FTC Staff Comment to The Honorable Paula Dockery Concerning Florida Senate Bill 282, A Bill To Allow Direct Shipment of Wine to Florida Consumers From Manufacturers Inside or Outside Florida

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Competition
Bureau of Consumer Protection
Bureau of Economics
April 10, 2006
The Honorable Paula Dockery
326 Senate Office Building
404 South Monroe Street
Tallahassee, FL 32399-1100
Re: 	Comment on Proposed Direct Shipment Legislation
Dear Senator Dockery:
The staff of the Federal Trade Commission’s (“FTC” or “Commission”) Office of Policy
Planning, Bureau of Competition, Bureau of Consumer Protection, and Bureau of Economics1 is
pleased to respond to your invitation for comments on Florida SB 282,2 which would allow the
direct shipment of wine to Florida consumers from manufacturers inside or outside of Florida if
certain requirements are met.
We believe that, if enacted, the proposed legislation would enhance consumer welfare
and allow Florida to meet its other public policy goals. By allowing interstate direct shipping,
SB 282 likely would allow Florida residents to purchase both a greater variety of wines and many
wines at lower prices. In addition, by requiring manufacturers to comply with certain regulatory
requirements, SB 282 would allow Florida to prevent shipments to minors and to collect taxes on
direct shipments. However, if SB 282 is amended to prohibit direct shipping by wineries
producing more than 250,000 gallons of wine annually, as you suggest is being considered, such
limitation likely would significantly reduce the benefits to competition and consumers that SB
282 otherwise would provide.
1 This letter expresses the views of the Federal Trade Commission’s Office of Policy Planning, Bureau of
Comp etition, Bureau of Consumer P rotection, and Bureau of Economics. The letter does not necessarily represent
the views of the Federal Trade C ommission or of any individual Comm issioner. The Co mmission has, however,
voted to authorize us to submit these comments.
2 S. 282, 2006 Leg., 108th Sess. (Fla. 2005) (as amended and reported favorably by the Regulated Industries
Comm ittee on Mar. 27, 2006) (hereinafter referred to as “SB 282 ” or “the proposed legislation”).

The Honorable Paula Dockery
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Interest and Experience of the FTC
The FTC enforces laws prohibiting unfair methods of competition and unfair or deceptive
acts or practices in or affecting commerce.3 Pursuant to this statutory mandate, the Commission
seeks to identify and prevent, where possible, business practices and regulations that impede
competition without offering countervailing benefits to consumers.4 The Commission and its
staff have considerable experience in analyzing the competitive impact of regulations affecting
the alcoholic beverage industry. For example, FTC staff has commented in the past on various
restrictions on the vertical relationships between alcoholic beverage producers and wholesalers.5
FTC staff also has extensively analyzed the effects of bans on direct wine shipping. In
October 2002, the Commission held a workshop to evaluate possible anticompetitive barriers to
e-commerce in wine and many other industries (“E-Commerce Workshop”).6 At the workshop,
FTC staff heard testimony from several parties with divergent interests, including wineries,
wholesalers, and state regulators. The staff also gathered evidence from package delivery
companies, the Alcohol and Tobacco Tax and Trade Bureau (“TTB”),7 and regulators in states
that allow direct shipping. In addition, as discussed in more detail below, FTC staff conducted
the first empirical study of a wine market in a state that banned interstate direct shipping. In July
2003, FTC staff issued a comprehensive report on the competitive effects of bans on direct
shipments of wine (“FTC Wine Report”),8 and in October 2003, the staff testified at a related
3 Federal T rade Commission Act, 15 U.S.C. § 4 5.
4 Specific statutory authority for the FTC’s competition advocacy program is found in Section 6 of the FTC
Act, under which Congress authorized the F TC “[t]o gather and compile information concerning, and to investigate
from time to time the organization, business, conduct, practices, and management of any person, partnership, or
corporation engaged in or whose business affects commerce,” and “[t]o make public from time to time such portions
of the information obtained by it hereunder as are in the public interest.” Id. § 46 (a), (f).
5 See, e.g., Letter from FT C Staff to Ohio State Rep . Bill Seitz (De c. 12, 200 5), at
http://www.ftc.gov/os/2005/12/051212cmntohiolegiswinefranchis.pdf; Letter from FT C Staff to Cal. State Sen.
W esley Chesbro (Aug. 24 , 200 5), at http://www.ftc.gov/os/2005/08/050826beerfranchiseact.pdf; Letter from
Chicago Regional O ffice to Ill. State Sen. Dan Cronin (M ar. 31 , 199 9), at http://www .ftc.gov/b e/v99 000 5.htm;
Letter fro m Atlanta Regional Office to North C arolina State Sen. Hamilton C. H orton, Jr. (M ar. 22 , 199 9), at
http://www .ftc.gov/b e/v99 000 3.htm; Statement of Phoebe M orse, Dir., Boston Regional O ffice to the Mass.
Alco holic B everages Contro l Com m’n (June 26, 19 96), at http://www .ftc.gov/b e/v96 001 2.htm.
6 Public W orkshop: Possible Anticompetitive Efforts to Restrict Competition on the Internet, 67 Fed. Reg.
48,472 (July 24, 2002). The workshop’s homepage is at
http://www .ftc.gov/o pp/ecom merce/antico mpe titive/index.htm.
7 The TT B was formerly known as the Bure au of Alcohol, To bacco , and Firearm s.
8
http://www.ftc.gov/os/2003/07/winereport2.pdf.
at	,	(2003)	EPORT	R	TAFF	, FTC S	INE	: W	OMM ERCE	E-C	A R R IE R S T O	B	NTICOMPETITIVE	A	OSSIBLE	P

The Honorable Paula Dockery
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congressional hearing.9 Most recently, FTC staff has commented on proposed legislation
involving the direct shipment of wine in New York10 and Ohio.11
The Proposed Legislation
In May 2005, the United States Supreme Court decided Granholm v. Heald,12 holding
that the laws of Michigan and New York that discriminated against out-of-state wine
manufacturers and in favor of in-state wine manufacturers in the sale and shipping of wine within
those states violated the Commerce Clause of the United States Constitution. In August 2005, a
federal district court ruled that Florida law similarly violated the Commerce Clause to the extent
that it discriminated against out-of-state wineries by prohibiting them from selling and delivering
wine directly to consumers in Florida while permitting in-state wineries to do so.13
The proposed legislation, which is designed to bring Florida law into compliance with the
Granholm decision, would allow the direct shipment of wine to Florida consumers from
manufacturers inside or outside of Florida if certain requirements are met, including, among
others, the following: First, any manufacturer that ships directly to Florida consumers must
obtain a direct-shipper’s license from the Florida Division of Alcoholic Beverages and Tobacco
(“Division”).14 Second, the manufacturer must use an age-verification process that is approved
by the Division to ensure that any sale of wine is made to a person at least 21 years of age.15
Third, the manufacturer must require the signature of a person 21 years of age prior to delivery
and include conspicuous labeling on direct shipments indicating that such a signature is
9 See Prepared Statement of the FTC Concerning “E-Commerce: The Case of Online Wine Sales and Direct
Shipment,” Before the Subcomm ittee on Commerce, Trade, and C onsumer Protection of the Committee on Energy
and Commerce, U nited States H ouse of Represe ntatives (O ct. 30, 200 3), at
http://www .ftc.gov/o s/200 3/10 /031 030 ecommercew ine.htm.
10 See Letter from FTC Staff to New York State Rep. William Magee et al. (Mar. 29, 200 4) (“New Yo rk
Letter”), at http://www.ftc.gov/be/v040012.pdf. New Yo rk ultimately enacted legislation permitting (interstate and
intrastate) direct shipping of wine to its consumers. See N.Y. Alco. Bev. Co nt. Law §§ 79-c, 79-d (McK inney 2005).
11 See Letter from FT C Staff to Ohio State Senator Eric D. Fingerhut (M ar. 22 , 200 6), at
http://www.ftc.gov/os/2006/03/V060010CommentReOhioSB179DirectShipmentofWine.pdf.
12 125 S. Ct. 1885 , 1907 (200 5).
13 See Bainbridge v. Turner, No. 8:99-CV-2681-T-27TBM (M.D. Fla. Aug. 5, 2005) (order enjoining Florida
from enforc ing relevant statutes), at http://www.law.indiana.edu/webinit/tanford/wine/FLOrder.pdf.
14 SB 282 § 2, at 5-6 (listing requirements for obtaining license, including, among other things, a $100 annual
license fee, maintenance of a wine manufacturer’s license issued by Florida or another state, and registration of the
manufacturer’s individual brands with the Division).
15 Id. at 6.

The Honorable Paula Dockery
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required.16 Fourth, the manufacturer must collect and remit all applicable excise and sales taxes
on wines delivered to Florida consumers.17 Fifth, the manufacturer must file with the Division a
bond of $5,000 as surety for the payment of required taxes.18 Finally, the manufacturer must
abide by various reporting and record-keeping requirements.19 Any violation of these
requirements would be punishable by suspension or revocation of the manufacturer’s direct-
shipper’s license or a fine of up to $2,500.20 Further, a direct shipper that knowingly and
intentionally ships, or causes to be shipped, wine to any Florida consumer under the age of 21
would commit a third-degree felony, while a common carrier that knowingly and intentionally
delivers wine directly to any underage Florida consumer would commit a second-degree
misdemeanor.21
Competitive Effects of the Proposed Legislation
Based on extensive research in the area of direct shipping, FTC staff believes that the
proposed legislation would enhance consumer welfare. By allowing interstate direct shipping,
SB 282 likely would allow Florida residents to purchase a greater variety of wines, as well as
many wines at lower prices. In addition, SB 282 would allow Florida to meet its other policy
goals. States that have addressed the direct shipping issue typically cite underage drinking and
tax collection as the primary concerns raised by direct shipping. By requiring manufacturers to
comply with certain regulatory requirements, SB 282 would allow Florida to prevent shipments
to minors and to collect taxes on direct shipments. However, if SB 282 is amended to prohibit
direct shipping by wineries producing more than 250,000 gallons of wine annually, as you
suggest is being considered, such limitation likely would significantly reduce the benefits to
competition and consumers that SB 282 otherwise would provide.
A. 	The Proposed Legislation Likely Would Allow Florida Consumers to
Purchase a Greater Variety of Wines
SB 282 likely would substantially increase the variety of wines available to Florida
consumers. Through direct shipping, and particularly through the Internet, consumers can
16 Id. at 6-7.
17 Id. at 8.
18 Id. The D ivision may reduce the amount of the bond to an amo unt not lower than $ 1,000 , and any license
app licant that has a sure ty bond for another license on file with the Division that is in excess of $5 ,000 is deem ed to
be in comp liance with the surety bond req uirement. Id.
19 Id. at 8-9 (manufacturers required to report, among other information, amount of wine shipped to Florida
consumers and amount of tax paid thereo n; manufacture rs required to maintain sep arate re cord s of wine shipped to
Florida consumers and to permit Division to audit records upon request).
20 Id. at 9-10.
21 Id. at 10.

The Honorable Paula Dockery
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conveniently purchase many wines that are not available in nearby bricks-and-mortar stores. The
Internet effectively expands the geographic market by allowing online vendors to compete
nationally. Further, an individual online store may feature more products than many bricks-and
mortar retail locations, as bricks-and-mortar retailers may not have the demand or shelf space to
justify keeping a large variety of wines in stock.22 Moreover, smaller wineries may be unable to
distribute their wines effectively through the three-tier (i.e., manufacturer/wholesaler/retailer)
system that is mandated in most states. As the Supreme Court recently noted in its Granholm
decision, “many small wineries do not produce enough wine or have sufficient consumer demand
for their wine to make it economical for wholesalers to carry their products. This has led many
small wineries to rely on direct shipping to reach new markets.”23
More importantly, the total number of varieties available online likely surpasses the total
number available in bricks-and-mortar stores that are within a reasonable distance of a particular
consumer. Consumers are likely to value having a variety of wines from which to choose. One
of the most popular wine magazines, The Wine Spectator, reviews over 10,000 different wines
annually.24 Further to this point, a Nobel laureate in economics testified at the E-Commerce
Workshop that “the value to consumers of direct wine shipments com[es] primarily from access
to wines that are not available in their communities.”25 Thus, direct shipping can give consumers
convenient access to many more wines, including popular labels and smaller labels from around
the country.
As part of its analysis of the impact on consumers of interstate direct shipping bans, FTC
staff conducted a study of wine prices and availability in the McLean, Virginia area (“2002
McLean Study”).26 At the time of the study, Virginia prohibited interstate direct shipping. Using
the Wine & Spirits annual list of the top fifty most popular wines in America, the 2002 McLean
22 According to a trade association that participated in the E-Commerce Workshop, domestic wineries produce
app roxim ately 25 ,000 wine lab els, and even in a large market like Illinois, only slightly more tha n 500 of these labe ls
are available through brick s-and-m ortar sto res. See FTC W ine Report at 24.
23 Gra nho lm, 125 S. Ct. at 1 892 (citation omitted ). See also Dickerson v. Bailey, 212 F. Supp. 2d 673, 695
(S.D. Tex. 2002) (finding that the three-tier system “may lock most [out-of-state wineries] out of any access to Texas
markets, even if they are willing to take on the additional co sts. Such discrim ination is especially felt by sma ll,
family-run wineries with limited production . . . .”), aff’d, 336 F.3d 388 (5th Cir. 2003); Gina M. Riekhof & Michael
E. Sykuta, Politics, Econom ics, and the Regu lation of D irect Interstate Shipping in the Wine Industry, 87 A M . J.
A GR IC . E C O N . 439, 442 (20 05) (“For small wineries seeking to increase their volume, consumer base, and
geographic market, direct shipment prohibitions represent a significant obstacle to growth.”).
24 See David Sloane, E-Comm erce W orkshop W ritten Statement 1, at
http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/sloane.pdf.
25 Daniel L. M cFadde n, E-C omm erce W orkshop W ritten Statement 2, at
http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf.
26 The 2002 M cLean Study, which is attached to the FTC W ine Report at Appendix A, has been published as
Alan E. W iseman and Jerry Ellig, Ma rket an d Nonm arket Barriers to In ternet Wine Sales: The Ca se of V irginia ,
B U S . & P O L ., Vol. 6, No. 2, Art. 4 (2004).

The Honorable Paula Dockery
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Study found that 15% of the wines in the sample were available online but not in retail wine
stores within ten miles of McLean.27 Moreover, many of these wines were popular labels.
Approximately 53% of the wines that were unavailable in the McLean area came from among the
twenty most popular labels.28 As noted in the FTC Wine Report, these quantitative findings
likely understated the impact on variety of the interstate shipping ban. Because the sample was
limited to the most popular labels, it excluded thousands of lesser-known labels that bricks-and
mortar stores may not have carried, as well as those that may not have been known to
consumers.29
Subsequent research by the authors of the 2002 McLean Study confirms the negative
effects on variety caused by interstate direct shipping bans. Following the statutory repeal of
Virginia’s direct shipping ban in July 2003, the study’s authors conducted an analysis in 2004 to
determine the impact on availability and prices of such repeal (“2004 McLean Study”),30 using
procedures identical to those used in the 2002 study. The findings of the latter study with respect
to availability were similar to those of the previous study. That is, 12.5% (as compared to 15%)
of the wines in the sample of popular wines were available online but still not in bricks-and
mortar wine stores within ten miles of McLean at the time of the data collection.31 As
demonstrated by these empirical analyses, online sources provide consumers with access to
wines that local retail stores do not carry. Adoption of SB 282, therefore, likely would provide
Florida consumers with access to a greater variety of wines.
B. 	The Proposed Legislation Likely Would Allow Florida Consumers to
Purchase Many Wines at Lower Prices
Depending on the wine’s price, the quantity purchased, and the method of delivery,
consumers can achieve substantial savings by purchasing wine online. The 2002 McLean Study
found that, excluding shipping costs, wines in the sample cost on average 16% less if purchased
online.32 Because shipping costs do not vary with the wine’s price, consumers can save more
money on more expensive wines, while less expensive wines may be cheaper in bricks-and
mortar stores. The 2002 McLean Study also found that if consumers use the least expensive
shipping method, they can save an average of 8-13% on wines costing $20 or more per bottle and
27 FT C W ine Re port at 18 (exclud ing wines that could no t be found either online or o ffline, 12 o f 79 wines in
sample available only online).
28 Id. (8 of 15 wines unavailable offline among 20 most popular wines in Wine & Spirits poll).
29 Id. at 22.
30 See Alan E . W iseman & Jerry Ellig, Legislative Action and Ma rket Responses: Results of Virginia’s
Natural Experiment with Direct Wine Shipment (Dec. 15, 200 5) (M ercatus Center working paper), at
http://www.mercatus.org/pdf/materials/1481.pdf.
31 Id. at 12 (9 of 72 wines in sample available only online).
32 FTC W ine Report at 19.

The Honorable Paula Dockery
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an average of 20-21% on wines costing $40 or more per bottle.33 In addition, direct shipping lets
consumers avoid the cost of spending time to travel to bricks-and-mortar stores.34
Moreover, even if consumers choose to buy wine from bricks-and-mortar retailers,
direct shipping still encourages price competition between online and offline sources. In states
that allow direct shipping, the Internet allows wineries and other merchants, including online
retailers, who often have the lowest prices for a particular product,35 to compete with local
bricks-and-mortar retailers. The Internet also helps consumers comparison shop and lets
suppliers compete in geographic markets that otherwise may be closed to them, perhaps due to
the three-tier system or franchise laws.36 This competition likely forces down prices. One court
found that the ban on interstate direct shipping constituted “economic protectionism, negatively
impacting Texas consumers because of more limited wine selection and higher prices.”37 An
economist who participated in the E-Commerce Workshop observed:
[C]onsumers benefit from free markets operated with the minimum government
regulation required for consumer protection. . . . The restrictions on direct
purchase of premium wines and their interstate shipment that have been adopted
by a number of States are, I believe, another example of abuse of the regulatory
process to protect concentrated economic interests, going far beyond the minimum
regulations needed to maintain the integrity of State taxation and to protect minor
consumers.38
By allowing direct shipping, SB 282 would increase competition and allow Florida
consumers to find lower wine prices. In fact, that conclusion was confirmed in the case of
Virginia, which recently repealed its ban on interstate direct shipping. The 2004 McLean Study
33 Id.
34 See, e.g., Clifford W inston, Conceptual Developments in the Econom ics of Transportation: An Interpretive
Survey, 23 J. E CON . L IT. 57, 75-77 (1985 ) (discussing costs of travel time).
35 The 20 02 M cLean Study found that “the lowest online prices overwhelmingly come not from wineries, but
from out-of-state retail outlets that have web-accessible inventories.” FTC W ine Report App. A at 25 n.22. It
appears that SB 282, which limits the privilege of direct shipping to “manufacturers” (see SB 282 § 2, at 5-6), would
not permit such retail outlets to ship directly to Flo rida consumers. As FT C staff indicated in its March 2 004 letter to
New York legislators (see New York Letter, supra note 10, at 7), allowing out-of-state retailers, as well as wineries,
to ship directly to consumers would provide additional competition that likely would lead to even lower prices for
such consumers.
36 See generally American Bar Asso ciation, Section of Antitrust Law , E-Comm erce W orkshop P ublic
Comment (de scribing vario us state statutes that may restrict e-commerce), at
http://www.ftc.gov/opp/ecommerce/anticompetitive/comments/aba.pdf.
37 Dickerson v. Bailey, 87 F. Supp. 2d 69 1, 709 (S.D. T ex. 2000).
38 Daniel L. M cFadde n, E-C omm erce W orkshop W ritten Statement 1, at
http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf.

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found that, following the statutory repeal, online prices were on average 9% lower than offline
prices, excluding shipping costs.39 More importantly, the study found that legalization of direct
shipping resulted in a reduction in the differential between online and offline prices, as bricks-
and-mortar retailers became more competitive. The differential between average online and
offline prices fell by nearly 40% between 2002 and 2004, by one estimate, while the spread
between the lowest online and average offline prices fell by 26% during that time, according to
another estimate.40
C. 	States Can Satisfy Their Legitimate Concerns About Underage Alcohol
Access Without Impeding Competition
Although direct shipping can provide consumers with important benefits, policymakers
often express concern that direct shipping might exacerbate the problem of underage drinking.
Underage alcohol use is a significant national concern.41 Nonetheless, states may satisfy their
legitimate interest in preventing unauthorized alcohol use by minors without unduly burdening
interstate commerce.
In Granholm, the Supreme Court rejected the arguments of New York and Michigan that
interstate direct shipping bans were justified by concerns over underage drinking. After
consideration of the record, including the evidence presented in the FTC Wine Report, the Court
concluded that there was no concrete evidence that direct shipping of wine is likely to increase
alcohol consumption by minors.42 Indeed, as the Court noted, direct shipping is an imperfect
avenue of obtaining alcohol for minors, who generally want instant gratification.43 Further, the
Court observed that less restrictive means are available to minimize the risk that minors will
order wine by mail, citing a Model Direct Shipping Bill developed by the National Conference of
State Legislatures that requires an adult signature on delivery and a label so instructing on each
39 2004 M cLean Study at 15. Consistent with the 2002 findings, online savings were smallest for wines priced
below $20 (7.6% ) and largest for wines p riced at or ab ove $40 (21%). Id.
40 Id. at 17-19. This latter comparison reflects the assumption that, given available Internet search
capabilities, a consumer can more readily find the lowest online price for a particular wine than the lowest offline
price for such wine. See id. at 18 n.38.
41 The FT C is a memb er of the Interagency C oordinating Committee to P revent Und erage Drinking, a
congressionally-mandated wo rking group of federal gov ernment agencies seeking to reduce und erage alcohol use.
The FT C has subm itted two repo rts to Co ngress addressing alcoho l marketing and youth. See FT C, Alcohol
Ma rketing an d Ad vertising: A R eport to C ongress (Sep t. 200 3), at
http://www.ftc.gov/os/2003/09/alcohol08report.pdf (“2003 A lcoho l Report”); FTC , Self-Regulation in the Alcohol
Industry: A Rev iew of Ind ustry Efforts to Avoid Pro moting Alcohol to U ndera ge Co nsum ers App. A (S ept. 1999 ), at
http://www .ftc.gov/re ports/alcohol/alco holreport.htm. FTC staff recently initiated a new study of alcohol industry
advertising self-regulation. See FT C, Agency Information Collection Activities, 71 Fed. Reg. 11,659 (Mar. 8, 2006 ),
at http://www.ftc.gov/os/2006/03/P064505ProposedInfoRequeststoBeverageAlcoholManufacturers.pdf.
42 Gra nho lm, 125 S. Ct. at 1 905 .
43 Id.

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package.44
State legislative initiatives relating to distribution of alcohol should include effective
mechanisms to prevent underage purchases of alcohol, whether online or offline. There are a
variety of means to accomplish this goal.45 SB 282 incorporates several safeguards against direct
shipping to minors. It would require the direct shipper to use an approved age-verification
process at the time of purchase, as well as conspicuous package labeling indicating that a
signature of a person at least 21 years of age is required prior to delivery. Any violation of such
requirements would be punishable with suspension or revocation of the direct-shipper’s license
or a fine of up to $2,500. In addition, a direct shipper that knowingly and intentionally ships, or
causes to be shipped, wine to any Florida consumer under the age of 21 would commit a third-
degree felony, while a common carrier that knowingly and intentionally delivers wine directly to
any underage Florida consumer would commit a second-degree misdemeanor. As a result, SB
282 would allow Florida to satisfy its legitimate interest in preventing sales to minors while
facilitating benefits to competition and consumers.
D. 	States That Permit Interstate Direct Shipping of Wine Generally Report Few
or No Problems with Tax Collection
SB 282 would require manufacturers to collect and remit all applicable excise and sales
taxes on direct shipments of wine to Florida consumers and file with the Division a bond of
$5,000 as surety for the payment of required taxes. Of the states permitting direct shipping and
collecting taxes therefrom, most report few, if any, problems with such tax collection. Nebraska,
for example, reports that they “have also not, as yet, had any problems with the collection of
excise tax[es].”46 North Dakota reports that “[t]axes are collected. [There are n]o problems to
date that we are aware of.”47 To the extent that states have problems with out-of-state suppliers,
they have addressed such problems in less restrictive ways than banning all interstate direct
shipping.48
44 Id. at 1906.
45 In the 2003 Alcohol Repo rt, the FT C recomm ended that operators of W eb sites that permit consumers to
order alco hol online use age verification techno logies that limit sales to consumers dem onstrated to be 21 or over.
200 3 Alcohol Report at 18 & n.59. In response, the W ine Institute, a trade association represe nting California
vintners, has estab lished m echanisms to facilitate use of such techno logies b y its members. See W ine Institute, at
http://www.wineinstitute.org/shipwine/.
46 FTC W ine Report App. B (Nebraska letter).
47 Id. (North Dako ta letter).
48 See, e.g., id. (New H ampshire letter) (“[New Hamp shire] collects an 8% fee on all shipments into the
[state]. When the NH Liquor Commission discovers an improper shipment we contact the company and inform them
of the laws in NH . Once the company learns of NH laws they normally get a permit or stop shipping into NH. T he
NH Liquor Comm ission is working with out-of-state supplier[s] and encouraging them to obtain a permit.”).

The Honorable Paula Dockery
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Furthermore, as discussed in both the FTC Wine Report49 and the Granholm opinion,50 to
the extent that out-of-state manufacturers fail to comply voluntarily with tax (or any other)
regulations, states can report problems to TTB, which has the authority to revoke a
manufacturer’s federal license – necessary to operate in any state – for violating state law, or
utilize the Twenty-First Amendment Enforcement Act,51 which provides state attorneys general
the power to bring civil actions in federal court for injunctive relief against out-of-state
manufacturers that violate state liquor laws.
Finally, regardless of whether a state permits or prohibits interstate direct shipping, there
is no reason to believe that legalizing direct shipping would increase tax evasion. It is unlikely
that states would increase illegal interstate direct shipping by creating procedures that would
allow out-of-state suppliers to ship legally and pay taxes. If suppliers who currently ship illegally
continue to ship illegally, then the level of tax evasion would remain unchanged; however, if
some suppliers who currently ship illegally decide to ship legally, then tax evasion would fall.
Moreover, if interstate direct shipping increases overall commerce in wine, overall tax revenue
likely would rise.52
E. 	Prohibiting Direct Shipping by Wineries Producing More than 250,000
Gallons Annually Likely Would Significantly Reduce the Benefits to
Competition and Consumers That SB 282 Otherwise Would Provide
You indicated in your letter of March 21, 2006, that one of the amendments to SB 282
being considered by the Florida Senate would prohibit any winery from shipping directly to
consumers if such winery produces more than 250,000 gallons of wine annually, or is owned by a
winery that exceeds such annual production. As you stated in your letter, “the effect of the
provision would be to exclude a significant number of wineries (in excess of 150 wineries in
California alone) from shipping to Florida consumers, while allowing all Florida wineries to ship
to consumers.”53
Although we take no position regarding the constitutionality of such a prohibition in light
of the Granholm decision, we believe that such a prohibition likely would significantly reduce
the benefits to competition and consumers that SB 282 otherwise would provide. In particular,
49 See id. at 39.
50 See Gra nho lm, 125 S. Ct. at 1906. The Sup reme Court in Gra nho lm found the states’ tax collection
justification for banning interstate direct shipping as unco nvincing as the p roffered und erage drinking justification.
See id. at 1906-07.
51 27 U.S.C. § 12 2a (2000 ).
52 See FTC W ine Report at 39-40.
53 As you indicated in your letter, “the reality is that no Florida winery even remotely approaches a production
level of 250 ,000 gallons.”

The Honorable Paula Dockery
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limiting direct shipping in such a manner would reduce the variety of wines that SB 282 would
allow Florida consumers to access directly. As discussed in more detail above, direct shipping
allows consumers to purchase wines that may not be available in nearby bricks-and-mortar retail
stores due to, among other things, limited shelf space at such stores. Although FTC staff has not
undertaken a rigorous empirical analysis of the effect of a production-based limitation,
information readily available to staff demonstrates the impact on variety that such a limitation
would have. For example, a review of the survey of most popular wines of 2005 compiled by
Wine & Spirits magazine54 – the same survey utilized in the 2002 and 2004 McLean Studies
discussed above – indicates that 25 of the 50 most popular wines are produced by wineries with
production in excess of 250,000 gallons per year.55 Thus, the production limitation being
considered would prevent Florida consumers from direct access to half of the most popular wines
identified in this prominent survey.56
In addition, a production-based limitation likely would reduce the price competition
provided by the country’s largest wineries. As explained above, consumers can achieve
substantial savings by obtaining wine via direct shipping. A production-based limitation would
diminish such savings opportunities by preventing direct consumer access to a large number of
wines.57 Further, even if consumers choose to buy wine from bricks-and-mortar retailers, direct
shipping fosters price competition between offline and online sources. The contemplated
production-based limitation would reduce such price competition, to the detriment of consumers.
Conclusion
The Internet lets consumers purchase an unprecedented array of goods and services from
the convenience of their homes. Consumers can find thousands of goods, from thousands of
suppliers around the country, and have those goods delivered to their doors. State bans on
interstate direct shipping represent the single largest regulatory barrier to expanded e-commerce
54 See 17th Annua l Resta urant Po ll, W INE & S PIRITS , Apr. 2006, at 82-83.
55 W ineries with production levels greater than 250,000 gallons annually were identified using the following
sources: Adams Beverage Wine Handbook 2005, Impact U.S. Wine Market 2005 Edition, Gomberg Fredrickson
2004 Annual Wine Industry Review, and Wines & Vines’ July 2004 list of the largest U.S. wineries.
56 If one excludes foreign wineries, for which there likely are additional barriers to direct shipping to Florida
consumers, the production limitation would work to exclude 25 of the 40 most popular wines in the Wine & Spirits
survey. In a less ob jective exercise, The Wine Spectator magazine ranked the top 100 wines of 2005 based on
quality, value, availability, and “excitem ent.” A review of this rank ing indicates that the production limitatio n would
work to exclude at least 4 of the 29 top-rated dome stic wines, including the overall wine of the year. See The Wine
Spectator’s 2005 T op 1 00, at http://www.winespectator.com/Wine/Top100/Top100Intro/0,4148,,00.html (last
visited M ar. 27, 2006).
57 As the 2002 M cLean Study found, the amount of savings available via direct shipping increases with the
price of the wine. See FTC W ine Report at 19.

The Honorable Paula Dockery
Page 12 of 12
in wine.58 In states that ban interstate direct shipping, the bans prevent consumers from
conveniently and less expensively purchasing wine from suppliers around the country.
Based on our review, FTC staff believes that, if enacted, SB 282 would enhance
consumer welfare and allow Florida to meet its other public policy goals. By allowing interstate
direct shipping, SB 282 likely would allow Florida residents to purchase both a greater variety of
wines and many wines at lower prices. In addition, by requiring manufacturers to comply with
certain regulatory requirements, SB 282 would allow Florida to prevent shipments to minors and
to collect taxes on direct shipments. However, if SB 282 is amended to prohibit direct shipping
by wineries producing more than 250,000 gallons of wine annually, as you suggest is being
considered, such limitation likely would significantly reduce the benefits to competition and
consumers that SB 282 otherwise would provide. We urge the Florida Legislature to take into
account these likely effects on consumers when considering SB 282.
Respectfully submitted,
Maureen K. Ohlhausen, Director
Office of Policy Planning
Jeffrey Schmidt, Director
Bureau of Competition
Lydia B. Parnes, Director
Bureau of Consumer Protection
Michael A. Salinger, Director
Bureau of Economics
Id. at 14.
58