[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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                       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:]

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    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

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                               __________

    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.]

                                 
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