        We are hearing, today, the Comprehensive Alcohol Regulatory
    Effectiveness Act, H.R. 5034. And we are delighted to have Gary
    Miller, Edolphus Towns, Pete Defazio, George Radanovich, Bruce
    Braley. And we will start with Mike Thompson, of the 1st
    District of California.
        Welcome to the Judiciary.
        [The bill, H.R. 5034, follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

     TESTIMONY OF THE HONORABLE MIKE THOMPSON, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Thompson. Thank you, Mr. Chairman, Ranking Member
    Smith, and other Members----
        Mr. Conyers. Turn on your microphone.
        Mr. Thompson. Thank you, Mr. Chairman, Ranking Member
    Smith, and other Members of the Committee. I appreciate the
    opportunity to be here this morning to testify.
        I was here just a few months ago to testify before the
    Courts and Competition subcommittee that the wholesalers'
    legislative proposal would do serious harm to thousands of
    American businesses that make beer, wine, and spirits.
        Since that bill was introduced, these businesses have been
    joined by more than 100 major organizations, like the American
    Farm Bureau, the National Association of Manufacturers, the
    American Bar Association's Antitrust Section, and, believe it
    or not, the Progressive Policy Institute and FreedomWorks--two
    groups that you rarely see on the same page.
        The NFL and Major League Baseball all joined in opposition
    to this bill because it would discriminate against producers,
    and limit the choices for American consumers.
        Today, we are back discussing a rewritten version of the
    same bill, which I can tell you, without question, is just as
    damaging as the original version. The bill is still opposed by
    beer, wine, spirits producers. And it has all those major
    organizations that represent them.
        It still allows states to discriminate against producers in
    ways that promote economic protectionism. It would still
    seriously harm American businesses and take choices away from
    American consumers.
        You will hear today from legal scholars and industry
    experts who can tell you the broad, negative implications of
    the bill, but I am here to explain who if this bill were to be
    passed into law, it would hurt the lives and the livelihoods of
    people across our Nation.
        I can tell you about the family-run winery that is only in
    business because of the following that they have been able to
    develop through online sales; the small vineyard that wouldn't
    be in business, and that the Ag-land that it occupies would
    probably be lost in wineries couldn't sell directly to
    retailers and restaurants; the rural consumer who can't get her
    favorite spirit unless she can buy in online; the brewery that
    can't get the wholesalers to pay attention to their microbrew,
    but it is the business that they built through a nationwide-
    cult following that allows them to stay in business.
        These are the people that this bill still hurts. Those
    entrepreneurs and farmers are scared that Congress is going to
    irreparably harm their business by passing this bill. Small
    businesses are struggling in every one of our districts. Times
    are equally tough for the wineries in my district, but they
    have all been able to reach out and find customers.
        Many of these wineries are small, with a very limited
    production, and they have had to be innovative, because many
    wholesalers won't give them the time of day. This bill, if
    passed into law, would keep them from selling an American
    product to American consumers and, as a result, would threaten
    thousands of good jobs.
        Is this bill needed to solve a problem? No. Is the current
    system broken? No. State-based, three-tier alcohol-distribution
    systems are working extremely well. Are states being treated
    unfairly? No. A state's right to pass alcohol laws is fully
    protected by our Constitution. In fact, there are over 4,000
    state alcohol laws on the books. And there is no evidence and
    no avalanche of litigation to suggest otherwise.
        Are wholesalers being treated unfairly? No. In California,
    our wineries can distribute to anyone--consumers, restaurants,
    even Costco. And our wholesalers are thriving. The top two
    wine-and-spirits wholesalers in California brought in over
    $10.5 billion in 2009. They are estimated to bring in $10.7
    billion in 2010, a more than $200 million increase in the
    middle of the worst recession that we have ever seen.
        In the U.S. wine business, the top 10 wholesalers control
    over 60 percent of the market. Clearly, they are doing well.
    This bill is, at best, Mr. Chairman, a solution looking for a
    problem. But if passed, it would be a huge problem for U.S.
    businesses and consumers.
        The Commerce Clause of our Constitution, from which the
    alcohol industry would be exempt, would this bill to become
    law, was designed to ensure a fair national marketplace. A
    state can pass their own laws. They just can't discriminate
    against out-of-state producers, nor out-of-state products.
        Congress and the Supreme Court have upheld this principle.
    Why would Congress want to turn back these decisions and
    deprive family businesses of their constitutional rights?
        Mr. Chairman and Members, this bill is not needed, and it
    would unfairly discriminate against producers and retailers,
    and limit the choices of consumers purely to give a competitive
    advantage to wholesalers. I urge you to oppose this bill, and I
    thank you again for your time.
        [The prepared statement of Mr. Thompson follows:]
              Prepared Statement of the Honorable Mike Thompson,
           a Representative in Congress from the State of California

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Conyers. Thanks, Mike Thompson.
        I now turn to Pete DeFazio--Oregon.

     TESTIMONY OF THE HONORABLE PETER DeFAZIO, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. DeFazio. Thank you, Mr. Chairman--always good to see
    you. I just wish it wasn't for this issue today.
        You know, I appreciate the opportunity to speak here today.
    I actually have the honor of being the co-founder and co-
    chairman of the House Small Brewers Caucus. But my remarks
    could, as well, reflect the concerns of the more than 400
    vintners in my state; and I am a member, also, of the Wine
    Caucus.
        There are over 1,600 small breweries in this country. The
    brewers working in them are true craftsmen, creating a uniquely
    American product. They are also small-business men and women,
    creating thousands of jobs in local communities across the
    country. They all this in one of the most highly regulated
    business sectors.
        Small brewers are, for the most part--they are not rich men
    and women; and they operate with small margins, higher costs
    than the large corporations. And they compete against those
    large corporations every day. Even small, miniscule changes in
    their client base, particularly in this economy, can have a
    massive impact on their ability to survive.
        H.R. 5034, the CARE Act, is a direct threat to their
    success. The bill would demolish the constitutional balance and
    Federal oversight over alcohol regulation. The effect would be
    devastating to America's small brewers. The CARE Act would
    virtually eliminate the role of Federal courts in stopping
    states from enacting discriminatory laws, violating antitrust
    laws, and even undermining acts of Congress.
        There are dozens of cases, stretching back decades, where
    Federal courts have relied on the Commerce Clause to strike
    down blatantly discriminatory state alcohol laws.
        One example: In New York, Federal courts struck down a
    state law that required all beer to have its own unique UPC
    code. Now, that is not a problem for Miller or Bud or any of
    those other foreign-owned giant corporations. But it is a
    problem for small brewers, who operate on small budgets and
    tight margins. And they would have had to spend thousands of
    dollars on new labels just to be required to sell in one state,
    which would mean someone would go under or they wouldn't sell
    there, or they might not add employees--a really bad and
    perverse result that was justifiably struck down.
        If H.R. 5034 is enacted, this type of law can and will
    return. Even worse, states would have free reign to come up
    with new ways to discriminate against small brewers or
    vintners. They could pass laws giving all in-state brewers or
    vintners preferential treatment--tax breaks for using in-state
    ingredients. States would, then, retaliate against other states
    over unfair laws, and we could have a real mess on our hands.
        This bill is anti-consumer, special-interest legislation of
    the worst sort, and it undermines the basic economic principles
    of our Constitution.
        You know, why do we need this? Well, some would have us
    believe there is a flood of litigation out there. There is not.
    And it would protect state interests. State interests are
    protected today. Small brewers in Oregon and elsewhere have to
    obtain licenses, register their brand, and file tax returns in
    every state in which they do business. There has been no flood
    of lawsuits contesting these legitimate state interests, and no
    need for this legislation.
        Mr. Chairman, I would ask that the Committee not act on
    this legislation. I appreciate the opportunity to testify.
        [The prepared statement of Mr. DeFazio follows:]
              Prepared Statement of the Honorable Peter DeFazio,
             a Representative in Congress from the State of Oregon

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Conyers. Thank you, Pete DeFazio. And you are unusually
    brief this morning. We appreciate that.
        Bruce Braley--Iowa. Greetings.

     TESTIMONY OF THE HONORABLE BRUCE BRALEY, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF IOWA

        Mr. Braley. Thank you, Mr. Chairman. It is a pleasure to be
    here. And I want to thank the Ranking Member, also, for
    allowing me the opportunity to testify today.
        I respect both of my colleagues who have already testified.
    I have a slightly different perspective that I wish to share
    with the Committee. And I am here in support of the CARE Act,
    because congressional silence on the ability of a state's right
    to regulate alcohol is being misused in Federal court system by
    private interests.
        The 2005 Supreme Court decision in Granholm v. Heald struck
    down some state regulation of alcohol. These regulations are
    necessary to ensure that alcohol is used safely by adults, and
    kept out of the hands of children. Since then, it may not be a
    ``flood'' to Mr. DeFazio, but there have been at least 20
    lawsuits challenging state regulations that put into jeopardy
    the current system, and create a burden for states like mine,
    Iowa.
        Alcohol, as we all know, is a unique product in American
    history. Wine, beer, and spirits need to be regulated
    differently than toothpaste, soda, or other consumer goods.
    Unlike other products, regulations are needed to promote
    moderation, as well as to abide by drinking-age laws so that
    responsible adults can enjoy alcoholic beverages responsibly.
        People in Iowa may have very different opinions than those
    in other parts of the country about how alcohol should be
    consumed, sold and supplied, and it is essential to maintain
    the authority each state has been granted to regulate as they
    see fit.
        The simple fact of the matter is that states such as mine
    are seeking to protect the public interests, have been under
    attack from private interests that are seeking to provide
    personal gain for themselves. Iowa and 26 other states have
    been sued, and the opponents of state-based regulation and the
    special interests that fund them have been quoted as saying
    they, ``won't stop suing until there is no law left standing.''
        The private interests filing these lawsuits are not members
    of our community, but they are out-of-state corporate interests
    who bear no responsibility to our safety, our cities or our
    constituents.
        In addition to 18 other states, Iowa is a control state,
    which means that it manages the wholesaling of liquor as a
    state-run enterprise. Our regulator is a member of the National
    Alcoholic Beverage Control Association, which unanimously voted
    to endorse the CARE Act. My attorney general, Tom Miller, also
    signed a letter asking for congressional action on this issue,
    citing the significant time and resources required by states
    from unprecedented legal challenges.
        There has been exponential growth in the wine, beer, and
    spirits industry over the past 30 years, not in spite of a
    system of local control, which has always sought to balance
    socially responsible business practices on all tiers with
    robust competition in the marketplace, but because of it.
        Iowa also has a vibrant craft-beer, micro-distillery, and
    native-wine industry that I support wholeheartedly. And I am
    pleased that this bill will do no harm to them and, in fact,
    protect their right to self-distribute.
        Volume caps have recently come under attack using the
    Dormant Commerce Clause as justification. And I believe that it
    is necessary to defend the right for these business, and look
    forward to working with small businesses to help them thrive
    and grown.
        So, again, Mr. Chairman, I would like to voice my support
    for the CARE Act, and hope that you can find time to move this
    bill to the floor at your earliest opportunity. And I yield
    back.
                                  ----------

        Mr. Conyers. Thank you so much.
        From Brooklyn, New York--chair of the Committee on
    Oversight and Government Reform--Edolphus Towns. Welcome.

    TESTIMONY OF THE HONORABLE EDOLPHUS TOWNS, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF NEW YORK

        Mr. Towns. Thank you very much, Chairman Conyers and
    Ranking Member Smith, and Members of the Judiciary Committee.
    Thank you for the opportunity to express my support for H.R.
    5034, the CARE Act.
        States need assistance in defending laws which protect the
    public interest from those who are seeking to line their
    pockets by deregulating the alcohol industry. My home state,
    New York, has been sued not once, but twice, in the past 4
    years.
        Attorney General Cuomo and 38 other attorneys general wrote
    to me in the spring seeking congressional action to assist them
    in stemming the tide of these lawsuits. And I am proud to help.
        On a more personal level, I believe that our constituents
    know better than anyone the terms of how they want alcohol to
    be sold and supplied in their community. Alcohol is different
    than any other consumer good, and should be regulated as such.
    And our constituents know this and want the ability to control
    this product to protect public health and the public interest.
        Here are two examples of how this bill will help to protect
    our communities. First, laws that mandate identification checks
    have recently come under attack in court by online liquor
    stores who view them as discriminatory. I believe that I.D.
    laws assist retailers and communities to keep alcohol away from
    minors, and are vital components in protecting public health
    and safety.
        Second, New York City and communities across the country
    have begun using alcohol control zones to stop the practice of
    single sales, and the sales of certain products such as malt
    liquor. These products are not conducive to public health or
    public safety. These control zones have made my community
    safer. And law enforcement has testified to this result.
        I fear that without congressional action, these laws will
    be challenged as well, erasing a great deal of progress that we
    have made.
        I would leave you with one last thought to gauge how I am
    doing back in Brooklyn. I use what we call ``The Church Test.''
    This basically involves me speaking directly to my constituents
    outside their houses of worship.
        As I conduct this test, I regularly hear the need for
    better schools, a better economy, more police presence, and a
    better health-care system. What I do not hear from any of them
    is about the need for cheaper, more accessible alcohol. And
    that will be the end result if we fail to act on this
    legislation.
        I want to thank you, Mr. Chairman, for the opportunity to
    come, and to indicate my support. And on that note, I yield
    back the balance of my time.
        [The prepared statement of Mr. Towns follows:]
          Prepared Statement of the Honorable Edolphus ``Ed'' Towns,
            a Representative in Congress from the State of New York

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Conyers. Thank you, Edolphus.
        Which side would we be on to get cheaper and more available
    alcohol? Would you clarify that for some of the Members up
    here?
        Mr. Towns. My side, Mr. Chairman. I would be against
    cheaper. I mean, I think that----
        Mr. Conyers. Oh.
        Well, you just slid into invisible minority there, buddy.
        Too bad, Brother Towns.
        George Radanovich, 19th District, California--welcome and
    good morning.

    TESTIMONY OF THE HONORABLE GEORGE RADANOVICH, A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Radanovich. Thank you, Chairman Conyers.
        And thank you, Ranking Member Smith, and Members of the
    Committee.
        I appreciate being able to testify. As you know, I am co-
    founder of the Congressional Wine Caucus, and Member of the
    Energy and Commerce Committee, which has jurisdiction over
    interstate commerce, I also have been an owner of a California
    winery.
        The business of wine is far from the splendor of the
    vineyards. It is difficult to sell wine; maybe more difficult
    than selling most other products or services in the United
    States. And much of that is due to the level and the diversity
    of regulation and control of all aspects of the business.
        Wine is a highly taxed and highly regulated business, with
    50 sets of laws, as well as oversight from numerous Federal
    agencies. In such an environment, there are great costs
    involved not only in making wine, but also in getting wine to
    the market. Tax rates differ; some states require licenses or
    permits; and, still, others require that I pay a fee to
    register my labels.
        One state requires that I buy a license and hire a
    wholesaler to distribute my wine, and that I designate a sales
    territory for that wholesaler, while a second state prohibits
    me from doing this very same thing. One state makes it
    virtually impossible for me to fire my assigned wholesaler,
    even if the wholesaler has not performed as represented. In
    most of the states we try to ship into, every bottle of wine
    had to pass through a wholesaler, which added cost and delay,
    even though the wholesaler was doing little, if anything, to
    help build the brand.
        For new wineries, it is always a shock to realize how
    difficult it is to acquire distribution in other states. Even
    for long-established wineries, significant resources are
    required to comply with varying state laws. In many cases,
    compliance with certain state laws discouraged my winery from
    selling in those states. This is common among thousands of
    wineries. The costs to introduce a wine in a market can far
    outweigh the potential profits.
        People in the wine business hear a lot about the three-tier
    distribution. But all know that a pure three-tier distribution
    system does not exist in the United States. Instead, over the
    years, since prohibition was repealed, states have chosen to
    exercise their powers under the 21st Amendment to create hybrid
    distribution systems that use three-tier principles as a
    framework.
        In at least 39 states, state laws allow in-state wineries
    to self-distribute. Self-distribution laws permit the in-state
    winery to act as its own distributor, allowing direct sales by
    the winery. In California, the number of wineries could not
    increase without self-distribution. But self-distribution stops
    at the state line.
        In my home state, I am allowed to sell wine directly to a
    consumer. I can operate a wine-tasting room at the winery, and
    one other retail location where I can also conduct educational
    wine tastings. Without this manner of distribution, most small
    wineries would find it difficult to survive. Many wineries are
    surviving in today's economy solely on the strength of their
    direct-to-consumer wine clubs. I remember a time when some
    states would punish such sales as felonies.
        Operating a winery in this country is difficult and
    complex. The wine industry is an industry of different laws and
    confusing regulations, which is why I wholeheartedly disagree
    with the premise of H.R. 5034, that states' rights are being
    greatly impaired by the Commerce Clause; that states should be
    able to regulate alcohol products even if it means that they
    can openly discriminate; and that states are on the verge of
    regulatory collapse, without congressional intervention.
        In my 16 years in Congress, I do not recall another time
    when an industry group has come seeking complete immunity from
    nothing less than the U.S. Constitution. I am interested to
    hear why today's speakers think the only way to prevent such
    deregulation is to surgically remove that portion of the
    Constitution from applying to their industry.
        I wait for an explanation as to how this assault on the
    Constitution will better serve the industry, the states, the
    Nation, and the American consumers. H.R. 5034 is being promoted
    by the beer, wine, and spirits wholesalers. They present this
    Committee with a simple request: They want Congress to
    expressively give states the ability to regulate alcohol
    without limits of national fairness and market equity. They say
    that without this express permission from Congress, states will
    be unable to regulate effectively.
        As a Member of the Energy and Commerce Committee, I urge
    this Committee to listen carefully and respectfully to today's
    testimony. If we allow states to set their own alcohol laws and
    the market ends at the state level, we lose the cohesiveness
    and energy of our national market. By allowing trade barriers
    that openly defy these concepts of an American market, we
    become 50 nations instead of one. Small businesses like my
    winery will see themselves shut out, and it will become harder
    and harder to make a profit and provide jobs.
        Again, I want to thank the Committee for giving me this
    opportunity to testify on this important legislation. And I ask
    that my full written testimony be submitted to the record.
        [The prepared statement of Mr. Radanovich follows:]
            Prepared Statement of the Honorable George Radanovich,
           a Representative in Congress from the State of California

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Radanovich. I would also like to submit for the record
    a recently released analysis by the FreedomWorks Foundation,
    along with a resolution that recently passed the California
    legislature opposed to this bill.
        Mr. Conyers. Without objection, so ordered.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Conyers. And thank you George Radanovich.
        And, now, we turn to Gary Miller of California. Welcome,
    sir.

    TESTIMONY OF THE HONORABLE GARY G. MILLER, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Miller. Thank you, and so as not to offend the
    Chairman--I am not against lower prices for legal consumers,
    nor Members of Congress. We are on the same side, here.
        Mr. Chairman, Ranking Member Smith--thanks for the
    opportunity to testify before you today about the impact of
    H.R. 5034, the CARE Act.
        While the issue of alcohol regulation is complex, I would
    like to focus my testimony on the impact of this proposed
    legislation on underage drinking. According to the National
    Alliance to Prevent Underage Drinking, every day 7,000 children
    under the age of 16 take their first alcoholic drink. Youth who
    start drinking before the age 15 are five times more likely to
    develop alcohol dependency or abuse later in life than those
    who begin drinking at or after the age of 21 years.
        And, according to the Center for Disease Control, although
    drinking by persons under the age of 21 is illegal, people aged
    12 through 20 years drink 11 percent of all alcohol consumed in
    the United States. With the nearly $170 billion annual market
    for alcoholic beverages, underage drinking comprises a
    significant part of this market.
        One of the most important ways we can limit underage
    drinking is by reducing illegal access and increasing
    enforcement. We must require a strong regulatory structure that
    balances the free market with public-health concerns with
    respect to alcohol. The system of state-based regulation has
    served our Nation well because states and localities know their
    own communities' needs best. A one-size-fits-all strategy does
    not work with alcohol.
        What is socially acceptable in one part of my congressional
    district, much less the country, won't work in another. All
    alcohol regulation is a balance between competition, price, and
    availability on the one hand, and appropriate control to
    mitigate and moderate an underage consumption on the other.
    Each state must determine how this balance should be achieved,
    and where the appropriate balance points should be fixed.
        States view alcohol differently from the authority of each
    state to regulate according to its own norms and standards--
    must be safeguarded. Surely, it is not in the public interest
    to advocate for weak regulation and an unrestricted
    marketplace. While I understand that some of our Nation's small
    businesses rely on the Internet to widen their marketplace, we
    must ensure that appropriate precaution and regulations are
    followed so that the enforcement of state underage drinking
    laws can be adequately enforced.
        No one will argue that it is not the states' responsibility
    to monitor alcohol sales and consumption by instituting and
    enforcing age restrictions. Indeed, minors on the Internet can
    purchase wine, beer, or grain alcohol with the click of a
    mouse, and have it delivered to their house.
        Sting after sting by law enforcement and media consumer-
    protection advocates have shown just how easy it is for minors
    to buy alcohol online with no I.D. check or age verification.
    Many online businesses rely on interstate carriers to verify
    the legality of an alcohol shipment. It is commonplace for the
    buyer to self-certify that they are of age. It is up to the
    individual UPS or FedEx employee delivering the shipment to
    verify the age of the recipient. The problem is that the
    Supreme Court has ruled that the states cannot require
    interstate carriers to verify the recipients' age. This, of
    course, raises questions as to whether legal liability would
    lie if, indeed, a carrier delivered alcohol to a minor without
    first verifying age.
        Many of the legal decisions rendered in the Granholm have
    been conflicting, leaving regulators, attorneys general and
    legislators in a dilemma with regard to their authority to
    regulate the unique product. We need to clarify congressional
    intent that the states are the primary authority to regulate
    alcohol sales, and that they should exercise the authority to
    protect the public interest.
        In a narrow-balance fashion, the revised version of H.R.
    5034 accomplishes these goals. H.R. 5034 keeps in place the
    states' authority to regulate alcohol, but upholds the high
    standard of the Granholm decision to ensure interstate
    commerce.
        The CARE Act expressly prohibits a state from enacting
    discriminatory laws that favor in-state producers of alcohol to
    the detriment of out-of-state producers. In fact, the bill
    reserves the right of states to enact strict regulations if
    such regulations advance legitimate local purpose. Ensuring
    that minors do not have inappropriate access to alcohol is an
    example of such a purpose. In the end, the bill would force
    retailers to be responsible not only to their bottom line, but
    to the communities they serve as well.
        While the confusion in the court system spurred by the
    Granholm decision creates regulatory inconsistencies based on
    judicial jurisdiction, this alone makes it necessary for
    Congress to clarify intent. However, according to the Concerned
    Women for America, the authority for states to manage the
    distribution and sale of alcohol is especially critical for
    society to effectively regulate access to alcohol to minors.
        As a conservative, I am regularly on the side of lessening
    the regulatory burden on our businesses across America, but I
    will not endorse a strategy that weakens state law and helps
    underage access to alcohol.
        I yield back.
        [The prepared statement of Mr. Miller follows:]
              Prepared Statement of the Honorable Gary G. Miller,
           a Representative in Congress from the State of California

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                                   __________

        Mr. Conyers. Thank you very much.
        Did any of you here--any of your colleagues say something
    that you felt like you would like to make a comment on?
        Mike Thompson?
        Mr. Thompson. Thank you, Mr. Chairman.
        I could go on and on disputing some of the things that have
    been said. But a couple of folks have referenced state
    attorneys general positions on this bill. And I think it is
    important for the record, if you would allow, to take these 10
    letters from 10 different state attorney generals who are
    stating that, in fact, their support for this bill was
    misrepresented, and they have no position on that. I would like
    to submit that.
        And I would also like to submit for the record, the
    American Bar Association's Antitrust Section opposition, and
    the Progressive Policy Institute's position of opposition as
    well.
        Mr. Conyers. We will accept them into the record.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Thompson. Thank you, Mr. Chairman.
        Mr. Conyers. Anyone else feel disposed to make any comment
    before I excuse and thank all of you for your statements?
        Okay. Thanks so much.
        Let me start the hearing by calling this the last hearing
    of Bill Delahunt, so that we will have this dedicated
    appropriately. And this is also his bill. So I just want to
    take this moment to thank Bill Delahunt for his many years of
    service not only on this Committee, but as a prosecutor in
    Massachusetts, and all the friends that he has garnered on both
    sides of the aisle.
        And I think I will put the rest of my statement into the
    record and yield to my dear friend, Mr. Smith.
        [The prepared statement of Mr. Conyers follows:]

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                                       __________

        Mr. Smith. Thank you, Mr. Chairman. I certainly agree with
    you, and want to thank our colleague, Bill Delahunt, for his
    years of service to his constituents and to his state, and to
    our country, as well as his dedication to this particular
    Committee.
        Bill Delahunt is one of the most able, most effective
    Members of Congress who I know. And he and I have worked on a
    number of pieces of legislation together, showing that
    bipartisanship can work and, particularly, with someone like
    Bill Delahunt, who is well motivated in so many areas. And we
    wish him well.
        And I have a hunch that we will be able to stay in touch
    with him, and keep up with him, and look forward to hearing
    from him as we go into the next Congress, even though he may
    not be present. We will certainly remember all of his
    contributions and continue to appreciate him and his service.
    And I do hope he stays in touch with all of us.
        Mr. Conyers. Howard Coble?
        Mr. Coble. Mr. Chairman, I know time is important. I will
    be very brief. But my fellow Coast Guards and I would be remiss
    if I didn't echo what you and the gentleman from Texas just
    said. I will put Bill----
        Mr. Conyers. All right.
        Bill Delahunt?
        Mr. Delahunt. Hello, and it is nice to be present when you
    are hearing your own obituary. People tend to say very positive
    things when you are leaving.
        Just a quick anecdote, Mr. Chairman--during the course of
    the primary, I was asked to endorse a particular candidate to
    succeed me. And I said, ``I am not going to get involved.'' And
    this particular candidate said, ``Well, it is absolutely
    essential.'' And I said, ``Why is it essential?'' He said,
    ``Because your numbers are through the roof.'' And my response
    was, ``They are through the roof because I am leaving.''
        Let me just say that it has been an honor to serve on this
    Committee. This Committee has a tremendous record. I think,
    oftentimes, the public is unaware that despite the policy
    disagreements that are obvious on a number of issues--that the
    personal relationships are such that it has allowed this
    Committee to perform admirably.
        I consider every Member of this Committee a friend. And
    those friendships--with you, with Lamar, with Howard Coble, and
    with every Member--I will truly cherish. And those friendships
    will endure long after the campaigns are over.
        You know, political life is difficult. I don't think the
    American people really understand the sacrifices that Members
    make. I can say that now, because I am leaving. But each and
    every Member of Congress--each and every Member of this
    Committee worked diligently. They work because they are here to
    serve. We have a different understanding sometimes in terms of
    what is the best for public policy. But people here are
    committed. They are committed to their country; they are
    committed to their district; and they make tremendous
    sacrifices.
        This is a job that never ends. When we leave here, we go
    back to our district and communicate with our constituents. But
    every Member of this Committee can be very proud of what we
    have accomplished, at least during my 14 years and, I dare say,
    as we look forward.
        But let me just end by saying the friendship--your
    friendship, Lamar Smith's friendship, and everyone's
    friendship--is a memory that I will take with me and enjoy and
    savor and cherish for the rest of my life.
        You said, Mr. Chairman, this is the last bill and the last
    hearing. I want you to understand that I drafted or offered
    this bill because I believe it is an issue that demands
    immediate attention to prevent the, in my judgment--the
    unraveling of America's system of alcohol regulation. It has an
    important goal. It is a very simple one. And that is to protect
    communities, protect children, and protect families.
        My granddaughter was with me this morning when we took the
    pledge of allegiance to the flag, on the floor of Congress. I
    want to make sure that she is protected, you know, so many
    different ways. I have witnessed, as a former prosecutor, the
    ravages of alcoholism and alcohol abuse, and what that can do,
    and what that can lead to. And that is why I sponsored this
    legislation. I want that to be known to my constituents back in
    the Massachusetts 10th District. And I have a more lengthy
    statement that I will submit for the record.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Delahunt follows:]

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                                   __________

        Mr. Conyers. Thanks, Bill Delahunt.
        I want you to know that the picture we have of you in the
    hallway is going to remain up, even after you are gone. So that
    is about the highest tribute that we can offer anybody in this
    Committee.
        Mr. Delahunt. Thank you, Mr. Chairman.
        Mr. Conyers. You are welcome.
        Lamar Smith?
        Mr. Smith. Thank you, Mr. Chairman.
        As you have noted, our Judiciary colleague, Mr. Delahunt
    introduced H.R. 5034, the Comprehensive Alcohol Regulatory
    Effectiveness Act of 2010, on April 15th. Since that time, the
    bill has acquired 146 co-sponsors, which represents a
    remarkable level of bipartisan support. However, it has also
    generated a great deal of controversy among wineries,
    breweries, and distilleries. They believe that the bill, as
    introduced, could lead to discriminatory state regulation and
    legislation that could hurt some small businesses.
        Most states have enacted some form of the three-tier system
    for alcohol distribution. This system separates alcohol
    producers, alcohol wholesalers and alcohol retailers into three
    distinct tiers. Inclusion of wholesalers as middle men in the
    transaction makes it easier for states to regulate alcohol. It
    makes it possible for states to ensure that alcohol is safe. It
    makes it simpler to ensure that alcohol is sold only to
    individuals over 21 years old. And it provides a
    straightforward alcohol tax-collection system for states.
        These are all laudable goals. And for those reasons, I
    support the three-tier system. And I feel it is important to
    help the states maintain and defend the system, and the
    benefits it brings.
        At the hearing in March, we were told that the three-tier
    system was under assault by lawsuits from producers and
    retailers. It was claimed that these suits are a drain on
    states' finances, and diminish their ability to effectively
    maintain the safety of the alcohol-distribution system.
        The CARE Act was designed to limit these lawsuits; however,
    as I have told many of the wineries in my home state, I also
    recognize that the legislation perhaps went too far to achieve
    those laudable goals. And I am pleased that Mr. Delahunt has
    offered and is preparing a manager's amendment that I think
    addresses many of the producers' complaints about the original
    language. I appreciate his efforts and those of the Chairman to
    create and improve piece legislation.
        I am also well aware that the producers, as well as some
    retailers, still oppose this modified proposal. To that end, I
    would like to use this hearing to get at the facts of the
    matter. First, how many lawsuits are there? How does the number
    of lawsuits compare with the historical average? How much do
    these lawsuits cost states? What other priorities do the states
    have to forego to defend these suits?
        The revised bill provides that states cannot discriminate
    against out-of-pocket producers. Are there examples of states
    discriminating against out-of-state commerce? Are there any
    examples of statutes that have been overturned, even when there
    was no evidence of intent to discriminate? What additional
    specific suggestions can those who oppose this bill make that
    will enable us to address their concerns without hampering this
    effort to preserve the three-tier system that has served us so
    well?
        These are some of the questions I hope our panel of
    witnesses can help us answer. And I hope these answers will
    help us construct a bill that will be acceptable to all
    stakeholders.
        With that, Mr. Chairman, I will yield back the balance of
    my time.
        Mr. Conyers. Thank you.
        We will take a couple more opening statements when we
    return. But right now, we will recess until 12:30 in the
    afternoon. Thank you.
        [Recess.]
        Mr. Conyers. The Committee will come to order. Thank you
    for your patience. We welcome our second panel--Michele Simon,
    Ms. Tracy Genesen, Professor Elhauge, Professor Diamond, Mr.
    Richard Doyle; Ms. Nida Samona, chair from Michigan, and the
    Attorney General from Utah, Mark Shurtleff.
        We are happy to start off with the attorney general, who
    has, among other things--and I don't know how he finds time--
    written a book of--I think it is going to be very well received
    not only on the Hill, but in government as well.
        Is Mr. Chaffetz here? We would like to recognize him for
    any further introductions.
        Mr. Chaffetz. Thank you, Mr. Chairman. I appreciate it. It
    is an honor to have all of the panel here; but, in particular,
    the attorney general from the great State of Utah.
        Mark Shurtleff was reelected as the Utah attorney general
    in November of 2008, with a strong 70 percent of the vote. He
    is now serving as the first three-term attorney general in the
    history of Utah. In his first 8 years in office, the number of
    meth labs in Utah was reduced by 98 percent. And he has talked
    to thousands of students and parents about the dangers of
    drugs, and led an effort to obtain millions of dollars in
    funding in education and rehabilitation.
        Attorney General Shurtleff was born and raised in Utah,
    graduated from Brigham Young University and the University Of
    Utah College Of Law. He served in the U.S. Navy Judge Advocate
    General Corps as an officer and attorney from 1985 to 1990. Mr.
    Shurtleff returned to Utah to serve as the assistant attorney
    general from 1993 to 1997.
        He is the past chairman of the Conference of Western
    Attorneys General. And he has served in the executive committee
    from the National Association of Attorneys General. He also
    served on the board of directors of several national and local
    organizations. He is the author of ``Am I Not a Man?: The Dred
    Scott Story,'' a historical novel about the man behind the
    landmark legal case.
        And, most importantly, he and his wife, M'Liss, have been
    married for 27 years and are the proud parents of five children
    and two grandchildren. And we are honored to have him here
    today. And I appreciate the Chairman for allowing me to say a
    few words. Thank you
        Mr. Conyers. Welcome.

    TESTIMONY OF THE HONORABLE MARK L. SHURTLEFF, ATTORNEY GENERAL
                         FOR THE STATE OF UTAH

        Mr. Shurtleff. Thank you very much.
        Congressman Chaffetz, thank you--good friend. We worked
    together when he was chief of staff for Governor Huntsman, now
    Ambassador Huntsman. Good to be here.
        Mr. Chairman, Members of the Committee, thank you very much
    for the invitation. It took me 7 years, Mr. Chairman, to write
    that book, so start writing yours now.
        It is an honor to testify, truly. I really appreciate this
    invitation to talk about things that are so important to my
    heart, including the United States Constitution, states'
    rights, the role of Congress vis-a-vis states, and the
    protection of the public.
        Utah knows a thing or two about the 21st Amendment. You may
    not know that it was Utah, after all, that was the 36th
    deciding state to ratify the 21st Amendment. And the reasons
    why Utah and this Nation endorsed the 21st Amendment remained
    as relevant today, in 2010, as they did back in 1933, when it
    was ratified by Utah.
        The relevance of the 21st Amendment stems from the
    undisputable fact that alcohol or, as the Constitution calls
    it, ``intoxicating liquor,'' is a unique product both
    constitutionally and physically. Alcohol, clearly, isn't for
    everyone. We know this. It is age-restricted for good reason.
        Science, every day, is coming out with more information as
    to why youth access to alcohol and the harm that alcohol causes
    to the developing brain. It causes harm to society. The costs
    to states and local communities are extensive. So states do
    have a compelling interest in using their police power and all
    their regulatory tools to mitigate those costs.
        When people of Salt Lake City feel differently about
    alcohol than the people in Detroit--that is the beauty of the
    American system; and, as the historian, I will tell you that
    the part that the Federal Government--intervention in alcohol
    policy has not been really successful, whether it is the
    Whiskey Rebellion or the failure of Prohibition.
        The 21st Amendment and the state-based regulation of
    alcohol has been a stunning success these many years. Well,
    there is still too much misuse and abuse, no doubt. Our
    problems pale in comparison to those of other countries like
    United Kingdom. Every state has tools to regulate this
    industry. They cannot be slowly whittled away in court, which
    is what is happening, and why we are concerned.
        Now, Utah takes alcohol regulation very, very seriously. We
    are a control state, as you may know. The state controls the
    sale of distilled spirits, certain malt-beverage products. Any
    profits go to the state to offset the cost of government. We
    have other alcohol laws not found in other states. That is a
    function of state-based regulation that we should not be hauled
    into Federal court to defend our efforts to protect our
    citizens.
        Now, as a past chair, many years for the Youth Access to
    Alcohol Committee of the National Association of Attorneys
    General, we worked very hard over the years to work to reduce
    underage drinking. We have collaborated and worked effectively
    with industry in these efforts to keep alcohol out of the hands
    of those who should not have it.
        But concerns over states' rights is something that unites
    all of us as attorneys general. From liberal to conservative,
    Republican to Democrat, alcohol regulation under the 21st
    Amendment is ``a state rights on steroids,'' you may say. Over
    35 different lawsuits in 27 states, challenging the right of
    the state to regulate alcohol has been filed since that
    Granholm decision in 2005. Now, there has been more uncertainty
    due to that decision, by creative lawyers, who I am sure we
    will hear from later.
        In a close 5-to-4 vote, as you know, the court believed
    that the Michigan system impermissibly harmed a poor artisan
    out of a out-of-state winery. Now, fast-forward 5 years later
    and ask, ``Where are the states in trying to understand what
    this decision meant?'' The answer is: The legal waters are
    muddier. They are not clearer. We are all over the place in
    this country.
        And, now, instead of a small, aggrieved winery struggling
    to get to market, we now have Anheuser-Busch InBev--$84 billion
    global company--using the same theory in Granholm to say they
    are being discriminated against in Illinois. Last I checked, AB
    InBev beer was everywhere. How they compare to a small winery
    or similarly situated is beyond me.
        As you will hear from the regulator from Michigan, Michigan
    has been hauled into Federal court on this very issue of
    retailer shipping. Texas and New York were sued, too. Michigan
    lost in the district court. Texas and New York won at the 5th
    and 2nd circuits.
        So what am I supposed to tell the legislature in the State
    of Utah? Go with Texas and New York ruling, or race to the
    bottom and abandon regulation to be safe from a Michigan or
    Washington decision, where the circuit court--the 9th circuit
    overturned a judge's ruling and only left one regulation they
    said was impermissible. And, yet, the judge still awarded over
    $1 million in attorney fees to the cost of the taxpayers of the
    State of Washington.
        We have lawsuits that twist the Granholm decision--from
    treating small businesses differently than big business. This
    needs to be resolved and, so, we are coming to you. We are
    asking for your help. We need to have you clarify this.
        Now, true, there were 40 AGs who signed a letter, but that
    was before the bill was passed. The letter is there. The
    wording is clear. They didn't say they endorsed this bill. But
    they are asking for help the same way we are in this bill, and
    that bill provides it.
        We need you to clarify that. You can do that. We beg of you
    to say what is meant by the Dormant Commerce Clause, so that
    when the Supreme Court gets this again, Congress has spoken,
    and they are going to receive that information.
        The revised CARE Act would capture the essence of
    Granholm's decision by preventing wanton discrimination against
    out-of-state suppliers. It will also provide clarity to state
    legislators and will strengthen states to keep the ability to
    regulate alcohol according to local customs. So thank you very
    much for the opportunity to be heard on this.
        [The prepared statement of Mr. Shurtleff follows:]
             Prepared Statement of the Honorable Mark L. Shurtleff

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Conyers. Thank you for starting us off.
        Our next witness has been before us before. She is the
    chair of the Liquor Control Commission of Michigan--lawyer,
    former prosecutor--and has put in a great deal of time working
    to make sure that Michigan has a safe and effective alcohol
    marketplace.
        Welcome, again, Ms. Samona.

                TESTIMONY OF NIDA SAMONA, CHAIRPERSON,
                   MICHIGAN LIQUOR CONTROL COMMISSION

        Ms. Samona. Thank you, Mr. Chairman.
        Thank you very much to the Committee for listening to us.
        Thank you to all of that have taken the time and the
    opportunity to recognize how important this issue is to the
    State of Michigan, and to all states, actually, in regards to
    the 21st Amendment, which gave plenary power to the states to
    regulate alcohol.
        The State of Michigan was the very first state in 1933 that
    ratified that 21st Amendment. And like Utah, we saw the need--
    we understood the need for it, and the recognition that the
    state has to intervene. This is not milk we are talking about
    here. This is a product that can be enjoyed that is very
    beneficial and lucrative to the State of Michigan; that can
    also be in the wrong hands at the wrong time, with kids that
    are minors, with overconsumption of alcohol, and with doing
    things with alcohol and mixing it in a way that can be lethal.
    We understand that. I understand that as the only regulator
    sitting up here on the panel.
        Now, Ranking Member Smith asked, ``How many lawsuits are we
    talking about here?'' Twenty-five to count, and still going--
    two of them have been within the last 7 years of the State of
    Michigan. That is the Granholm case. That is my boss, Governor
    Granholm--who sends her best to all of you--that started it,
    and 24 lawsuits later that came after that.
        There was a lawsuit that dealt with wineries. ``Why can't
    wineries be treated the same out-state as in-state?'' We
    modified our state laws so that we can do that, and created a
    permit system because it went all the way to the Supreme Court;
    and in a very narrow, 5-4 decision was in favor of the
    wineries.
        Then, several years later, we have a case of Siesta
    Village. This time, it is not about wineries. It is about
    retailers that say, ``An out-state retailer should be able to
    sell and ship alcohol into the State of Michigan to anyone that
    they want to, at any time.''
        When we regulate our own retailers--and we have 17,000
    retailers in the State of Michigan--and, certainly, you know
    that, Mr. Chairman--that they are very active. They are small,
    independent businesses, as well as large chain stores
    throughout the State of Michigan. We make these retailers have
    to go through server-training classes so that they understand
    they have to ask for I.D. They have to look and determine if a
    person is intoxicated; if it is an on-premise licensee, to
    determine when they can cut them off.
        The have to go through violations and penalties up to being
    suspended and/or revoke their license. These are all these
    retailers that are within my state, that we regulate to ensure
    that they follow the laws of the State of Michigan and the
    rules of the Michigan Liquor Control Commission. But Siesta
    Village would have you, in that lawsuit, say, ``A retailer in
    California, Florida, Ohio, Indiana, anywhere else, should be
    able to sell this product and ship it to a home, not knowing,
    ``Is that person of age to receive it?''--not having any
    identification processes.''
        And this thought about the UPS system or delivery system
    checking for I.D. is just not one that works. What if they
    don't? What power do I have over that licensee that is not in
    the State of Michigan? Because my 17,000 retailers that are
    struggling every single day--but we are hammering at them and
    on their back to make sure that they follow the rules and
    understand this is a commodity that is enjoyable, but can be
    very dangerous. Understand that the Liquor Control Commission
    means business.
        And so when we talk about these cases, I talk to you as a
    regulator. I am also a lawyer. I am also a former prosecutor. I
    understand what happens when you abuse this product. And I
    understand, as a regulator, that my role is to ensure that that
    doesn't happen.
        These lawsuits, Mr. Smith, have cost millions of dollars to
    the State of Michigan--well, not one, but two lawsuits. With
    Siesta Village, we, in fact, had to tell our independent
    retailers that they cannot deliver to a client or a customer of
    theirs any of the product; that they must come in--not just
    purchase them, but pick them up at that time, as a result of
    that lawsuit. We didn't want to continue incurring additional
    millions of dollars in taking it up to a higher court.
        That is why it is so essential for Congress to act on this;
    so that this silence does not lead to all these ambiguous
    rulings across this great country of ours. The 21st Amendment
    and Commerce Clause has given us the power for each state to
    regulate, based on the fit and the need of that state. That is
    the beauty of it. It should not be a one-size-fits-all.
        The rules exist, and we are here to follow them. But I, as
    a regulator, surely know what is in the best interest of my
    state and those that are living in my state and consume this
    product in my state. That is my duty. And I ask for you, Mr.
    Chairman, and all of you, as the Committee Members, to please
    act on this bill. Thank you.
        [The prepared statement of Ms. Samona follows:]
                       Prepared Statement of Nida Samona

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                                   __________

        Mr. Conyers. Thank you very much.
        The next witness is the chairman and CEO of Harpoon
    Brewery, a member of the Brewers Association and the Beer
    Institute.
        And we are glad to have you here, Mr. Doyle. You may
    proceed.

       TESTIMONY OF RICHARD A. DOYLE, CHAIRMAN AND CEO, HARPOON
                                BREWERY

        Mr. Doyle. Thank you.
        Mr. Chairman, and Members of the Committee, my name is
    Richard Doyle, and I am the chairman--founder and CEO of the
    Harpoon Brewery. We operate breweries in Boston, Massachusetts
    and Windsor, Vermont.
        On behalf of the Brewers Association, I appreciate the
    opportunity to speak today. I am here to give you a small-
    brewer's view of H.R. 5034. You are entrusted to make the
    rules, and I want to provide you with my perspective on what it
    would be like to try to successfully play by those rules, if
    H.R. 5034 is enacted.
        The wholesale, or middle tier, of the three-tier system of
    beer distribution is very important to small brewers. We do not
    have the scale to establish our own distribution network and
    need wholesalers to reach markets, particularly in other
    states. A successful and vibrant middle tier is vital to the
    interests of small brewers and our consumers.
        The current system has served the public well for the last
    77 years. There is a delicate balance between state-based
    regulation that reflects the needs of individual states and a
    Federal role to protect interstate commerce. Passage of H.R.
    5034, even in its amended form, risks exposing that delicate
    balance to unintended consequences.
        Our brewery sells beer in 25 states. The wholesalers we
    sell to typically do business in only one state. State
    franchise laws, with the stated goal of protecting wholesalers
    from dominant large brewers, are also used to dictate the terms
    of trade between small brewers and wholesalers.
        I have worked through franchise agreements mandated by
    state laws with dozens of wholesalers, and we have developed
    beneficial relationships, and even friendships. But those
    negotiations are always tough because state laws provide
    wholesalers with strong leverage. We are always the ``away
    team,'' playing in a state system that favors the home-team
    wholesalers. H.R. 5034 would undeniably make that situation
    worse. Not only would we be playing away, but the state-based
    referee would not have any concern about being tempered by
    Federal oversight.
        Small brewers are also concerned about the diminution of
    Federal role in another area. State label regulation is a good
    practical example of how subtle discrimination could work. If
    we are required to have 25 different labels for the 25 states
    where Harpoon sells beer, that cost would be prohibitive. We
    would not be able to manage the inventory and keep our beer
    fresh. We would need to sell in fewer states, and our brewery
    and our customers would be worse off.
        Small brewers also tend to make many different styles of
    beer, which only compounds any state-based labeling
    requirements. This is not a hypothetical situation. In the last
    2 years, wholesalers have lobbied successfully in Michigan and
    New York for unique labeling requirements. The New York law was
    struck down as a violation of the Commerce Clause, and the
    Michigan legislation had to be amended to exempt small brewers.
    Under H.R. 5034, those laws could stand, and we would be at a
    great disadvantage in both states.
        We appreciate the threat that wholesalers feel to their
    businesses from a change in the status quo, and more power
    flowing to large retailers. However, we do not think that
    solving a problem for wholesalers by creating a problem for
    brewers makes sense. It is very unfortunate that after more
    than a year of discussion between wholesalers and suppliers, we
    could not reach a compromise. Brewers large and small worked
    very hard, and in good faith, to reach a compromise, despite
    the fact there was nothing we would gain from the legislation.
        Each version of H.R. 5034 that we have seen this year is
    detrimental to small brewers in three aspects. First, it
    repeals the Wilson Act of 1890, which prohibits discrimination
    against out-of-state producers and products. Second, the new
    language in H.R. 5034 encourages states to adopt laws that
    discriminate in subtle ways. Finally, the bill diminishes the
    Federal role in regulating interstate commerce.
        As a small brewer in Massachusetts, I do not have the
    resources to fight every discriminatory state statute and
    regulation that restricts my ability to compete and grow in
    other states. I spend thousands of dollars every year
    attempting to comply with state laws, many of which were
    clearly intended to protect local economic interests.
        I make great beers, and I want to sell them to your
    constituents. Great principles of limited government and free
    enterprise are often ignored when local economic interests and
    legal authority are combined with no checks and balances. The
    Federal courts provide that constitutional check, and they have
    exercised it responsibly in decisions concerning alcoholic
    beverages.
        The Supreme Court and appellate courts have overturned the
    relative handful of unconstitutional state laws. Those policies
    clearly favored state and local interests, or reduced
    competition in ways that had nothing to do with temperance or
    public safety.
        In closing, I respectfully urge the Committee to refrain
    from reporting H.R. 5034. Our industry is already adequately
    regulated at the Federal and state level. No credible group or
    industry organization is attempting to deregulate the sale and
    consumption of beer, wine, and spirits. Thank you very much,
    Mr. Chairman.
        [The prepared statement of Mr. Doyle follows:]
                     Prepared Statement of Richard A. Doyle

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                                   __________

        Mr. Conyers. You are welcome.
        Professor Stephen Diamond is professor from the University
    of Miami. He has both a Ph.D. and J.D. from Harvard University.
    He is co-chair of the American Bar Association Committee on
    Beverage Alcohol Practice.
        We welcome you here this afternoon, sir.

     TESTIMONY OF STEPHEN M. DIAMOND, PROFESSOR OF LAW, UNIVERSITY
                                OF MIAMI

        Mr. Diamond. Thank you for the opportunity to appear before
    you.
        I would like very briefly to make several observations
    about H.R. 5034; observations which I have developed at greater
    length in my written submission.
        The Supreme Court has made it unquestionably clear that the
    final authority on the relationship between state alcoholic-
    beverage law and the Dormant Commerce Clause is Congress.
    Congress can protect state alcoholic-beverage laws to the
    extent it sees fit.
        From 1880 onward, Congress did attempt to do so. But until
    1917, when the Supreme Court upheld the Webb-Kenyon Act, its
    efforts to support and protect state alcoholic-beverage
    regulation were constantly frustrated by the courts. But
    decades after repeal, Congress had no need to speak further to
    maintain its support of state alcoholic-beverage laws, as the
    Supreme Court interpreted the 21st Amendment to protect those
    laws from challenge.
        In Granholm, however, the Supreme Court limited the
    protective effect of the 21st Amendment, and of the Webb-Kenyon
    Act, holding that the latter was limited by the Wilson Act.
    This interpretation of Webb-Kenyon is at odds with this history
    of the enactment. An analog of the Wilson Act supposed to be
    included in the Webb-Kenyon had been withdrawn during
    consideration of the bill, as inconsistent with what was
    ultimately enacted; that is, the Wilson Act was explicitly
    detached from the Webb-Kenyon Act.
        There was, moreover, no congressional discussion during the
    Webb-Kenyon debates about the importance of preventing
    discrimination against producers. There was, on the other hand,
    lots of talk about the need to shield state alcoholic-beverage
    regulation so that it might be effective.
        The court's interpretation of the Webb-Kenyon Act is, of
    course, not binding on Congress. Congress can now do what it
    thinks right. Misunderstandings of Granholm are rampant. The
    court did not declare that interstate commerce in alcoholic
    beverages could not be burdened. The Dormant Commerce Clause
    does not do that for any products.
        The court held only that the 21st Amendment and the Webb-
    Kenyon Act, as the court interpreted it, did not protect
    intentional or facial discrimination against other state
    producers. Contrary to some claims that have been made, the
    Dormant Commerce Clause, as articulated and as applied, is not
    exactly clear and unequivocal. In the so-called canonical
    expression of Dormant Commerce Clause doctrine in the Brown-
    Forman decision, the court immediately concedes that it has
    proved impossible to apply the doctrine consistently. This is
    not a bad thing.
        The court has, in effect, cautiously refrained from
    treating the Dormant Commerce Clause as one-dimensional. It has
    looked to many factors in cases where it has held that no
    discrimination was demonstrated, and that state laws should,
    therefore, be upheld. In Exxon v. Maryland, the court rejected
    the claim that state law discriminated in favor of in-state
    retailers, declaring that the Dormant Commerce Clause protects
    interstate commerce, but not the business strategies of
    particular out-of-state sellers.
        In General Motors v. Tracy, the court rejected an
    intentional discrimination claim because to accept it would
    threaten a highly regulated system of local utility. In
    Kentucky v. Davis, the court rejected the facial discrimination
    claim because the distinction was one which many, or all,
    states had made for many decades.
        H.R. 5034 is a modest step, consistent with constitutional
    jurisprudence, and respectful and protective of 75 years of
    state regulatory practices. The terms and conditions of
    distribution and sale of alcoholic beverages must be controlled
    by law, and not left up to the desires of thirsty drinkers and
    profit-maximizing sellers.
        State alcoholic-beverage regulations, since repeal, have
    attempted to constrain overselling and, thus, overconsumption
    and abuse. It has conversely attempted not to over-regulate
    and, thus, stimulate elicit and, therefore, unregulated
    manufacture, distribution and sales.
        It has aimed for moderation and regulation to achieve
    moderation in selling and moderation in consumption. This
    regulation has worked well. Congress should continue to support
    it.
        Thank you for your consideration.
        [The prepared statement of Mr. Diamond follows:]
                    Prepared Statement of Stephen M. Diamond

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                                   __________

        Mr. Conyers. Thank you.
        Also, from Harvard, is Professor Einer Elhauge, the Petrie
    Professor of Law at the Law School. And he is testifying on
    behalf of the Beer Institute. He is a former clerk for Justice
    William Brennen, and has taught previously at the University of
    California Berkeley, before coming to Harvard.
        Welcome this afternoon, sir.

             TESTIMONY OF EINER ELHAUGE, PETRIE PROFESSOR
                       OF LAW, HARVARD LAW SCHOOL

        Mr. Elhauge. Thank you, Chairman Conyers, Ranking Member
    Smith, and other Members of the Judiciary Committee.
        I am, as the Chairman said, Einer Elhauge, the Petrie
    Professor of Law at Harvard Law School, where I specialize in
    antitrust and statutory interpretation. I have been asked to
    present my views of the bill by the Beer Institute.
        Proponents of this bill argue that it is necessary to
    correct three problems: Case conflicts, deregulation, and
    excessive litigation. But when I reviewed the cases, I found
    that none of those three concerns was well founded.
        First, the alleged case conflicts largely reflected
    differences in case facts, or had been largely resolved by the
    courts through the common law process. Second, none of these
    cases actually resulted in deregulation. Third, because the
    courts have already clarified the issues, and state
    legislatures have responded with legally sound laws, the
    initial stream of cases has dwindled to a trickle. Today, there
    appears to be only one active case in this arena that has not
    already been substantively resolved by the trial courts.
        Even if those three concerns were justified, the proposed
    act would be a poor remedy for them. The act would greatly
    increase legal uncertainty, and could be expected to spawn new
    legal conflict and litigation.
        For example, ambiguities in proposed act, section 3a, mean
    that courts might variously interpret it to either have no
    effect, or to inversely preempt some, or perhaps even, all
    Federal statutes that conflict with state alcohol regulation.
    Those ambiguities are likely to induce a spate of new lawsuits.
    Only, this time, for the courts to figure out what section 3a
    means. Further, decisions that interpreted section 3a to
    inversely preempt Federal statutes could allow state
    regulations that permit anti-competitive conduct contrary to
    Federal antitrust policy.
        Section 3b would also create three new harmful exceptions
    to current Dormant Commerce Clause doctrine. First, section 3b
    would eliminate protection against state alcohol laws that have
    discriminatory effects on out-of-staters. This would allow
    states to discriminate by picking some seemingly neutral factor
    that has discriminatory effects.
        For example, the state could restrict sales by producers
    who sell a type of alcohol that is not made in the states; or
    who meet a production threshold that no in-state producer
    meets. Section 3b would, then, require sustaining such laws
    unless an affirmative discriminatory intent could be proven--a
    test which is difficult to meet, is likely to generate new case
    conflicts, and would not address the core concern that
    discrimination prompted by indifference to harms in other
    states is just as undesirable.
        Second, section 3b would allow discrimination in any form,
    even facial and intentional discrimination against anyone who
    is not a producer. Thus, states could pass laws that explicitly
    discriminate against out-of-state consumers. That would seem
    contrary to Congress' strong pro-consumer policy.
        For example, states could adopt laws that require all
    producers to charge higher prices to out-of-state consumers, or
    that levy higher taxes on beer that will be sold to out-of-
    state consumers. Third, section 3b would permit a state to
    directly regulate interstate commerce. For example, the
    proposed act will allow a state to enact a law that requires
    producers to affirm that they will not charge future prices in
    other states below the price charged in the first state.
        The Supreme Court held such price-affirmation laws to be
    unconstitutional decades ago, observing that such laws
    interfered with the ability of those other states to regulate
    alcohol in ways that those states feel optimally advance their
    own 21st Amendment interests.
        These examples are not fantastic or theoretical; rather,
    most come straight from the pages of existing judicial
    decisions. Thus the--proposed by the proposed act is real and
    substantial.
        I am a big believer in states' rights. But those rights
    also include the right of states to be free from regulatory
    interference and discriminatory effects from other states. I
    also strongly believe in protecting children. But I see no
    reason why states cannot protect children with non-
    discriminatory laws, given the ample powers they already have
    under the 21st Amendment.
        So far as I can tell, the only two concrete issues that
    proponents point to is that current case law might threaten
    either laws requiring in-person consumer purchases or in-state
    residency requirements for retailers. In my view, the current
    case law has already evolved to fairly clearly sustain such
    laws. But if those are the real concerns, the solution would be
    a much more narrow bill, not a bill that creates vast new
    exceptions to the constitutional jurisprudence that protects
    states from discrimination and interference from other states.
        The Dormant Commerce Clause may seem like an obscure
    technical topic, but it is the constitutional jurisprudence
    that really united this Nation into the world's greatest free-
    trade area, preventing states from engaging in the sort of
    beggar-thy-neighbor protectionism that nations often use
    against each other. It is a vital part of what made America a
    great Nation, and its principles should not be unnecessarily
    cast aside.
        [The prepared statement of Mr. Elhauge follows:]
                      Prepared Statement of Einer Elhauge

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                                   __________

        Mr. Conyers. Thank you very much.
        Ms. Tracy Genesen from Kirkland & Ellis is testifying on
    behalf of the Wine Institute. She has litigated Commerce
    Clauses challenging state regulations, including the Granholm
    case in the Supreme Court.
        We welcome you this afternoon.

                TESTIMONY OF TRACY K. GENESEN, PARTNER,
                         KIRKLAND & ELLIS, LLP

        Ms. Genesen. Thank you very much, Mr. Chairman.
        I am Tracy Genesen, and I will pretty much focus my remarks
    today on Mr. Delahunt's new language. I represent the Wine
    Institute, a public-advocacy association of California
    wineries, which includes more than 1,000 wineries and
    affiliated businesses.
        Those wineries represent a vital sector of the United
    States economy. America's 6,700 wineries--the vast majority of
    which are family-owned farms, are responsible for more than $20
    billion in sales in the United States, and support more than 1
    million jobs. The passage of H.R. 5034 will greatly imperil
    this dynamic agricultural industry.
        Today's wine-distribution system is shaped like an
    hourglass, with thousands of producers at the top, and millions
    of consumers at the bottom; but only a few wholesalers in
    between to distribute their product. United States' wineries
    have an interest in evenhanded, robust state regulation,
    permitting them to ship wine directly to consumers and
    retailers. But wholesalers have an interest in maintaining this
    exclusive grip on the bottleneck between alcohol producers,
    wine retailers and consumers.
        H.R. 5034 is a piece of special-interest legislation for
    the benefit of those wholesalers, at the expense of retailers,
    producers, and consumers--literally, everyone else. In
    particular, H.R. 5034 would harm millions of American
    consumers--to reduced access to wine, increased prices, and
    reduced wine selection.
        And contrary to the rhetoric advanced by the wholesalers,
    99 percent of these alcohol regulations are not vulnerable to
    Federal challenge. The only state regulations that are truly
    vulnerable in court today are the anti-competitive ones that
    discriminate against out-of-state businesses or products.
        H.R. 5034, however, would eviscerate Commerce Clause
    challenges that protect the national union from states that
    discriminate in this way. And the Commerce Clause is the
    cornerstone of our national economic union. It applies to
    products and entities in the stream of commerce. It prevents
    state legislatures from affording in-state local market
    participants a competitive advantage or benefit without
    extending that privilege to out-of-state alcohol-market
    participants.
        Through legislative efforts, and when forced through
    litigation, states have cured this discrimination in two
    distinct ways. One, they have leveled up, which means they have
    extended the privilege to out-of-state interests as well. And,
    from our standpoint, this is the best pro-consumer remedy. But
    states can also level down. If they want to take the privilege
    away from the in-staters, then they have also cured the
    discrimination there.
        In short, the Commerce Clause requires evenhandedness, and
    so do Federal statutes concerning alcohol regulation, such as
    the Wilson Act. When a state regulates evenhandedly, or when it
    proves a legislation interest that cannot be met through non-
    discriminatory means, it will survive Commerce Clause scrutiny.
        Since the Supreme Court's Granholm decision, courts
    regularly uphold state statutes when plaintiffs fail to meet
    their substantial burden of showing impermissible state
    discrimination. And we have recent examples of state statutes
    being upheld in such cases in the 1st, 7th and 9th Federal
    circuits.
        Discriminatory laws basically fall into several categories.
    And I will mention a few here. Some state laws are facially
    discriminatory, like the Michigan statute. The Supreme Court
    struck that down in Granholm. Those statutes, on their face,
    apply to companies differently, depending on where they are
    located. Other state laws appear to be geographically neutral,
    but they might require an in-state presence, like the New York
    statute in Granholm; or exempt a local product from a tax, such
    as the Bacchus case; or impose wine-production tax that only
    in-state wineries can meet, and out-of-state wineries can't.
        These statutes discriminate in purpose and effect. Under
    the Commerce Clause, such state statutes can be invalid for
    either of these reasons. H.R. 5034 would immunize these kind of
    alcohol statutes that do discriminate against out-of-state
    businesses in purpose and effect. Critically, the bill sweeps
    away the existing Commerce Clause standards and amends the
    Wilson Act to abolish evenhandedness.
        H.R. 5034 really allows only one kind of limited challenge
    for one type of wine business. It preserved challenges against
    statutes that intentionally or facially discriminate against
    alcohol producers. But even as to producers, states could
    escape H.R. 5034 by discriminating against out-of-state
    products. A good example of this is: A state like New York,
    where no zinfandel is produced, could ban a sale and shipment
    of zinfandel to New York residents. That would discriminate
    against California zinfandel producers, without incurring
    scrutiny under H.R. 5034.
        In place of the current legal standard that focuses on
    multiple factors to determine whether a state is discriminatory
    in purpose and effect, this bill calls for a narrow, intrusive
    inquiry into what state legislators intended. This is both
    highly speculative to prove and extremely difficult for courts
    to divine.
        As the Supreme Court in Bacchus pointed out, it could
    always be said that there was no intent to discriminate.
    Instead, the state legislatures couch it as an effort to help
    in-state industries; an effort to insulate them. H.R. 5034
    confines courts to a narrow, second-guessing-like probe into
    legislative intent.
        Commerce Clause cases are not common. In fact, there is
    only one of them left. And if you compare these Commerce Clause
    challenges to civil-rights cases, in 2008, there were 32,000
    civil-rights challenges in Federal court; compared to the
    initial 25 here, down to one, as we speak.
        When a state discriminates against out-of-state businesses
    without justification, Congress should want that discrimination
    invalidated. Such statutes are a blow to the economic union of
    50 states. They undermine our Federal system. To put it
    bluntly, Mr. Chairman, the rule against economic non-
    discrimination among states prevents what our founders
    envisioned--interstate trade wars.
        And to conclude, H.R. 5034 gives states free reign to pass
    intentionally and facially discriminatory statutes that
    foreclose out-of-state wholesalers and retailers from market
    access. If passed, the bill would exempt specific types of wine
    businesses from Commerce Clause protection. This is virtually
    unprecedented in the law.
        Today, state-regulated, robustly regulated interstate wine
    shipping is available in 37 states and the District of
    Columbia. These permits in the states that allow direct
    shipping require I.D. checks. They require licensing. They
    require that the wine seller submit to the jurisdiction of the
    state. They require strict reporting requirements. And, if a
    winery or retailer runs afoul of one of these laws, under the
    21st Amendment Enforcement Act, its state attorney general can
    take them into Federal court.
        There is more and clearer regulation of wine than ever
    before. Simply put, H.R. 5034 is a drastic solution to a
    problem that does not exist. In its original or amended form,
    it is a transparent attempt to maintain a lucrative anomaly for
    a few by eviscerating the Commerce Clause.
        And, finally, my last point: As the Bacchus court put it,
    and as Justice White so eloquently stated, ``If we abandon the
    Commerce Clause in this way, the trade and business of our
    country would be at the mercy of local regulation; having, for
    their object, to secure exclusive benefits to citizens and
    products of particular states.''
        This Committee should decisively reject H.R. 5034.
        [The prepared statement of Ms. Genesen follows:]
                     Prepared Statement of Tracy K. Genesen

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                                   __________

        Mr. Conyers. Very persuasive.
        Michele Simon is research and policy director of the Marin
    Institute; has a master's in public health from Yale School of
    Medicine, and a law degree from Hastings College of Law; and
    has worked extensively on the prevention of alcohol-related
    public-health concerns.
        Welcome.

               TESTIMONY OF MICHELE SIMON, RESEARCH AND
                    POLICY DIRECTOR, MARIN INSTITUTE

        Ms. Simon. Thank you very much, Chairman Conyers--and to
    the Members of the Committee--for the opportunity to testify
    today in support of H.R. 5034.
        I am a public-health lawyer and the research and policy
    director at Marin Institute, a non-profit whose mission is to
    protect the public from alcohol-related harm.
        While the discourse of this bill has pitted different
    sectors of the alcohol industry against each other, that fight
    is irrelevant to us. Our only interest is what is in the best
    interest for the public's health and safety. Indeed, Marin
    Institute often disagrees with the industry proponents of this
    bill and other policy matters, and will likely continue to do
    so.
        Our goal is to advance prevention policies to reduce the
    tremendous harm caused by alcohol consumption. Far from being a
    benign substance, alcohol use causes a wide variety of harm,
    even when consumed at what the Federal Government defines as
    moderate levels.
        In the United States today, alcohol remains the third-
    leading cause of preventable death. At least 85,000 deaths are
    attributable to alcohol consumption each year. Also, the
    economic costs of alcohol are estimated to have been $220
    billion in 2005. Much of that cost is from lost productivity;
    meaning that businesses and our economy also suffer greatly.
        And while my organization is based in California, Marin
    Institute has always been a national leader, and we work
    closely with policymakers and public-health advocates at the
    state and local levels throughout the Nation. I can attest to
    the critical role that state regulation of alcohol plays in
    giving policymakers and advocates the tools they need to
    protect the public.
        Indeed, I just returned speaking from Wisconsin and
    Massachusetts, where state and local lawmakers, along with
    public-health advocates, were gathered to learn how they can
    help advance effective prevention policies to reduce alcohol
    harm in their communities. At both events, it was well
    understood that states have the authority to regulate alcohol;
    and, yet, this authority, which has largely been taken for
    granted, is increasingly coming under attack by those who want
    to see Federal law trump well-established state authority.
        The current state-based system of alcohol regulation has
    been in place for a long time because, for the most part, it
    works well. Moreover, due to the severity of alcohol problems
    throughout our country, numerous Federal agencies work to
    assist states in addressing alcohol-related prevention,
    treatment, law enforcement, and research; therefore, the CARE
    Act would go a lot way to help ensure that such Federal
    programs are not undermined by current legal threats to state-
    based regulations.
        I want to share three specific examples of state regulation
    to protect the public's interests through prevention. The first
    is access to alcohol. The research is abundantly clear that the
    more access people have, especially youth, to alcohol, the
    greater the number of problems communities will experience. By
    controlling where and when alcohol is sold, states can seek to
    prevent those problems associated with increased availability.
    And states are in the best position to evaluate and address
    problems facing their communities and restrict access when and
    where it is needed.
        Another area where states need to be able to regulate is
    pricing. For example, policies that prohibit volume discounts
    make good sense from a public-health perspective. Substantial
    research shows that higher alcohol prices are associated with
    reduced alcohol consumption, especially in youth.
        Marin Institute is very concerned about legal challenges
    and pricing policies by certain chain stores in the retail
    sector. Cheap prices for consumers should not be the only
    consideration. In fact, such consideration should be secondary
    to public health and safety.
        A third important aspect of state regulation is the three-
    tier system. Requiring that alcohol be sold from producers to
    distributors, and then to retailers, has proven to be a
    necessary policy for protecting the health and safety of the
    public. The three-tier system helps to ensure that the state
    has adequate oversight of alcohol sales, helping to prevent
    aggressive marketing and sales tactics.
        Although how to best regulate alcohol might seem like any
    other rhetorical debate over balancing the interests of private
    industry with government, there is an important difference;
    diminished state authority will most certainly result in more
    lives lost, higher costs, and more families forever changed by
    alcohol consumption. Odds are that most people in this room
    know someone who has been negatively impacted by alcohol use.
    Make no mistake; this is not a rhetorical debate. This is about
    saving lives.
        For decades, alcohol has been recognized as being different
    because it is. The cornerstone of that recognition is a state's
    authority under the 21st Amendment to regulate the sale of
    alcohol to ensure an orderly marketplace. I urge the Committee
    to strengthen the regulatory authority of states to ensure that
    the public health and safety of the American people remain a
    top priority, and to continue to seek additional ways to
    support state-level efforts to reduce alcohol harm.
        Thank you very much.
        [The prepared statement of Ms. Simon follows:]
                      Prepared Statement of Michele Simon

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                                   __________

        Mr. Conyers. Thank you, Ms. Simon.
        Before I yield to Lamar Smith, I would like to ask anyone--
    starting with our first witness--if anything that was said here
    would lead you to want to remark about it by your fellow
    panelists, or any other final thoughts you might have about the
    subject matter that brings us here today.
        Mr. Attorney General?
        Mr. Shurtleff. Thank you, Mr. Chairman.
        You know, the only thing that strikes me is that there is
    all this--obviously, the Commerce Clause. I support and love
    the Constitution of the Founding Fathers. The 21st Amendment
    was an extraordinary time in our history where, for over a
    decade, we saw mostly failed Federal policy, and what it did to
    tear apart this country. It was a well-reasoned--well thought
    out. It was current. It was dealing with the problem. It was
    taken back to the states. And it gave back to the states what
    traditionally was theirs; and that is the regulation of
    alcohol.
        It is a unique product. It was a unique amendment. It is
    just as important a part of the Constitution as the Commerce
    Clause--as any other part of that Constitution. And that is why
    this is so unique. No other constitution dealt with any other
    products and services in this country. But this is different.
    It is unique. And we all know why. It has been spoken very
    clearly--the negative effects that alcohol can have on our
    society and, particularly, our youth.
        And so--would remind you that this is--this is particularly
    unique. It is the 21st Amendment. But the courts have now made
    it clear that you have the--you, as Congress, have control in
    defining the extent of the Dormant Commerce Clause. And that is
    why we are coming back to you, to ask for your help.
        Mr. Conyers. The enforcer from Michigan----
        Ms. Samona. Thank you.
        Mr. Conyers. What have you to say?
        Ms. Samona. I like that title. Thank you, Mr. Chairman.
        Mr. Conyers. Regulator, perhaps? Okay.
        Ms. Samona. I just want to comment on what Professor
    Elhauge had indicated about these losses--some of these losses
    have led to deregulation. Should we wait until the bottom falls
    out for us to act? Every lawsuit chips away at our ability to
    regulate this highly regulated product--every single lawsuit.
        Of the 20 losses that have existed, one state or another
    had to act in one way or another to comply with what happened
    in regards to that lawsuit. And what happens when Michigan gets
    sued with Siesta Village, and we lose that lawsuit, but then
    two neighboring states, Texas and New York--the same identical
    issues and lawsuits--get that lawsuit and--well, they are not
    neighboring in that sense, but the results are exactly the
    opposite.
        So when the Utah attorney general says, ``What am I
    supposed to tell my regulators or other states? Who do you
    follow?''--are you extra cautious because Michigan lost, or do
    you follow the New York model? Do you follow the Texas model?
    That is why Congress really needs to come in here--the fact
    that none of these have led to deregulation--they have
    absolutely led to every regulator in that state to make some
    kind of change, or that legislature to comply with that
    lawsuit.
        So this is a public-interest issue. This is public interest
    versus the private sector. This is money versus protecting the
    health, safety, and welfare of the general public of the
    citizens of the State of Michigan or any other state. That is
    the bottom line here, what we are talking about. All these
    projections about ``a zinfandel is not made by New York, but
    New York discriminates''--why in the world would the State of
    New York discriminate against a product they don't make, when
    they could make money for their state? This is a multimillion-
    dollar business for all of us in one form or another. But as
    the regulator, I don't just carry the money that I bring to the
    states. I carry the responsibility that it comes with. And that
    never goes away. Thank you.
        Mr. Conyers. I wonder what he does tell them.
        Mr. Shurtleff. Litigate--spend more taxpayers' dollars
    litigating the question--litigating the question--more money
    spent--taxpayers' dollars that could be going to educational
    programs like our parentsempowered.org, where we are giving
    information to parents in order to provide more information to
    their kids. That is the problem.
        Mr. Conyers. Mr. Doyle?
        Mr. Doyle. When I hear calls for Congress to back away from
    states' regulatory authority, and to provide them with even
    more primacy, I think about the important role that Congress
    has played, and the Federal Government has played--and I also
    stated that I don't want the Federal Government to back away.
        I want to point out some of the important things the
    Federal Government role played in alcohol regulation and things
    like underage drinking. As a 19-year-old in 1979, it is
    certainly emblazoned on my mind what an important role the
    Federal Government had in passing effectively a 21-year-old
    drinking age nationally.
        And without that role, that certainly wouldn't have
    happened as quickly, and may not have happened at all, but
    everyone can conjecture. The 0.08 national blood-alcohol level
    effectively was also something that the Federal Government had
    a lot to do with.
        So I think there is a Federal role. It isn't to say that
    the states don't have primary role. Look, I just want to remind
    everyone that it isn't all bad what the Federal Government
    does. And in this realm, in particular--and that people like me
    look for protection. So, thank you.
        Mr. Conyers. Did you feel that way when you were 19 and the
    law kicked in?
        Mr. Doyle. No, but I will tell you, sir--I registered to
    vote. And I voted the next time around--not for the guy who
    didn't--well, whatever. You know what I am saying.
        Mr. Conyers. Well, I think I get your drift. But----
        Mr. Doyle. At the time, I wasn't in favor of it. Let us put
    it that way.
        Mr. Conyers. Professor Diamond?
        Mr. Diamond. Thank you. I would like to make three points.
        First, we have been told that there is a problem because
    there will be no longer a possibility to bring a case purely
    for discriminatory effects. Donald Regan, a professor at the
    University of Michigan wrote a very long article in 1986, in
    which he showed that there had never been, up to that point--
    and I believe it is still the case--a Supreme Court case--in
    which the Dormant Commerce Clause was used to reject a state
    law in the absence of either intentional or facial
    discrimination.
        Indeed, if you look at how the Supreme Court is beginning
    to describe Dormant Commerce Clause jurisprudence--in United
    Haulers and in Kentucky v. Davis--two recent cases--they no
    longer go through what they used to--the old-fashioned
    incantatory repetition of three kinds of discrimination--
    facial, intentional, and effectual. They do not mention
    effectual anymore.
        We have been told that there is a problem. As a matter of
    fact, this doesn't mean that discriminatory effects will become
    irrelevant. They will be very important as evidence on the
    question of whether there is intentional discrimination. We are
    told that that won't work because, as in Bacchus, the State of
    Hawaii said--denied that they were trying to intentionally
    discriminate. Well, the important point about Bacchus is the
    United States Supreme Court didn't believe them.
        Secondly, we were told that price affirmation--the striking
    down of price affirmation would now be in jeopardy. This is
    simply false. And it is not false--it could be false on the
    grounds that Brown-Forman was a case of extra-territorial
    regulation, which does not really depend on the Commerce
    Clause. But more importantly, in the subsequent case, Healy,
    the court said that ``Price affirmation, both prospective,
    simultaneous, and retrospective, constituted facial
    discrimination.'' That would still be invalid.
        And, thirdly, we have been given several tone poems about
    the importance of the national union, and I certainly share
    those. But we are not a single-market system. We are a Federal
    system. And I would like to--I can't quote it, unfortunately--I
    didn't bring it with me. But I can refer to another tone poem
    from a famous Harvard professor, who said, ``It is only the
    fact that we are a Federal system where states still get to
    make laws that distinguishes us from Soviet totalitarianism.''
    Thank you.
        Mr. Conyers. Professor Elhauge?
        Mr. Elhauge. Thank you.
        So, one statement I would like to respond to is the claim
    not only that the amount of litigation has been excessive, but
    that it has increased. Now, I don't know exactly what the
    normative standard is for whether 20 to 30 cases is excessive
    or not--it is less in some other areas. But the one thing that
    is clear to me is that the rate has declined. There is far
    fewer cases now than before; so that if this is really the
    concern, it is just too late. It might have been a good reason
    a few years ago. It is not a good reason now for legislation.
        Second, the claim was made that, ``They haven't resulted in
    deregulation yet, but the cases might.'' I don't think any of
    the cases pose any serious threats of general deregulation. The
    language is quite clear about the 21st Amendment powers of the
    states. They can ban alcohol. They can impose any tax they want
    to raze alcohol. They can take over the sale of alcohol. And
    they can have a three-tier system and require, I think, in-
    state residence for retailers, crucially.
        Now, Ms. Samona, I think, I have some sympathy with,
    because she suffered from the Siesta Village district court
    case, which I think was wrongly decided. It was mooted on
    appeal. And, actually, there is not just two, but there is
    three appellate courts that, since, have come out the other
    way. So I think the law is actually now fairly clear that in-
    state residency requirements for retailers are fine, because it
    is inherent in defining who the retailer is in the three-tier
    process.
        But if that is really a concern--and there are two areas
    where I identify small, technical conflicts that I think were
    largely moot, but Congress could act--one of those is that
    area. But that would require, simply, a statute that said,
    ``The Dormant Commerce Clause should not be construed to
    invalidate in-state residency requirements for retailers,'' not
    this much broader statute.
        The claim was also made that the discriminatory-effects
    test has never been used independently of intent. I mean,
    certainly, the courts have articulated it as separately. There
    is some controversy on this issue, I think, mainly because
    there is ambiguity about what ``intent'' means. Is ``intent''
    subjective intent? Or is it an objective intent that we infer
    from effects?
        Sometimes commentators think that, really, in all cases
    where courts are talking about effects, they are saying,
    ``Well, we infer the objective intents do what you have
    actually had the effects of.'' That actually creates a new
    ambiguity--a problem with this statute, because, right now,
    that is not a problem because effects or intents suffice.
        With this statute, the courts would have to deal with this
    new question of, ``Well, when they tell us we can only go on
    intents and not effects, are we allowed to infer the court will
    ask the intent from the effects anymore? Or are we not allowed
    to do that?'' I would anticipate a new round of court splits on
    that issue, if this bill is passed.
        And, then, finally, the claim was made that the price-
    affirmation--the notion of the price-affirmation laws will be
    sustained under this statute is simply false. The statute does
    get rid of the direct-regulation prong, which is what Brown-
    Forman relied on. There are some cases that talk about those
    laws as also being discriminatory. But what they say is they
    are discriminatory against out-of-state consumers. And the one
    thing that is clear from this act is it doesn't cover
    discrimination against consumers.
        Mr. Conyers. Attorney Genesen?
        Ms. Genesen. Thank you, Mr. Chairman--just a few quick
    points.
        First, I worked with the wine-producer and retailer
    industry for about 10 years now. And I can tell you two things
    about them. First, they are deeply committed to preventing
    underage access. We all have children. We are all concerned
    that the state alcohol regulations are in place, and they are
    effective. And, second, they have both been deeply committed to
    working with state legislatures.
        The first effort is always, ``Can we work something out at
    the state legislative level for a balanced, evenhanded
    regulation? And if, you know, at the last resort, we have to
    litigation in those states that stubbornly insist on
    discrimination, then we go to court.''
        And I have to respectfully disagree with Professor Elhauge
    on the issue of wine retailers being allowed limited regulated
    market access into states. The only case that I have brought
    has to do with the State of Texas, where in-state wine
    retailers are given the authority, by statute, to remotely sell
    and ship wine to Texas consumers.
        An Arkansas wine retailer, on the other side of the border,
    cannot do that--precluded from being able to do that. The
    Commerce Clause protects articles--wine--in interstate
    commerce. Producers are selling wine; wine retailers are
    selling wine. If the State of Texas wants to put very intense
    regulatory teeth into a evenhanded wine-retailers bill, we are
    all for that. But to preclude wine retailers from selling wine
    across state borders violates the Commerce Clause.
        Mr. Conyers. Ms. Simon?
        Ms. Simon. Thank you--just two quick points.
        One--I think, just to take a step back and look at the
    other picture, in response to the minimization we are hearing
    about the litigation, and how many lawsuits there are--and, of
    course, many of these lawsuits are working their way up to
    higher levels, so that means they will have even broader impact
    in those jurisdictions.
        But it is important to remember that litigation is really
    just one strategy being waged in what I think of as a larger
    march toward deregulation by many sectors--by different corners
    of this industry, frankly. And this is something that we are
    very concerned about at Marin Institute. We just did a whole
    report about the efforts to privatize and control states. And I
    know that is not what we are discussing here, but it is
    relevant to the company Costco, which has brought litigation in
    the State of Washington, and is currently funding a initiative
    there to privatize the system.
        And so, you know, litigation is one--these companies will
    use any tools at their disposal. And what we are asking for
    here is for Congress to help limit this one particular strategy
    of litigation while, of course, they will continue to use other
    forms to get the deregulation that they ultimately want.
        Second quick point is this idea of the baseball analogy
    that was made about the away team versus the home team--there
    is a reason--and it is not about discrimination--that we make
    sure that licensees have a local presence in states. And that
    has to do with accountability.
        And that brings me to the point that it is important to
    remember that while we are hearing a lot about small producers,
    most of the alcohol sold in this country is, in fact,
    manufactured by foreign multinational companies. So Anheuser-
    Busch was taken over by a Belgian-based company, InBev;
    MillerCoors is a joint venture owned by two foreign companies.
    We did a whole report, in California, about the wine industry
    there, which is increasingly--these so-called small family
    wineries are increasingly being bought out by multinational
    companies that are certainly not based in California and, in
    some cases, not even based in the U.S.
        So the point is we need state-based regulation to require
    local presence, because we can't get at it. As this industry
    becomes more and more consolidated, more and more globalized,
    it is critical to be able to regulate as much as we can at the
    local level. And not just retailers, but wholesalers, sort of
    are our last gasp at maintaining a local accountability over
    this industry. Thank you.
        Mr. Conyers. Well, I thank you all, and recognize my
    friend, Lamar Smith.
        Mr. Smith. Thank you, Mr. Chairman.
        Professor Diamond and Professor Elhauge--is that correct?
        Mr. Elhauge. Elhauge--yes.
        Mr. Smith. Elhauge--let me go back to the question of the
    scope or extent of the problem, particularly with regard to
    lawsuits.
        Could you give us an idea of how many lawsuits are pending,
    and how they compare, say, to the historical average, so that
    we can put them in perspective?
        Mister--Professor Elhauge? Yes.
        Professor Diamond?
        Mr. Diamond. There have been three times in--since repeal--
    when there have been bursts of litigation, I think. One was in
    the 1930's, at the time when the Supreme Court finally and
    clearly said that the 21st Amendment protected state law. The
    second was in the 1970's and 1980's, when there was a series of
    challenges to state laws, claiming that they were preempted by
    the Sherman Act. And the recent one was in the last 7 years--
    starting before Granholm, and including Granholm.
        And I want to second what Michele Simon said. It is not a
    matter simply of counting lawsuits. It is a matter of people
    saying that what they want to do is to be able to sell beer,
    for instance, like they could sell potato chips. It is a matter
    of a general sense that this--which has been referred to by
    many people--that, ``Prohibition was a long time ago; alcohol
    really isn't so different. Why can't we just treat it like
    anything else?''
        It is a view which is reflected when the FTC, sometimes
    talks as if the only issue with alcohol is, ``Is the price as
    low as possible, and is the availability as wide as possible?''
    But, as we all know, that is not the point with alcohol.
        Mr. Smith. Thank you, Professor Diamond.
        Professor Elhauge, you have anything to add to that?
        Mr. Elhauge. Yes, just in terms of an actual count of cases
    now. The count has varied for different people. But I think in
    the mid 20's is overall--since Granholm. But in the last 12 to
    18 months, there is only been three filed. So that is a
    declining rate. One of them was dismissed; one of them had
    facial discrimination--they ruled in favor of the plaintiff;
    and one of them is still awaiting actual substantive
    resolution.
        There are five other sort of cases that--two which were
    resolved on appeal, with issues like attorney's fees still. But
    there are other cases--three cases that are on appeal that were
    in trial. But in terms of actual active trial litigation, there
    seems to be only one right now. And the new filing rate does
    not suggest an increasing rate.
        Mr. Smith. I see. Thank you.
        Next question--Professor Diamond and Ms. Genesen--the
    revised legislation says that the states cannot discriminate
    against out-of-state producers. Are there any examples of that
    occurring now?
        Mr. Diamond. Well, there is a lawsuit----
        Mr. Smith. Except--yes.
        Mr. Diamond. There is a lawsuit----
        Mr. Smith. Right.
        Mr. Diamond. I am not----
        Mr. Smith. Anything, Ms. Genesen?
        Ms. Genesen. Yes, Mr. Smith, there are still laws on the
    books that require an initial visit by a consumer to a winery
    before that consumer can, then, purchase a wine. So if you live
    in Oregon, say, you know, Indiana is going to require that, as
    a consumer, you fly all the way out to Indiana in order to
    purchase the wine. And, then, you may be able to purchase it
    over the Internet.
        So that is still on the books. There are several states
    that still have production caps in place. And these production
    caps--they discriminate against wineries by the amount they
    produce every year. And they don't--that there is no
    relationship to any activity that they are doing in the
    concerned states. And so they just--they let their own wineries
    ship--they usually set the gallonage cap at the highest winery
    in their own state.
        Mr. Smith. Okay.
        Ms. Genesen. And then they preclude others.
        Mr. Smith. Right. Thank you.
        Mr. Chairman, I would like to sneak in one more question.
        And this would be for you, Ms. Genesen, Professor Elhauge
    and Mr. Doyle. Just very quickly, what suggestions do you have
    for improving the pending legislation?
        And, Ms. Genesen--if you want to start?
        Ms. Genesen. Yes. Thank you, again, Mr. Smith.
        We really do have in place a very, very sound, workable
    framework for analyzing these cases, which really strikes the
    appropriate balance between robust 21st Amendment regulation,
    which is still intact--alive and well--and entry for wineries
    and retailers.
        Mr. Smith. Okay. Thanks.
        Professor Elhauge?
        Mr. Elhauge. I would say, one, eliminate section 3a,
    because, right now, it either means nothing, or it means
    something quite unclear and ambiguous. And usually if the best
    thing you can say for a section is, ``Maybe it means nothing,''
    we should get rid of it, I think.
        Mr. Smith. Okay.
        Mr. Elhauge. Then, with section 3b, I just think it needs
    to be drastically narrowed or eliminated. As far as I can tell,
    the main concern that has come out of this hearing is really
    protecting children, having I.D. checks. Again, I think that
    the law is allowing in-person sales requirements and in-
    residency requirements. But those two things could be clarified
    so Congress could say, without having this broad permission of
    discrimination--simply say, ``States are allowed to require an
    I.D. check--in-person sales--if they want, or in-state
    residency requirements for retailers.''
        Mr. Smith. Okay. Thank you.
        And Mr. Doyle?
        Mr. Doyle. I think there is a lot of things that small
    brewers would like to see help with. But if you look at my
    testimony, the two things that I speak about are labeling laws
    that might discriminate; so Federal labeling requirements that
    trump state labeling requirements would be something.
        And we also talked about state franchise laws, which are
    used to, you know, dictate the terms of trade with small
    brewers. And that is not really what the laws were made for. So
    state franchise law--a Federal franchise law exemption for
    small brewers would be something else that would help.
        Mr. Smith. Okay.
        Those are helpful answers. I thank you.
        Mr. Chairman, thank you.
        Mr. Conyers. Gentleman from New York, Mr. Dan Maffei?
        Mr. Maffei. Hi, Mr. Chairman. I thank you, and I thank the
    witnesses for being here.
        This is a very interesting debate. It seems that there is
    some agreement on the panel that current three-tiered system
    does work, and that the key thing is to maintain it. It is very
    interesting--I have never heard quite such a spirited debate on
    how to best maintain the status quo, with half the panel saying
    that the best way to maintain the status quo is to pass this
    new law, and the other half saying, ``Oh, gosh. We don't want
    to do that.''
        But it is very interesting. Also, it seems the crux of this
    is whether anti-discriminatory practices would be hurt or
    helped by the new law.
        So I guess I will start by--and I don't have a lot of time,
    so I can't ask everybody.
        But, Mr. Doyle, since you are an actual practitioner, what
    is your fear in terms of how this would encourage states to
    pass anti-discriminatory laws that would, say, discriminate
    against your product? And to the extent that you can be
    specific, I would ask you to be specific about--what is your
    fear?
        Mr. Doyle. What am I worried about?
        Mr. Maffei. Yes.
        Mr. Doyle. And, again, I talked about franchise laws. I
    talked about labeling laws. I gave you some examples of a
    couple of states----
        Mr. Maffei [continuing]. Have--that is already happening,
    and you can challenge them in court now. But you think if this
    law were passed, you wouldn't be allowed to do that?
        Mr. Doyle. Yes. It think that is, in fact, part of the
    reason for the law. And the other thing would be differential
    taxation rates. That is something else that we would be
    concerned about. Those are three examples.
        Mr. Maffei. Professor Diamond, do you think the CARE Act
    would lead to those issues? And, if now, how do you think it
    would prevent those sort of things from happening?
        Mr. Diamond. Well, first of all, as far as labeling goes,
    states have control now to pass any labeling laws they want.
    The Federal labeling statutes are not preemptive. The only
    Federal labeling statute that is preempted--that claims
    preemption is the health-warning label that was passed when--in
    the 1980's or much, much, later--and that has actually never
    been litigated to see if the 21st Amendment has any relation to
    that.
        But the Federal labeling law does not trump state law in
    the--I can just refer you to the Broncher case, among others.
    Differential treatment of taxation--Federal Government does it.
    States do it. The question is--we can envisage schemes in which
    something might be done, and we are quite confident is only
    being done in order to hurt--people at--to the benefit of
    inside people. If that is the case, it would be vulnerable;
    otherwise, not.
        Mr. Maffei. I mean, do you think the CARE Act would promote
    more of this or----
        Mr. Diamond. I think the CARE Act would help prevent
    continued erosion. Judge Calabresi, in the 2nd Circuit, in the
    case in which they upheld the state law, insisting on physical
    presence for retailers, in effect intimated that the Supreme
    Court is beginning to--has been limiting the scope of the 21st
    Amendment, and what he delicately suggested was not
    particularly a principled way.
        And while you can't change what the Supreme Court does--and
    neither can a circuit court of the United States--you can, in
    Congress, under your Commerce Clause powers, make clear that
    you still wish to support state laws. I might just say that the
    language about primary responsibility being in the state is
    language which has, in the sense of Congress, was mentioned not
    so many years ago, in the STOP Act.
        But, more importantly, in the 1930's, Congress repealed the
    Reed Amendment, which was passed in 1917. The Reed Amendment
    said that if a state banned the sale of alcoholic beverages,
    the Congress, then, said it was illegal to ship alcoholic
    beverages into that state. This was passed because--this was
    proposed by Senator Reed, the senator from Missouri, who was
    known, then, as ``The Senator from Anheuser-Busch,'' because he
    was hoping to embarrass the anti-saloon league because he
    thought that they wouldn't want to make states decide that if
    they banned sale within the state, they couldn't let people buy
    from other states. The anti-saloon league took him up on the
    bet.
        The important point is, in the 1930's, Congress said, ``We
    are repealing this because it is inappropriate for us to be
    attaching conditions to how states regulate.'' I think that
    shows a congressional recognition of primary responsibility
    being in the states.
        Mr. Maffei. Thank you, Professor Diamond.
        I do want to ask Ms. Genesen one question. We have been
    talking about preferences, and you mentioned wine from other
    places.
        It does seem to me that there might be some valid reason to
    have some preference some, you know, local content or local
    control, particularly when it comes to alcohol consumption.
    Now, I say this as somebody who has local beer wholesalers who
    are family businesses that go back generations that employ
    hundreds of people; but also local wineries in Upstate New York
    and the Finger Lakes. I have small craft breweries. And I have
    an Anheuser-Busch brewery locally.
        So, on this issue, by the way, you might note that there is
    a hard place here, and a rock here, and I am caught between
    them.
        But I do want to ask you: I mean some of the Internet
    examples you used--I mean, is there any reason why you would
    want to have some sort of bias toward local or, you know,
    somebody who--as opposed to being able to order wine from
    across the country or even across the world?
        Ms. Genesen. Well, interestingly--thank you for the
    question.
        And, interestingly, the in-state wine industries across the
    country, including places like Massachusetts and New York, have
    welcomed these evenhanded bills and laws. They have, you know--
    they feel that their in-state legislatures help them in other
    ways, by promoting their industry; that they don't need to be
    shielded from competition, because, what they would like to do
    is they would like to ship wine all over the country, in a
    regulated way, too.
        And so if each state starts protecting its own wineries,
    then nobody can ship anywhere. And so our work with the in-
    state wine industries around the country has been very valuable
    to demonstrate to us that they are very open to competition. In
    fact, a lot of their wines are award-winning wines. And they
    feel like they can compete on the same shelf, and with the same
    consumers as, say, California wines.
        With respect to alcohol consumption, which was the other
    part of your question, we very much in agreement that states
    ought to engage in robust alcohol regulation regarding
    consumption. And that each state should be able to do that with
    I.D. checks, sting operations--whatever it takes to control the
    local underage-access problems.
        But just as far as insulating states from competition--our
    experience is that wineries welcome it, and they really are
    ready to compete.
        Mr. Maffei. Ms. Simon, I am out of time, but you look a
    little skeptical with----
        Ms. Simon. Sorry--hard to hide that.
        So we are opposed to Internet shipping. And the reason for
    that is concerns over--you know, youth don't need any more ways
    to get access to alcohol. And this idea of requiring, you know,
    IDs--I mean, there are a lot of problems with third-party I.D.
    checks. We can't expect FedEx to be checking IDs when these,
    you know, bottles get delivered to who knows where.
        So, you know, it is disingenuous to me to separate, you
    know, saying that we really want--support states to control
    youth access, but, you know, we don't want--you know, this word
    ``discrimination,'' I think is being tossed around a little too
    freely, when these aren't mutually exclusive--this idea of
    giving states the ability to control access and, yet, you know,
    opening up state borders to be able to ship wine all over the
    country.
        And, you know, wine isn't a benign product either. I think
    the wine industry likes to kind of think of wine as not benign,
    and it is 14 percent alcohol in most cases. And also, we are
    very concerned about opening the floodgates. So if you let wine
    be shipped all over the country, you know, what is next?
        And so, to me, it is really about restricting as much as,
    you know, reasonably feasible, access to alcohol.
        Mr. Maffei. Thank you, Ms. Genesen,
        I think you made your point very well. And I do want to
    thank the Chair and the Ranking Member for their indulgence.
        Mr. Conyers. Senior Member of the Committee, from Virginia,
    Bob Goodlatte.
        Mr. Goodlatte. Thank you, Mr. Chairman. I appreciate your
    holding this hearing. And I appreciate the testimony of all the
    witnesses. This has been very, very interesting.
        I believe that the 21st Amendment gives the states special
    authority to regulate the importation and transportation of
    alcohol within its borders. And, thus, I am naturally inclined
    to give great deference to state laws regulating alcohol.
        However, when H.R. 5034 was originally introduced, I had
    concerns that the legislation went too far. I thought the
    language was too broad and could be read to pave the way for
    allowing states to pass facially discriminatory laws that went
    beyond the ruling in the Granholm decision. And I thought it
    was unnecessarily--that it unnecessarily stifled the
    enforcement of antitrust law.
        However, I am very pleased with the changes in the proposed
    manager's amendment. I believe that these changes go a long way
    toward striking the right balance between the strong right of
    states to regulate the sale and importation of alcohol and the
    interest of out-of-state businesses seeking to sell product in
    the state.
        While I still have some concerns, and will continue to work
    with the beer producers and the wine producers, some of whom
    are in my congressional district in Virginia, I think that we
    can work on those as we move forward.
        I also think that the number-one concern that we should
    have is the same concern that this Congress had when it passed
    the 21st Amendment back in the 1930's. And that is to make sure
    that we are doing everything we can to protect this unique
    product from being abused. And, therefore, I think the states
    should be entrusted, first and foremost, with that authority.
    And any changes that we make in the law should be geared toward
    making sure that we are keeping alcohol out of the hands of
    children, and are allowing the states the maximum authority
    that they need to make sure that it is properly regulated.
        So nonetheless, I have heard some complaints from various
    sources about ways that this law could be burdensome upon beer
    producers and wine producers.
        I would like to ask Mr. Doyle--one of the concerns I have
    heard is that the State of New York has a desire to require
    state-specific labels, UPC labels, on all bottles entering the
    state. I think that is because they have a deposit on their
    bottles. And so if you don't have some kind of identifying
    indication, and you buy beer and wine or something like that in
    Pennsylvania, and they don't know that it was not purchased in
    New York--they take it across the line and they get reimbursed
    for all these bottles.
        And so proposals have been made to impose some pretty
    severe restrictions on out-of-state producers. And opponents of
    H.R. 5034 say that the current Delahunt draft would give states
    the ability to enact such laws.
        And I am wondering if you believe that the amended language
    would still allow a law such as the proposal in New York,
    requiring state-specific UPC codes to move forward? And, then,
    I will see if anybody else wants to comment on that, too.
        Mr. Doyle. Well, as you know, I am a business person. I am
    not an attorney. But the attorneys that I have spoken to have
    told me that, yes, that is a concern.
        Mr. Goodlatte. And I know that the water-bottling
    industry--it is either through legislation in New York, or
    through a lawsuit--been able to argue, under the Interstate
    Commerce Clause, that that is an unfair burden on interstate
    commerce to require out-of-state bottlers of water to put these
    special UPC codes on, and so they are exempt from the law.
        And I am wondering, since this is not an issue that relates
    to the actual regulation of alcohol--actually, we are talking
    here about the empty containers afterwards--isn't there some
    easy solution to this problem that would make it clear that the
    law simply doesn't cover the containers that might be shipped
    from out of state?
        Mr. Doyle. Well, in 5 minutes, I had a couple of examples.
    And that was, you know, a very recent one. But I will give you
    an example.
        Professor Diamond was talking about government warning
    labels, and the fact that the--you know, there is no statutory
    reason why the Federal-Government warning label would trump
    state-government warning labels. We now have a situation where
    the various localities have asked retailers to put calorie
    counts and other nutritional information for each particular
    city or town you might be in.
        My concern would be something like this--you could have 50
    government warning labels necessary on--or 25 in 25 different
    states.
        Mr. Goodlatte. Since my time is running short, and we have
    got a vote----
        Mr. Doyle. Yes.
        Mr. Goodlatte.--I am going to turn to Professor Diamond,
    because he is shaking his head, and doesn't agree with that.
        Mr. Diamond. Well, I think I was misunderstood. I said that
    the Federal warning label is the only act of Federal regulation
    involving alcoholic beverages which specifically claims to
    preempt state laws. The laws involving the labeling regulations
    in the original FAA do not.
        Ms. Samona. May I jump in on that, please?
        Mr. Goodlatte. Sure. Yes.
        Ms. Samona. Because labeling is an issue that states have
    an absolutely right to control at this point, because the
    Federal Government--has given states that authority and power
    to do that. In fact, in Michigan, just a few weeks ago, we took
    a motion to reconsider labels of this alcohol energy drinks
    that are----
        Mr. Goodlatte. But let me interfere. We are not talking
    about the content of the bottle. We are talking about the
    bottle itself here. So what I am asking you is, because I am
    supportive of the effort to protect the states' rights under
    the 21st Amendment----
        Ms. Samona. Yes, sir.
        Mr. Goodlatte [continuing]. Can't we find a way to take off
    the table an issue like whether or not a state would
    discriminate between a bottle that is used to put alcohol in
    it, and a bottle that is used to put water in it, as to the
    recycling process that that state wants to enact for recycling.
    That seems to be the issue here that we need to find a way to
    resolve.
        Ms. Samona. I think that may be an issue in Mr. Doyle's
    state. It isn't an issue in our state. I think there is a
    number of factors that come along with that. You know, it is
    the green initiative; it is the recycling initiative. It is a
    control mechanism.
        Michigan has Wisconsin as a border state. Wisconsin's
    return laws are only $0.05 a can. Some of them don't even have
    a return----
        Mr. Goodlatte. I understand the problem. It just seems to
    me that, in the context of this legislation, that issue could
    be--and we probably ought to focus, moving forward, to make
    sure that that issue is off the table on this.
        And let me ask one other question. Under the Delahunt
    amendment to H.R. 5034, would a state be able to enact a law
    that is facially neutral but, in effect, discriminates against
    out-of-state producers?
        And I will start with you, Professor Diamond, and then we
    will go to Professor Elhauge.
        Mr. Diamond. Yes, if it is deemed to be intentionally
    discriminatory.
        Professor Elhauge, in his written testimony, said that that
    is unlikely to occur because courts are reluctant to tell
    legislatures that they have been, indeed, just playing cute,
    and being artful. I don't happen to agree that is the case. And
    if it is the case, that would suggest that maybe courts should
    do that and not overly intrude on the legislative process by
    claiming that they find discriminatory effects.
        Discriminatory effects is a very problematic issue in the
    academic literature, because it so easily, as Lisa Heinzerling
    and others have pointed out, turns into abusive and Lochner-
    like supervision of legislative decisions by the courts. They
    could simply, if they believe--and, as Professor Regan says,
    ``Judges decide questions of motive all the time.''
        If they believe that this was done for the purpose of
    discriminating against----
        Mr. Goodlatte. Got to give it to him because time is of the
    essence here.
        Mr. Elhauge. So I think that courts are reluctant to look
    at the subject of motive of legislators. There is this
    complicated question I alluded to earlier--whether effects
    tests really differs from looking at objective intent--the one
    inferred from the effect.
        But I do think if a court does not find intent, this
    statute clearly would allow laws that have discriminatory
    effects--and that that is, in fact, harmful because part of the
    point of the Dormant Commerce Clause is also to police states'
    laws that are indifferent to the harms that they cause out of
    state.
        So--political process is--accountable to everybody who is
    benefitted and harmed by what they do. And if it is non-
    discriminatory, they weigh those benefits and harms well in the
    political process.
        But if many of the harms are on the outside--with out-of-
    staters--that their discriminatory effects and all the benefits
    are in-state--even if they don't care about the--effects, it
    still distorts the political process.
        When I think about the issue, I think, ``Well, how would we
    feel if China passed a law that discriminated against U.S.
    producers and said, `It is fine because we didn't really care
    about U.S. producers. We are not trying to harm them; we just
    don't take them into account.' ''
        Well, I think we would still have just as big a problem
    with that. And the fact that we are only accountable to
    domestic interests are--is what caused that--whether or not
    they are intentionally thinking about harming out-of-staters.
        Ms. Samona. May I jump in here, please?
        Mr. Goodlatte. That is up to the Chairman. My time has
    expired. And Ms. Genesen wants to comment, too.
        Mr. Coble. Mr. Chairman, may I ask the Chair a question?
        I have been here all day, since you have--since the rooster
    crowed. Do we still have time to put questions to the panel?
        Ms. Jackson Lee. Mr. Chairman----
        Mr. Conyers. We are going to have everyone here. The time
    will be divided evenly between the last three members of the
    panel. And, then, all other questions will be submitted.
        Mr. Coble. I could come back, Mr. Chairman, if you want us
    to.
        Mr. Conyers. Well, I want you to, but the other seven don't
    want you to.
        Mr. Conyers. So let us just divide it up. And Rick Boucher
    is very--let me recognize Ms. Genesen, and then Rick Boucher,
    subcommittee Chair in Energy and Labor.
        Ms. Genesen. A statute like existed in Massachusetts,
    which--the effect of which was to prevent 98 percent of
    interstate commerce in wine from Massachusetts' market access--
    that was the effect. That kind of statute would be immunized
    from challenge if the amended version were to pass.
        Mr. Conyers. Chairman Boucher?
        Mr. Boucher. Mr. Conyers, thank you very much. I appreciate
    your having this hearing today. I am going to be very brief.
        Professor Elhauge, I am--and I am sorry if I have
    mispronounced your name--I am viewing this through the lens of
    what is in the consumer interest. And I would like to have your
    commentary on whether--if the bill, as amended by the manager's
    amendment, becomes law--that would advance or harm the consumer
    interest. Would it limit choice? Would it raise prices? How
    would the consumer be affected?
        Mr. Elhauge. Thank you.
        I think it is likely to harm consumer interests; 3a is a
    bit of a wild card. I think the most likely reading is that it
    has no effect. But precisely because it seems to have no--I
    don't have to tell you--precisely because it seems to have no
    meaning, there is--a lot of court interpretation documents are
    likely to interpret it to inversely preempt some unclear set of
    Federal statutes, one of which might well be the Federal
    antitrust laws. And that would be very harmful to consumers.
        In addition, because it will allow various forms of laws
    that--in particular, laws that are even intentionally or
    facially discriminatory against out-of-state consumers--that
    will clearly be harmful.
        Mr. Boucher. Out-of-state shippers?
        Mr. Elhauge. What is that?
        Mr. Boucher. You said, ``Out-of-state consumers.''
        Oh, you mean out-of-state consumers of the product, with
    regard to the state where it is manufactured.
        Mr. Elhauge. Right.
        So the state is allowed to discriminate under this statute
    against anybody who is not a producer. You can discriminate if
    they are out of state. And that would be a----
        Mr. Boucher. That would limit choice in terms of what is
    available to the consumer in a given state.
        Mr. Elhauge. Yes.
        Mr. Boucher. And that could raise prices?
        Mr. Elhauge. I think that would likely raise prices.
        Mr. Boucher. All right. In keeping with the Chairman's
    suggestion that we be brief, I will just have on other
    question.
        And, Ms. Genesen, let me pose that to you.
        The legislation has been criticized by some on the basis
    that it might enable states to provide special preferences to
    in-state manufactured products or other products that are tied,
    in some way, to that state, to the disadvantage of products
    manufactured in other states, and shipped into that state.
        Would you care to comment on that?
        Ms. Genesen. Yes, sir. I----
        Mr. Boucher. And could you turn your microphone on?
        Ms. Genesen. I think I just need to get closer. Thank you.
        I would like to comment on that, because one great example
    is discriminatory taxes, like in the Bacchus case, where a
    state could exempt its own local industry from taxation, but
    require that taxes be levied on out-of-state products. And that
    was the case in Bacchus. And if this bill, as amended, were to
    pass, in my view, it overrules Bacchus. It does not protect the
    product. So any state could literally put that kind of tax, or
    some kind of unique labeling requirement or a bar code, where
    out-of-state products would be unfairly disadvantaged.
        Mr. Boucher. All right. Thank you very much. And I
    appreciate your questions.
        Thank you, Mr. Chairman. I yield back.
        Mr. Conyers. Thank you very much.
        We now turn to Howard Coble, gentleman from North Carolina.
        Mr. Coble. Thank you, Mr. Chairman. I, too, will be brief.
        Thanks to the panel for being here.
        Mr. Chairman, I am a member in good standing with the Wine
    Caucus. I hope I still am in good standing. But I was surprised
    when small wineries came to me recently and said this bill will
    jeopardize direct shipping.
        Professor Diamond, is there any provision in this bill that
    will jeopardize direct shipping, because I assured them that
    was not my intent, nor the intent of the bill.
        Mr. Diamond. There is nothing in this bill that would
    jeopardize direct shipping if a state has it or a state could
    decide to have it. What this bill does is preserves the
    physical-presence requirement for wholesalers and retailers
    from Dormant Commerce Clause challenge, and does remove a pure
    effects challenge at the producer level.
        By the way, the Bacchus case was an intentional-
    discrimination case, and that would have been overturned.
        Mr. Coble. I thank you, Professor.
        Mr. Doyle, I assume that--well, strike that. Maybe I
    shouldn't assume. Do you agree with me when I say that
    gallonage caps benefit small wineries and small breweries?
        Mr. Doyle. Gallonage caps?
        Mr. Coble. Yes.
        Mr. Doyle. Gallonage caps that allow them to do what--are
    exempt----
        Mr. Coble. To self-distribute.
        Mr. Doyle. Oh, to self-distribute. Well, it depends on what
    side of the cap you are on, I guess.
        Mr. Coble. Well, in your brewery, have you gained revenue
    or lost revenue in the last couple years?
        Mr. Doyle. Yes. I mean we self-distributed when we had no
    sales, and we self-distributed 24 years later, when we have
    more sales.
        Mr. Coble. But have you gained----
        Mr. Doyle. It has certainly helped us tremendously.
        Mr. Coble. That was my conclusion as well.
        I have more questions, but I will yield back, Mr. Chairman.
    Thank you.
        Mr. Conyers. Well, that is very generous of you.
        The Chair recognizes Sheila Jackson Lee, the gentlelady
    from Houston, Texas.
        Ms. Jackson Lee. Mr. Chairman, thank you very much.
        And I thank the witnesses. This is a time that is calling
    us in different locations.
        Let me go to you, professor. I want to follow the line of
    reasoning of my colleague from Virginia.
        Professor Elhauge, let me ask a simple question: Why is
    this bill so broad? Why would you view it as being so broad,
    and could we narrow the bill and still be effective in some of
    the content that is necessary to provide some remedy?
        Let me just add to that--could it be more narrowly tailored
    to deal with the immediate concerns, and not interfere with
    consumer options, which you seem to suggest, from the question
    of the gentleman from Virginia?
        Mr. Elhauge. Yes, I think it could be. As I say, the big
    concern that is legitimate, I think, is protecting children
    from alcohol. And Congress could pass a statute that simply
    clarifies that the majority of the circuits are right. And we
    could codify the law--in a way that avoids any possible
    challenge. What the majority of the circuits say is that in-
    person sales requirements in order--so that people's IDs can be
    checked are, in fact----
        Ms. Jackson Lee. Legitimate.
        Mr. Elhauge. Legitimate.
        Ms. Jackson Lee. Right.
        Mr. Elhauge. And that could be clarified. That is a small
    technical issue, but that would be useful, I think; or, to the
    extent the Congress favors a majority on the rules on in-state
    residency requirements for retailers, it could codify that. And
    the theory, I think, of the three-tier system has been there
    was something important about the personal touch of retailers--
    that they know who their customers are, and are more likely to
    check their I.D.--can be more closely--in the state----
        Mr. Conyers. The gentlelady has 1 minute remaining before I
    will have to close.
        Ms. Jackson Lee. Thank you, Mr. Chairman.
        Let me just say--and does that mean that we could also
    prevent online purchases if we found a narrowly tailored
    approach, which is what one of the concerns is?
        Mr. Elhauge. Could we----
        Ms. Jackson Lee. Online purchases by underage.
        Mr. Elhauge. Could they ban----
        Ms. Jackson Lee. Could we find a way to craft language
    narrowly to provide protection there?
        Mr. Elhauge. So, to allow it, but have more I.D. checks for
    online sales?
        Ms. Jackson Lee. No, to find a way to prevent the online
    usage by young people--underage.
        Mr. Elhauge. Oh, okay.
        Well, I think Congress would have to pass a law that was
    about that, to guarantee that result. But it could pass a law
    that simply authorizes the states, as long as they do it in a
    non-discriminatory way----
        Ms. Jackson Lee. To handle it.
        Mr. Elhauge. Yes.
        Ms. Jackson Lee. Yes.
        Ms. Genesen, can I just--do you believe we can craft a bill
    more narrowly tailored to address some of the concerns, as
    opposed to the bill we now have?
        Ms. Genesen. Honestly, madam, I do not.
        I believe that the current system--the current legal
    framework--is working very well; that states enjoy broad powers
    under the 21st Amendment, and are exercising them regularly.
        Ms. Jackson Lee. So you are not ready for a compromise. And
    you see problems in this bill and approach?
        Ms. Genesen. Yes, ma'am.
        Ms. Jackson Lee. But you would be open to us looking at a
    narrowly crafted effort?
        Ms. Genesen. Depending on what that is.
        Ms. Jackson Lee. All right.
        Mr. Conyers. The Chair----
        Ms. Jackson Lee. Thank you, Mr. Chairman. I appreciate it.
    I yield back.
        Mr. Conyers. How timely.
        The Chair thanks the witnesses and congratulates them at
    the same time, and invites them to send in any further
    discussion that we may not have completed. Just send it into
    the Committee, and we will include it in the record.
        Thank you again. And the Committee stands adjourned.
        [Whereupon, at 3:18 p.m., the Committee was adjourned.]