In the

United States Court of Appeals

For the Seventh Circuit ____________

Nos. 07-3323 & 07-3338

PATRICK L. BAUDE, et al.,

Plaintiffs-Appellees,

v.

DAVID L. HEATH, Chairman of the Indiana

Alcohol and Tobacco Commission,

Defendant-Appellant,

and

WINE AND SPIRITS WHOLESALERS OF INDIANA,

Intervening Defendant-Appellant.

____________

Appeals from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:05-CV-0735-JDT-TAB—John Daniel Tinder, Judge.

____________

ARGUED FEBRUARY 22, 2008—DECIDED AUGUST 7, 2008

____________

Before EASTERBROOK, Chief Judge, and BAUER and POSNER,

Circuit Judges.

EASTERBROOK, Chief Judge. After Granholm v. Heald,

544 U.S. 460 (2005), held that states that allow wineries to

ship direct to consumers may not discriminate against outof-state vintners, Indiana revised its statutes. We had
2 Nos. 07-3323 & 07-3338

held in Bridenbaugh v. Freeman-Wilson, 227 F.3d 848 (7th

Cir. 2000), that the portions of Indiana’s laws there

under challenge were non-discriminatory but had flagged

other questionable provisions. Indiana eliminated them

and revamped the way in which it regulates direct shipments.

Today wineries inside and outside Indiana may ship

to customers, if (a) there is one face-to-face meeting

at which the buyer’s age and other particulars can be

verified; and (b) the vintner is not allowed to sell to

retailers in any state as its own wholesaler. Indiana

also requires wineries to obtain licenses and remit taxes,

and it limits each customer to 24 cases per winery per

year, but these elements of the state’s system have not

been challenged. The district court enjoined enforcement

of the two contested provisions because they have a

disparate impact on out-of-state sellers. 2007 U.S. Dist.

LEXIS 64444 (S.D. Ind. Aug. 29, 2007).

A state law that discriminates explicitly (“on its face,”

lawyers are fond of saying) is almost always invalid

under the Supreme Court’s commerce jurisprudence,

which the Justices recapped this spring in Department of

Revenue of Kentucky v. Davis, 128 S. Ct. 1801, 1808–11 (2008).

(That recent decision makes it unnecessary for us to

rehearse the standards.) Plaintiffs, oenophiles who want

easier access to wine from small vineyards in other

states, do not contend that either of the two challenged

provisions discriminates in terms. Every rule applies to

every winery, no matter where it is located. The argument instead is that the rules impose higher costs on

interstate commerce as a practical matter.

That brings into play the norm that, “[w]here the statute

regulates even-handedly to effectuate a legitimate local
Nos. 07-3323 & 07-3338 3

public interest, and its effects on interstate commerce are

only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to

the putative local benefits.” Pike v. Bruce Church, Inc., 397

U.S. 137, 142 (1970). State laws regularly pass this test,

see Davis, 128 S. Ct. at 1808–09, for the Justices are wary

of reviewing the wisdom of legislation (after the fashion

of Lochner) under the aegis of the commerce clause. For

recent cases in which this circuit has held that Pike

tolerates state laws of dubious benefit, see, e.g., Cavel

International, Inc. v. Madigan, 500 F.3d 551 (7th Cir. 2007);

National Paint & Coatings Ass’n v. Chicago, 45 F.3d 1124 (7th

Cir. 1995).

One of the two provisions challenged here is indeed a

needless and disproportionate burden on interstate commerce. The wholesale clause in Ind. Code §7.1-3-26-7(a)(6)

provides that a winery may sell direct to consumers only

if it “does not hold a permit or license to wholesale alcoholic beverages issued by any authority” and is not

owned by an entity that holds such a permit. Indiana

says that this clause is designed to protect the state’s

“three-tier system” under which retailers may buy their

inventory only from wholesalers. If a wholesaler in another

state could sell wine direct to consumers, the state insists,

the winery-to-wholesaler-to-retailer-to-consumer model

would collapse.

State laws that regulate the distribution chain, as this

one does, have been sustained against other challenges

under the commerce clause. See Exxon Corp. v. Governor of

Maryland, 437 U.S. 117 (1978). But the Court concluded in

Exxon that Maryland’s separation of the retail and wholesale functions did not affect interstate commerce in petroleum, all of which came from out of state no matter how
4 Nos. 07-3323 & 07-3338

the distribution system was organized. Indiana’s wholesaler clause, by contrast, prevents direct shipment of

almost all out-of-state wine while allowing all wineries

in Indiana to sell direct. That happens because states

organize their distribution systems differently. Although

Indiana forbids any winery to sell to a retailer, many

other states either forbid wholesaling or are indifferent

to where retailers get their inventory. California, Oregon,

and Washington, which produce 93% of this nation’s

wine, have two-tier systems in which retailers buy from

producers without a middleman. All wineries in those

states lawfully may sell to retailers—which means that

Indiana classifies them as wholesalers and will not allow

them to ship wine to customers in Indiana. The statute

is neutral in terms, but in effect it forbids interstate shipments direct to Indiana’s consumers, while allowing intrastate shipments.

Indiana does not defend the wholesale clause, though

a trade association, which intervened to protect its economic interest, insists that the clause is valid. Pike asks

whether the putative local benefits could possibly

justify the burden on interstate commerce. All the wholesalers can muster in support of the statute is that the threetier system may help a state collect taxes and monitor

the distribution of alcoholic beverages, because there are

fewer wholesalers than there are retailers, so state enforcement efforts can focus on the middle layer. That may

be so, see Granholm, 544 U.S. at 489 (stating in dictum that

the three-tier system is compatible with the dormant

commerce clause), but once a state allows any direct

shipment it has agreed that the wholesaler may be bypassed. It is no harder to collect Indiana’s taxes from a

California winery that sells to California retailers than
Nos. 07-3323 & 07-3338 5

from one that does not. The wholesale clause protects

Indiana’s wholesalers at the expense of Indiana’s consumers and out-of-state wineries.

Analysis of the law’s other requirement is more complex. Indiana requires any consumer who wants to

receive direct shipments of wine—from any winery, in

or out of Indiana—to visit the winery once and supply

proof of name, age, address, and phone number, plus a

verified statement that the wine is intended for personal

consumption. See Ind. Code §§ 7.1-3-26-6(4), 7.1-3-26-

9(1)(A). The parties call this the face-to-face clause. Plaintiffs say that a face-to-face meeting is more expensive,

the farther away is the winery (so the law has a disparate

impact on interstate commerce), and that local benefits

are negligible because people under 21 are bound to find

some way to get hold of wine no matter what the law

provides (they could, for example, present forged credentials or bribe sellers to overlook their youth).

Any balancing approach, of which Pike is an example,

requires evidence. See Minnesota v. Clover Leaf Creamery

Co., 449 U.S. 456 (1981). It is impossible to tell whether

a burden on interstate commerce is “clearly excessive in

relation to the putative local benefits” without understanding the magnitude of both burdens and benefits. See

Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28 (1st Cir.

2007). Exact figures are not essential (no more than estimates may be possible) and the evidence need not be in

the record if it is subject to judicial notice, but it takes

more than lawyers’ talk to condemn a statute under Pike.

The vital bit of information for the wholesale clause is

that 93% of all wine comes from states that have two-tier

systems. Indiana concedes as much and does not proffer

any local benefit to offset the exclusionary effect. But
6 Nos. 07-3323 & 07-3338

Indiana has not conceded that it is particularly costly

for consumers to visit wineries on the west coast, or that

an effort to verify buyers’ ages is worthless. Plaintiffs

have waged the suit as a “facial” challenge to the statute—which means that Indiana receives the benefit of

any plausible factual suppositions, for a statute is not

unconstitutional “on its face” if there is any substantial

possibility that it will be valid in operation. See, e.g.,

Washington State Grange v. Washington State Republican

Party, 128 S. Ct. 1184 (2008). When some form of heightened scrutiny applies—as it does if a law’s own terms treat

in-state and out-of-state producers differently—then the

burdens of production and persuasion rest on the state.

But when challenging a law that treats in-state and out-ofstate entities identically, whoever wants to upset the law

bears these burdens.

The costs of a face-to-face meeting depend on distance,

not on borders, and many consumers in Indiana are

closer to some wineries in Michigan or Illinois than to most

wineries in Indiana. But then plaintiffs aren’t interested

in wine from Illinois, Michigan, Kentucky, or Ohio. They

have their hearts set on the boutique wineries of California, Oregon, and Washington, which are materially

farther away.

Plaintiffs invite us to think of a trip to California for

the sole purpose of signing up at a single vintner. Yet one

winery per trip is not the only, or apt to be the usual,

way to satisfy the face-to-face requirement. Many oenophiles vacation in wine country, and on a tour through

Napa Valley to sample the vintners’ wares a person

could sign up for direct shipments from dozens of wineries. Wine tourism in Indiana is less common, and the

state’s vineyards—which altogether have fewer than 350
Nos. 07-3323 & 07-3338 7

acres under cultivation—are scattered around the state,

making it hard for anyone to sign up at more than a few

of Indiana’s wineries. Wineries of Indiana, a trade association, has a map showing its 40 members’ locations. See

http://www.indianawines.org/wineries/?loc=map. These

wineries are all over the map. A connoisseur might

well find it easier to visit and sign up at 30 California

wineries than at 30 Indiana wineries. So although it may

be more costly for a person living in Indianapolis to

satisfy the face-to-face requirement at five Oregon wineries than at five Indiana wineries, it is not necessarily

substantially more expensive (per winery) to sign up at

a larger number of west-coast wineries than at an equivalent number of Indiana wine producers.

If it turns out to be more expensive (per winery) to

sign up in California than in Indiana, is the extra cost

justified by the wineries’ ability to check the credentials

of potential buyers? Plaintiffs and several amici curiae

supporting them maintain that age verification when the

wine is delivered is enough. But we know from Rowe v.

New Hampshire Motor Transport Ass’n, 128 S. Ct. 989 (2008),

that states cannot require interstate carriers to verify the

recipients’ age. Even if that case had come out the other

way—or if some carriers offer an age-checking service

without the need for legal compulsion—a rushed driver

is unlikely to take as much care in checking credentials,

and testing for forgery with ultraviolet light and other

methods, as a winery’s desk clerk. Some drivers treat

anyone 18 and over as an “adult”, see Staff of the Federal

Trade Commission, Possible Anticompetitive Barriers to

E-Commerce: Wine 36 (2003); no winery would do so. The

FTC’s staff concluded that data do not reveal “how

often couriers obtain a valid adult signature.” Ibid.
8 Nos. 07-3323 & 07-3338

Plaintiffs concede that keeping alcohol out of minors’

hands is a legitimate, indeed a powerful, interest. Still, they

want us to take judicial notice that minors who are determined to drink will find a way to beat any system, so that

there is no point in having a “system” in the first place.

That’s not at all clear. How well any given system of

screening works is an empirical subject on which we

lack reliable information. As we observed in National

Paint, a legal system need not be foolproof in order to

have benefits. The face-to-face requirement makes it

harder for minors to get wine. Anything that raises the

cost of an activity will diminish the quantity—not to zero,

but no law is or need be fully effective.

According to plaintiffs, Internet-based age-verification

services are as effective as verification in person. The main

support offered for this proposition is an assertion on one

provider’s web site that it achieves 94% accuracy in matching data to people of known ages. See http://

www.choicepoint.com/products/age_verification.html?

l2=verification_authentication&bc=bva&sb=b. Yet neither

the record in this case nor any third-party testing of the

web site’s accuracy shows whether its assertion is correct

or how easy it is for teenagers to supply data that produces a spurious match to an adult.

Plaintiffs also point to two reports that, they say, establish the ineffectiveness of in-person age verification. See

the FTC’s Staff Report (above) and National Research

Council, Institute of Medicine, Reducing Underage Drinking:

A Collective Responsibility (2004). These reports do not

support plaintiffs’ contention. What they show instead

is that state officials “report few problems” and the like.

That subjective, unquantified reaction (perhaps it shows

that the officials haven’t searched for problems, or that no
Nos. 07-3323 & 07-3338 9

adverse stories have appeared in local newspapers) is not

enough to override a state legislature’s assessment. The

FTC’s staff also reported that, in tests of the verification

system in liquor stores, minors were able to buy alcoholic

beverages between 15% to 30% of the time. Possible

Anticompetitive Barriers 35. That’s a far cry from proof

that face-to-face verification at a winery would be ineffective or unimportant. Even though it does imply that

minors who visit enough stores (or enough wineries) are

likely to be accepted eventually at one or more of them,

the need to visit multiple outlets raises the cost and so

reduces sales to minors. Remove the verification requirement from direct shipments, and more minors would turn

to that source. It is important to remember that we are

dealing with effects on the margin; make it easier for

minors to get wine by phone or Internet, and sales to

minors will increase.

Indiana thinks that in-person verification with photo ID

helps to reduce cheating on legal rules, for both buying

wine and voting (and perhaps other subjects). After

the Supreme Court held in Crawford v. Marion County

Election Board, 129 S. Ct. 1610 (2008), that a belief that inperson verification with photo ID reduces vote fraud

has enough support to withstand a challenge under the

first amendment, it would be awfully hard to take judicial

notice that in-person verification with photo ID has no

effect on wine fraud and therefore flunks the interstate

commerce clause.

Given the state of this record, and the state of the empirical literature, we know very little. What we can guess

at implies that face-to-face verification will reduce the

fraction of all wine shipments that go to minors, though

the size of this effect is hard to estimate. Minors who
10 Nos. 07-3323 & 07-3338

can get beer locally may not want to pay for costly, upmarket wine plus shipping charges; if so (and we don’t

know whether it is so), then Indiana may come to conclude that age verification for direct shipments is not

vital. The cost of verification per winery rises with distance, if consumers sign up at only one winery per trip;

but when traveling through wine country consumers

may be able to sign up at many wineries at small incremental cost. So both the marginal cost and the marginal

benefit of Indiana’s face-to-face system may be modest.

That is not enough to declare a law unconstitutional—not

when the effect on interstate commerce is negligible.

Indiana has not tried to keep wine from crossing its

border. Go to a liquor outlet in Indiana, and you will find

wines from California, Oregon, Washington, France,

Germany, Italy, Australia, South Africa, and Chile—but

little if any wine from Indiana. It is possible that the faceto-face clause benefits small Indiana wineries near the

state’s population centers but lacking wholesale distributors, vis-à-vis small California wineries that lack wholesale distributors in Indiana, but Indiana’s system does

not disadvantage California (or other) wineries in general. The law’s principal effect may be to boost larger California (Oregon, etc.) wineries, which have established

distribution systems, over smaller wineries from any

state, including Indiana, that do not have wholesale

distributors.

None of the plaintiffs contends that Indiana’s law has

led him to buy more wine from Indiana and less from other

states. The law simply shifts sales from smaller wineries

(in all states, including Indiana) to larger wineries (all of

which are located outside Indiana). The Indiana Winegrowers Guild has filed a brief as amicus curiae opposing
Nos. 07-3323 & 07-3338 11

the face-to-face clause, which the Guild maintains has

made it unduly difficult for its members to ship their

wine direct to consumers. But if what the Guild says is

true, then the statute—although bad economically for

Indiana’s wineries—must be sustained against a challenge under the commerce clause. Favoritism for large

wineries over small wineries does not pose a constitutional

problem, and the fact that all Indiana wineries are small

does more to show that this law’s disparate impact cuts

against in-state product than to show that Indiana has

fenced out wine from other jurisdictions.

The judgment of the district court with respect to the

wholesale clause is affirmed, and with respect to the faceto-face clause is reversed. The case is remanded for the

entry of a judgment consistent with this opinion.

8-7-08