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June 30, 2003, 9:00 AM ET, Alert No. 690.
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5th Circuit Holds Texas Wine Sales Statute Unconstitutional

6/26. The U.S. Court of Appeals (5thCir) issued its opinion [39 pages in PDF] in Dickerson v. Bailey, a constitutional challenge to Texas' ban on direct sale by out of state wine sellers. The law affects, among other things, internet wine sales by small wineries. The Appeals Court held that the Texas statute violates the dormant commerce clause.

Background. Doyne Bailey is administrator of the Texas Alcoholic Beverage Commission (TABC), and hence, responsible for enforcing Texas's statute banning direct sale of wines by out of state wineries. The Texas statute (TABC § 107) bars out of state wineries from selling and shipping their products directly to Texas residents. However, the statute permits Texas residents to purchase directly from in state wineries. C.A. Dickerson and several other Texans tried to buy wine made in the state of Arkansas by Wiederkehr Wine Cellars.

District Court. Dickerson and others filed a complaint in U.S. District Court (SDTex) against Bailey alleging violation of 42 U.S.C. § 1983, based upon violation of the dormant commerce clause. The District Court granted summary judgment to Dickerson. It held that the Texas statute, as applied to Dickerson, violates the commerce clause, and is not saved by the 21st Amendment.

Statutes. Article I, Section 8, of the Constitution provides that "The Congress shall have Power ... to regulate Commerce with foreign Nations, and among the several States ..." The dormant commerce clause is the judicial concept that the Constitution, by delegating certain authority to the Congress to regulate commerce, thereby bars the states from legislating on certain matters that affect interstate commerce, even in the absence of Congressional legislation. It is applied to block states from regulating in a way that materially burdens or discriminates against interstate commerce. See, Gibbons v. Ogden, 22 U.S. 1 (1824), and Cooley v. Board of Wardens, 53 U.S. 299 (1851).

The 21st Amendment provides, in part, that "The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

Section 1983 provides, in part, that "Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress, except that in any action brought against a judicial officer for an act or omission taken in such officer's judicial capacity, injunctive relief shall not be granted unless a declaratory decree was violated or declaratory relief was unavailable."

Appeals Court. The Court of Appeals affirmed. The Court first addressed the dormant commerce clause. It wrote that "The Supreme Court has long recognized that this provision has a necessary, logical corollary: If Congress has the power to regulate commerce among the states, then the states lack the power to impede this interstate commerce with their own regulations."

The Court then addressed the Texas statute. "Similar to the regulatory regimes in many other states, the TABC creates a three-tier system that strictly separates ownership and operations between manufacturers, wholesalers, and retailers. The vertical integration of the manufacture, distribution or sale of alcoholic beverages is strictly prohibited." The Court added that "And, with rare exceptions, manufacturers are permitted to sell only to wholesalers; wholesalers only to retailers; and retailers only to consumers."

One of these exceptions is for in state wineries. The Court wrote that "these statutes permit in-state wineries to sell and ship wine directly to in-state consumers, thereby providing in-state wine manufacturers with an economic advantage by exempting them from having to operate solely within the TABC's otherwise mandatory three-tier system. These exceptions are not available to out-of-state wineries."

The Court was not impressed by the arguments of the TABC. "In the face of these statutes, the Administrator baldly asserted before the district court and re-asserts on appeal that the TABC does not discriminate between in-state and out-of-state wineries. It is clear beyond peradventure, however, that the TABC permits in-state wineries to circumvent Texas’s three-tier system and both sell and ship directly to in-state consumers; and it is equally clear that the statutes prevent out-of-state wineries from exercising the same privileges. To paraphrase the Bard, that which we call discrimination by any other name would still smell as foul."

The Court also reviewed the legislative history of the statute, including the Texas Wine Marketing Act, which expressly stated that the purpose of the exception for in state wineries is to promote the sale and consumption of Texas wine over those wines produced in other states.

The Court concluded that "In purpose and effect, TABC § 107.07 and related statutes discriminate against out-of-state economic interests and thereby impede interstate commerce in violation of the Commerce Clause."

The Court likewise rejected the TABC's argument that the statute is saved by the 21st Amendment. It concluded that the plaintiffs established "the discriminatory intent and effect of the challenged statutes, the availability of alternative means to enforce Texas's core concerns under the Twenty-First Amendment, and the absence of any safe harbor for the challenged statutes under § 2 of the Twenty-First Amendment. In stark contrast, the Administrator’s defense of § 107.07 and related sections of the TABC is ``nothing but a pretextual rationale ... for economic protectionism.´´ Texas may not use the Twenty-First Amendment as a veil to hide from constitutional scrutiny its parochial economic discrimination against out-of-state wineries."

The Court wrote in conclusion that "small out-of-state wineries, which constitute a substantial majority of the total number of wineries throughout the country, are hurt by these discriminatory restrictions, as Texas wholesalers (despite having permits to import their wine) do not import their products because the quantity of product and the consumer demand in each wholesaler’s local market are too small to justify the wholesaler’s marginal cost in importing and selling the product. The Texas legislature thus achieves exactly what it sought: Texas wines are more available for purchase by Texas consumers because these consumers are essentially denied access to the products of out-of-state wineries, and vice-versa. This is exactly the type of geographic discrimination that is prohibited by the Commerce Clause and, as applied, is a patent violation of Plaintiffs’ constitutional rights."

Other Opinions. Several other courts have addressed the issue of state bans on direct sales of wines. On November 12, 2002, the U.S. District Court (SDNY) issued its opinion [32 page PDF scan] in Swedenburg v. Kelly, holding that New York state's ban on the direct shipment of out of state wine is unconstitutional. See, story titled "Court Holds New York's Ban on Internet Wine Sales Is Unconstitutional", in TLJ Daily E-Mail Alert No. 551, November 18, 2002.

April 8, 2003. The U.S. Court of Appeals (4thCir) issued its opinion [20 pages in PDF] in Beskind v. Easley, holding that North Carolina's ban on direct shipment of wine from out of state wineries to North Carolina residents violates the Commerce Clause. See, TLJ story titled "4th Circuit Holds North Carolina Ban On Internet Wine Sales Is Unconstitutional", April 8, 2003 (also published in TLJ Daily E-Mail Alert No. 640, April 9, 2003).

Also, the U.S. District Court (EDVa), which is in the Fourth Circuit, held that Virginia's statute unconstitutionally discriminated against out of state wine and beer manufacturers and sellers and was not saved by the 21st Amendment. See, Bolick v. Roberts, 199 F. Supp. 2d 397. However, the Virginia state legislation subsequently amended its statute. Then, on May 23, 2003, the Court of Appeals issued its per curiam opinion [6 pages in PDF] in Bolick v. Danielson, vacating the District Court opinion, and remanding for consideration of the statute as amended. See, story titled "4th Circuit Vacates District Court Opinion in Case Affecting Internet Alcohol Sales" in TLJ Daily E-Mail Alert No. 671, June 2, 2003.

However, the U.S. Court of Appeals (7thCir) reached a different conclusion in its opinion in Bridenbaugh v. Wilson. In that case, the plaintiffs challenged the constitutionality of an Indiana statute that made it unlawful for persons in another state to ship an alcoholic beverage directly to an Indiana resident. The District Court held that the Indiana direct shipment regulation was unconstitutional under the Commerce Clause, and granted the plaintiffs' summary judgment motion (Bridenbaugh v. O'Bannon, 78 F. Supp.2d 828 (N.D. Ind. 1999)). Then, the Seventh Circuit reversed, upholding the constitutionality of the state ban.

The Fifth Circuit wrote in the present case that its opinion is consistent with Bridenbaugh, because in that case there was no exception for in-state wineries. Both in-state and out-of-state wine had to pass through the state's three tier regulatory system. The 7th Circuit wrote that "Indiana insists that every drop of liquor pass through its three-tier system and be subjected to taxation. Wine originating in California, France, Australia, or Indiana passes through the same three tiers and is subjected to the same taxes. Where’s the functional discrimination?"

See also, Bainbridge v. Bush, 148 F.Supp.2d 1306 (M.D.Fla. 2001), in which the District Court upheld Florida's ban on direct shipment of wine. However, it was vacated and remanded by the 11th Circuit in Bainbridge v. Turner, 311 F.3d 1104, 1112 (2002).

4th Circuit Affirms in WorldCom v. Boyne

6/25. The U.S. Court of Appeals (4thCir) issued its unpublished opinion [10 pages in PDF] in WorldCom v. Boyne, an unjust enrichment action brought by WorldCom against a former employee who left the company after receiving a bonus.

Kevin Boyne went to work for UUNET in 1995. WorldCom acquired UUNET. In 2000, in order to retain top UUNET executives, WorldCom offered cash bonuses and stock options in return for the executives' commitments to remain through July 2002. Former CEO Bernie Ebbers testified that he told these executives that they would have to return the bonus if the left before July 2002. However, there was no written agreement. Boyne received a $900,000 bonus. He left later in 2000. He did not return the bonus.

WorldCom filed a complaint in U.S. District Court (EDVa) against Boyne alleging unjust enrichment. Boyne counterclaimed for fraud, conversion, and tortious interference with contractual relations. The District Court held for WorldCom. The Court of Appeals affirmed. The Court also wrote that "Unpublished opinions are not binding precedent in this circuit."

More News

6/27. The General Accounting Office (GAO) released a report [44 pages in PDF] titled "Video Surveillance: Information on Law Enforcement’s Use of Closed-Circuit Television to Monitor Selected Federal Property in Washington, D.C."

6/27. The Supreme Court denied certiorari in Monsanto v. Bayer CropScience. See, Order List [12 pages in PDF] at page 4. This is S.C. No. 02-197.

6/27. The Supreme Court stated that "The Court will take a recess from today until Monday, September 8, 2003." See, Order List [12 pages in PDF] at page 12.

People and Appointments

6/26. The Senate confirmed Joshua Bolten to be Director of the Office of Management and Budget (OMB).

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Supreme Court Denies Certiorari in SBCCI v. Veeck

6/27. The Supreme Court denied certiorari, without opinion, in SBCCI v. Veeck. See, Order List [12 pages in PDF] at page 9. This denial lets stand a divided en banc opinion of the U.S. Court of Appeals (5thCir) regarding the effect upon copyright protection of legislative incorporation by reference of model codes.

Background. The Southern Building Code Congress International (SBCCI) is a nonprofit organization that develops, promotes, and promulgates model building codes. Local governments, in turn, enact its codes into law by reference, in whole, or in part. SBCCI asserts a copyright in each of its codes.

Peter Veeck operates a web site that contains information about North Texas, including the towns of Anna and Savoy. Several towns in North Texas have adopted SBCCI model codes, including Anna and Savoy. Veeck purchased from SBCCI CDs with copies of the building codes. In disregard of the software license and copyright notice, Veeck copied and published these building codes into his web site.

District Court. The SBCCI filed a complaint in U.S. District Court (EDTex) against Veeck alleging copyright infringement. The District Court ruled on cross motions for summary judgment that Veeck had infringed valid copyrights, and permanently enjoined Veeck from further infringement. Veeck appealed.

Appeals Court: Three Judge Panel. On February 2, 2001, a divided three judge panel of the U.S. Court of Appeals (5thCir) issued its opinion upholding the judgment of copyright infringement.

Veeck argued that SBCCI did not hold a valid copyright. He argued that once enacted into law by reference, codes loose their copyright status. He also argued merger -- that is, once enacted by reference into law, codes become a fact which can be expressed in only one way. He also argued that due process rights of citizens to know the law was violated. He further argued freedom of speech, waiver, misuse, and fair use. The Court rejected all of these arguments.

The Court noted that the Supreme Court of the United States held in Banks v. Manchester, 128 U.S. 244 (1888), that a private reporter of judicial opinions could not assert copyright protection because judicial opinions are written by publicly paid judges, and are hence publicly owned, and because of the public interest in access to the law. However, the Court distinguished Banks on the basis that SBCCI, not a publicly paid official, created to the model codes.

The Court further argued the policy underlying copyright protection for private code writers: "We believe that if code writing groups like SBCCI lose their incentives to craft and update model codes and thus cease to publish, the foreseeable outcome is that state and local governments would have to fill the void directly, resulting in increased governmental costs as well as loss of the consistency and quality to which standard codes aspire. A second glance at the names of the amici supporting SBCCI's position in this case provides an idea of the potential sweep of a contrary holding that the authors of model codes could not enforce copyrights in their works once the ultimate reason for their very creation is realized. As amici state in their brief supporting SBCCI, 'these codes and standards are widely used and adopted by local and state government and federal authorities throughout the United States who do not otherwise have the necessary facilities and resources to develop these safety standards independently.' "

See also, TLJ story titled "5th Circuits Affirms Judgment of Internet Copyright Infringement", February 5, 2001

Appeals Court: En Banc. On June 7, 2002, a divided en banc panel of the Fifth Circuit issued its opinion reversing the three judge panel. The Court split 9-6, with Judge Edith Jones writing for the majority.

First, the Court wrote that the Supreme Court precedents of Banks v. Manchester and Wheaton v. Peters, 33 U.S. (8 Pet.) 591 (1834) support Veeck. Both cases involved claims by reporters to hold copyrights in their published copies of court opinions. The Supreme Court held in these cases that judges, as public officials, cannot claim to be authors of their official opinions for the purpose of copyright protection. The Supreme Court denied copyright protection to the court reporters.

The Fifth Circuit wrote that it extended this reasoning to the present case. It wrote that "we hold that when Veeck copied only ``the law´´ of Anna and Savoy, Texas, which he obtained from SBCCI's publication, and when he reprinted only ``the law´´ of those municipalities, he did not infringe SBCCI's copyrights in its model building codes." (Emphasis in original.)

Second, the Court held that the Copyright Act and the merger doctrine support Veeck. The Court wrote that "The statute excludes from copyright protection ideas, procedures, processes, systems methods of operation, or information in the public domain. See 17 U.S.C. § 102(b) ... If an idea is susceptible to only one form of expression, the merger doctrine applies and § 102(b) excludes the expression from the Copyright Act. ... Veeck copied the building code of the towns of Anna and Savoy, Texas, based on their adoption of a version of the SBCCI model code. The codes are ``facts´´ under copyright law. They are the unique, unalterable expression of the ``idea´´ that constitutes local law."

Third, the Court wrote that judicial precedent from other supports Veeck. In particular, the Court distinguished two cases based on similar facts. In CCC Info. Servs. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61 (2d Cir. 1994), cert. denied, 516 U.S. 817 (1995), the Second Circuit upheld the copyright of a privately prepared listing of automobile values that states required insurance companies to use. In Practice Mgt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516 (9th Cir. 1997), cert. denied, 522 U.S. 933 (1997), opinion amended by 133 F.3d 1140 (9th Cir. 1998), the Ninth Circuit held that the American Medical Association did not lose the right to enforce its copyright when use of its promulgated coding system was required by government regulations. In the present case, the Court distinguished the legislative act of reference from the legislative act of incorporation."

Judge Weiner wrote a long and vigorous dissent, joined by five other Judges, which differed from the majority on all major points. See also, story titled "Divided En Banc 5th Circuit Reverses in Veeck v. SBCCI", TLJ Daily E-Mail Alert No. 448, June 11, 2002.

Solicitor General Opposes Granting Certiorari. On December 2, 2002, the Supreme Court invited the Solicitor General (SG) to file a brief expressing the views of the United States. In May, 2003, the SG submitted a brief to the Supreme Court in which it argued against Supreme Court review at this time.

The SG argued that the Fifth Circuit correctly decided this case. It wrote that the Court properly applied the Supreme Court's holding in Banks v. Manchester and correctly interpreted the Copyright Act. It also argued that the "Development by the lower courts of the law in this area would further clarify the effect, if any, that different government uses of copyrighted materials have on the copyright of those materials."

Uncertainty. The Fifth Circuit's en banc opinion arguably created a conflict between the Fifth Circuit, and the First, Second and Ninth Circuits. In the least, the law remains uncertain in this area.

In addition to the Fifth Circuit's opinion in Veeck, there are three other relevant cases. In Building Officials and Code Adm. v. Code Tech., Inc., 628 F.2d 730, 736 (1st Cir. 1980), the Court declined to invalidate the copyright of a building code created by nonprofit group and adopted by the state. However, it also expressed doubt over the enforceability of the copyright given that the state had adopted the code.

In CCC Info. Servs. v. Maclean Hunter Mkt. Reports, Inc., 44 F.3d 61 (2d Cir. 1994), cert. denied, 516 U.S. 817 (1995), the Court upheld the copyright of a privately prepared listing of automobile values that states required insurance companies to use.

Finally, In Practice Mgt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516 (9th Cir. 1997), cert. denied, 522 U.S. 933 (1997), opinion amended by 133 F.3d 1140 (9th Cir. 1998), the Court held that the American Medical Association did not lose the right to enforce its copyright when use of its promulgated coding system was required by government regulations.

Nevertheless, the SG argued in its brief that "The Fifth Circuit's narrow decision in this case is consistent with the only one of those decisions to address an analogous circumstance, and it does not conflict with the two other decisions, which addressed substantially different factual and legal issues." And, SBCCI rebutted this argument in its supplemental brief [PDF].

Monday, June 30

The House will be in recess from June 30 through July 4 for the Independence Day District Work Period. The Senate will be in recess also.

1:30 PM. The National Association of Manufacturers (NAM) will host a media roundtable to discuss strenthening and making permanent the research and development tax credit. The speakers will include Monica McGuire of the NAM, and Evan Liddiard, Senior Tax Advisor to Sen. Orrin Hatch (R-UT). Location: NAM, 1331 Pennsylvania Avenue, NW, Suite 600.

The Securities and Exchange Commission's (SEC) rule changes that require that reports by insiders disclosing their securities holdings be filed electronically with the SEC become effective. The SEC stated in an April 24 release that it "voted to mandate the electronic filing of beneficial ownership reports filed by officers, directors and principal security holders under Section 16(a) of the Securities Exchange Act of 1934, and to require issuers with corporate websites to post these reports. Electronic filing and website posting of these reports will result in earlier public notification of insiders' transactions and wider public availability of information about those transactions. The new rules and amendments implement the requirements of Section 16(a)(4), as amended by Section 403 of the Sarbanes Oxley Act of 2002."

Deadline to submit comments to the U.S. Patent and Trademark Office (USPTO) in response to its notice of proposed rule making regarding regulation under the Patent Cooperation Treaty. The USPTO published a notice in the Federal Register stating that it proposes to "amend the rules of practice to conform them to certain amendments made to the Regulations under the Patent Cooperation Treaty (PCT) that will take effect on January 1, 2004. These amendments will result in the addition of a written opinion in PCT chapter I, as well as a simplification of PCT designations and the PCT fee structure. In addition, the Office is proposing to adjust the transmittal, search, and international preliminary examination fees for international applications filed under the PCT ..." See, Federal Register, May 30, 2003, Vol. 68, No. 104, at pages 32441 - 32448.

Tuesday, July 1

8:30 AM - 5:15 PM. The U.S. Department of Commerce will host a one day conference on the U.S. India high tech cooperation titled "Financing Innovation Forum". The speakers will include Phil Bond (Under Secretary of Commerce for Technology), Kenneth Juster (Under Secretary of Commerce in charge of the Bureau of Industry and Security), and Sam Bodman (Deputy Secretary of the Department of Commerce). See, notice and agenda. Location: Ronald Reagan Building International Trade Center.

Deadline to submit reply comments to the Federal Communications Commission (FCC) regarding News Corp.' proposed acquisition of an interest in DirecTV. See, FCC notice [7 pages in PDF], and story titled "FCC Sets Deadlines for Comments on News Corp.'s DirecTV Deal" in TLJ Daily E-Mail Alert No. 664, May 19, 2003. This is MB Docket No. 03-124. For more information, contact Marcia Glauberman at or 202 418-7046 or Linda Senecal at or 202 418-7044.

Wednesday, July 2

Deadline to submit comments to the National Institute of Standards and Technology (NIST) regarding its draft publication [PDF] titled "Guideline for Identifying an Information System as a National Security System". This is NIST Draft Special Publication 800-59. It provides guidelines for identifying an information system as a national security system consistent with applicable requirements for national security systems as specified in Title III to Public Law 107-347, the Federal Information Systems Management Act of 2002 (FISMA). Send comments to William Barker at

The Tech Law Journal Daily E-Mail Alert will not be published on Wednesday, July 2, Thursday, July 3, or Friday, July 4.