Recent court decisions have put a serious dent into long-standing bans on direct shipment of alcohol to consumers and the traditional role of liquor wholesalers as middlemen, lawyer Richard Blau said at this week's annual meeting of the National Conference of State Liquor Administrators (NCSLA) in Boston, Mass.

Blau, who heads the alcohol-industry practice at Tampa, Fla., law firm GrayRobinson, highlighted a number of cases dealing with the issue of alcohol sales and delivery, including a federal court decision allowing direct shipment of wine (Granholm v. Heald) and a verdict that may allow big-box retailer Costco to bypass wholesalers, cut deals directly with alcohol companies, and warehouse its own stocks of beer, wine and liquor (Costco v. Hoen).

While Blau said there are "wildly different interpretations" of what these decisions might mean for the nation as a whole, he called them "symbols of industry change."

Blau said the Granholm case has had direct fallout, with states like Michigan, New York, Texas, North Carolina, Virginia and others amending their laws to allow direct shipment of alcohol, albeit usually just wine. But, Blau noted, "You could extrapolate from Granholm direct shipment from all segments -- beer, wine, and liquor." (Mississippi, on the other hand, subsequently banned even local wineries from shipping directly to prevent out-of-state alcohol shipments.)

Blau described the Granholm decision as part of a steady erosion of the three-tiered alcohol distribution system set up shortly after Prohibition, including producers, wholesalers, and retailers. In the 1970s, he said, states like California started signing reciprocity agreements allowing wineries in other states to ship to their residents if they allowed California winemakers to do the same. With this early success, wine producers began to lobby for limited direct shipping laws nationwide.

In the Granholm case, the U.S. Supreme Court ruled in May 2005 that Michigan had violated the Commerce Clause of the U.S. Constitution by allowing in-state wineries to ship directly to customers while banning out-of-state wineries from doing the same.

Supporters of direct shipment say the decision allows small wineries to compete on a more equal footing with larger companies and benefits consumers. Critics say that the ruling hurts retailers, impedes tax collection, and could lead to alcohol being shipped to minors.

Blau said the decision in favor of Costco also turned on the "fatal flaw" of a state law that treated in-state producers differently by allowing them to bypass wholesalers. The federal U.S. District Court judge in the case ruled in April 2006 that the state of Washington's right to regulate alcohol sales under the 21st Amendment did not trump Costco's rights under federal antitrust law. The upshot of the decision, if upheld, is that Costco would be freed to negotiate directly with alcohol producers rather than having to go through middlemen. The decision also could hinder the state's ability to control alcohol costs.

Blau said that the alcohol industry and liquor authorities shared the blame for the decision because they "failed to educate stakeholders [including the courts] on why the law is important," though he also pointed a finger at state lawyers for calling "neo-Prohibitionists" to the stand to defend the current system. "Many Americans are unschooled on the history" of Prohibition and its aftermath, said Blau. "They see alcohol as just another commodity."

If the decision stands, said Blau, companies like Wal-Mart and Costco could soon be in a position to "dominate" the alcohol industry and press for lower costs and pricing.

"I think the three-tiered system is under attack, in part because it has worked so well," said Blau. "There was chaos at the end of Prohibition. That's why judges and lawyers don't know about it, because they don't have to think about it."