|5th Circuit Holds Texas Wine Sales Statute Unconstitutional
6/26. The U.S.
Court of Appeals (5thCir) issued its
[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
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
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
[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,
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
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
pages in PDF] in Bolick
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
pages in PDF] in WorldCom
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."
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,
6/27. The Supreme Court denied certiorari in
Monsanto v. Bayer CropScience. See,
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."
List [12 pages in PDF] at page 12.
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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,
List [12 pages in PDF] at page 9. This denial lets stand a divided en banc
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
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
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
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
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
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,
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
email@example.com or 202 418-7046 or Linda
Senecal at firstname.lastname@example.org or 202 418-7044.
|Wednesday, July 2
Deadline to submit comments to the National
Institute of Standards and Technology (NIST) regarding its
[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,