Texas Craft Brewers Fight for Ownership of Their Distribution Rights

Last year the Texas legislature
deregulated craft beer in
several significant ways, allowing on-site sales at small
breweries, letting brewpubs sell their beer in bottles at stores,
and raising the production cap under which breweries are
allowed to distribute their own products. At the same time,
however, legislatiors decreed that brewers could no longer sell
distribution rights to wholesalers, even though they are legally
required to pick one distributor for a given territory. That change
was a windfall for distributors, who now get these valuable rights
for free yet can sell them to other distributors, and a signficant
revenue loss for craft brewers, who now find it more difficult to
expand beyond their local markets. This week the Institute for
Justice filed a
lawsuit on behalf of three craft brewers who argue that the
legislature’s arbitrary reassignment of distribution rights
violates the Texas Constitution.

In their
complaint, Live Oak Brewing, Peticolas Brewing, and Revolver
Brewing (located in Austin, in Dallas, and near Fort Worth,
respectively) argue that the new rules violate Article I, Section
17 of the Texas Constitution, which allows the government to take
people’s property only with “adequate compensation” and only for
public use or to eliminate urban blight. They also cite Article I,
Section 19, which says people may not be deprived of “life,
liberty, property, privileges or
immunities…except by the due course of the law of
the land.” The complaint says the rights
protected by this guarantee include “the right to earn
an honest living in the occupation of
one’s choice free from unreasonable governmental
interference.”

I.J. argues that there is no legitimate public policy
rationale for compelling brewers to give away their distribution
rights. “This law has nothing to do with protecting
consumers,” it says. “It is a blatant
transfer of wealth from brewers to distributors who got the law
changed using political connections.” It is easy to understand why
distributors, whose status as middlemen controlling access to beer,
wine, and liquor is protected by law, would rather not have to pay
for the privilege of selling newly popular craft beers. But it is
hard to see how catering to that preference serves anyone else’s
interests. To the contrary, it hurts consumers by making it harder
for them to try interesting new beers.