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 

Competition, Bureau of Consumer Protection, and Bureau of Economics. The letter does not necessarily represent 

the views of the Federal Trade Commission or of any individual Commissioner. The Commission 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 

Committee 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 Trade Commission Act, 15 U.S.C. § 45. 

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 FTC “[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 FTC Staff to Ohio State Rep. Bill Seitz (Dec. 12, 2005), at 

http://www.ftc.gov/os/2005/12/051212cmntohiolegiswinefranchis.pdf; Letter from FTC Staff to Cal. State Sen. 

Wesley Chesbro (Aug. 24, 2005), at http://www.ftc.gov/os/2005/08/050826beerfranchiseact.pdf; Letter from 

Chicago Regional Office to Ill. State Sen. Dan Cronin (Mar. 31, 1999), at http://www.ftc.gov/be/v990005.htm; 

Letter from Atlanta Regional Office to North Carolina State Sen. Hamilton C. Horton, Jr. (Mar. 22, 1999), at 

http://www.ftc.gov/be/v990003.htm; Statement of Phoebe Morse, Dir., Boston Regional Office to the Mass. 

Alcoholic Beverages Control Comm’n (June 26, 1996), at http://www.ftc.gov/be/v960012.htm. 

6 Public Workshop: 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/opp/ecommerce/anticompetitive/index.htm. 

7 The TTB was formerly known as the Bureau of Alcohol, Tobacco, and Firearms. 

8 

http://www.ftc.gov/os/2003/07/winereport2.pdf. 

P OSSIBLE ANTICOMPETITIVE BARRIERS TO E-COMM ERCE : W INE , FTC S TAFF REPORT (2003) , at 
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 Subcommittee on Commerce, Trade, and Consumer Protection of the Committee on Energy 

and Commerce, United States House of Representatives (Oct. 30, 2003), at 

http://www.ftc.gov/os/2003/10/031030ecommercewine.htm. 

10 See Letter from FTC Staff to New York State Rep. William Magee et al. (Mar. 29, 2004) (“New York 

Letter”), at http://www.ftc.gov/be/v040012.pdf. New York ultimately enacted legislation permitting (interstate and 

intrastate) direct shipping of wine to its consumers. See N.Y. Alco. Bev. Cont. Law §§ 79-c, 79-d (McKinney 2005). 

11 See Letter from FTC Staff to Ohio State Senator Eric D. Fingerhut (Mar. 22, 2006), at 

http://www.ftc.gov/os/2006/03/V060010CommentReOhioSB179DirectShipmentofWine.pdf. 

12 125 S. Ct. 1885, 1907 (2005). 

13 See Bainbridge v. Turner, No. 8:99-CV-2681-T-27TBM (M.D. Fla. Aug. 5, 2005) (order enjoining Florida 

from enforcing 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 directshipper’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 Division may reduce the amount of the bond to an amount not lower than $1,000, and any license 

applicant that has a surety bond for another license on file with the Division that is in excess of $5,000 is deemed to 

be in compliance with the surety bond requirement. 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 thereon; manufacturers required to maintain separate records 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-andmortar 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 

approximately 25,000 wine labels, and even in a large market like Illinois, only slightly more than 500 of these labels 

are available through bricks-and-mortar stores. See FTC Wine Report at 24. 

23 Granholm, 125 S. Ct. at 1892 (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 costs. Such discrimination is especially felt by small, 

family-run wineries with limited production . . . .”), aff’d, 336 F.3d 388 (5th Cir. 2003); Gina M. Riekhof & Michael 

E. Sykuta, Politics, Economics, and the Regulation of Direct Interstate Shipping in the Wine Industry, 87 AM. J. 

AGRIC. ECON. 439, 442 (2005) (“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-Commerce W orkshop W ritten Statement 1, at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/sloane.pdf. 

25 Daniel L. McFadden, E-Commerce 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. Wiseman and Jerry Ellig, Market and Nonmarket Barriers to Internet Wine Sales: The Case of Virginia, 

BUS. & POL., 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-andmortar 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-andmortar 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-andmortar 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 FTC Wine Report at 18 (excluding wines that could not be found either online or offline, 12 of 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. Wiseman & Jerry Ellig, Legislative Action and Market Responses: Results of Virginia’s 

Natural Experiment with Direct Wine Shipment (Dec. 15, 2005) (Mercatus 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 Wine Report at 19. 
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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 Winston, Conceptual Developments in the Economics of Transportation: An Interpretive 

Survey, 23 J. ECON. LIT. 57, 75-77 (1985) (discussing costs of travel time). 

35 The 2002 McLean 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 Wine 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 Florida consumers. As FTC staff indicated in its March 2004 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 Association, Section of Antitrust Law, E-Commerce W orkshop Public 

Comment (describing various 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 691, 709 (S.D. Tex. 2000). 

38 Daniel L. McFadden, E-Commerce W orkshop W ritten Statement 1, at 

http://www.ftc.gov/opp/ecommerce/anticompetitive/panel/mcfadden.pdf. 
The Honorable Paula Dockery 

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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 bricksand-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 McLean Study at 15. Consistent with the 2002 findings, online savings were smallest for wines priced 

below $20 (7.6%) and largest for wines priced at or above $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 FTC is a member of the Interagency Coordinating Committee to Prevent Underage Drinking, a 

congressionally-mandated working group of federal government agencies seeking to reduce underage alcohol use. 

The FTC has submitted two reports to Congress addressing alcohol marketing and youth. See FTC, Alcohol 

Marketing and Advertising: A Report to Congress (Sept. 2003), at 

http://www.ftc.gov/os/2003/09/alcohol08report.pdf (“2003 Alcohol Report”); FTC, Self-Regulation in the Alcohol 

Industry: A Review of Industry Efforts to Avoid Promoting Alcohol to Underage Consumers App. A (Sept. 1999), at 

http://www.ftc.gov/reports/alcohol/alcoholreport.htm. FTC staff recently initiated a new study of alcohol industry 

advertising self-regulation. See FTC, Agency Information Collection Activities, 71 Fed. Reg. 11,659 (Mar. 8, 2006), 

at http://www.ftc.gov/os/2006/03/P064505ProposedInfoRequeststoBeverageAlcoholManufacturers.pdf. 

42 Granholm, 125 S. Ct. at 1905. 

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 thirddegree 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 Report, the FTC recommended that operators of Web sites that permit consumers to 

order alcohol online use age verification technologies that limit sales to consumers demonstrated to be 21 or over. 

2003 Alcohol Report at 18 & n.59. In response, the Wine Institute, a trade association representing California 

vintners, has established mechanisms to facilitate use of such technologies by its members. See Wine Institute, at 

http://www.wineinstitute.org/shipwine/. 

46 FTC Wine Report App. B (Nebraska letter). 

47 Id. (North Dakota letter). 

48 See, e.g., id. (New Hampshire letter) (“[New Hampshire] 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. The 

NH Liquor Commission 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 Granholm, 125 S. Ct. at 1906. The Supreme Court in Granholm found the states’ tax collection 

justification for banning interstate direct shipping as unconvincing as the proffered underage drinking justification. 

See id. at 1906-07. 

51 27 U.S.C. § 122a (2000). 

52 See FTC Wine 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 Annual Restaurant Poll, WINE & SPIRITS, Apr. 2006, at 82-83. 

55 Wineries 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 objective exercise, The Wine Spectator magazine ranked the top 100 wines of 2005 based on 

quality, value, availability, and “excitement.” A review of this ranking indicates that the production limitation would 

work to exclude at least 4 of the 29 top-rated domestic wines, including the overall wine of the year. See The Wine 

Spectator’s 2005 Top 100, at http://www.winespectator.com/Wine/Top100/Top100Intro/0,4148,,00.html (last 

visited Mar. 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 Wine 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