Case Name: HEALY et al. v. THE BEER INSTITUTE et al.
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1989-06-19
Citations: 491 U.S. 324
Docket Number: No. 88-449
Parties: HEALY et al. v. THE BEER INSTITUTE et al.
Judges: with whom Justice Ste-
Reporter: United States Reports
Volume: 491
Pages: 324–349

Head Matter:
HEALY et al. v. THE BEER INSTITUTE et al.
APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
No. 88-449.
Argued March 28, 1989
Decided June 19, 1989
Robert F. Vacchelli, Assistant Attorney General of Connecticut, argued the cause for appellants in both cases. With him on the briefs for appellants in No. 88-449 were Joseph I. Lieberman, former Attorney General, Clarine Nardi Riddle, Acting Attorney General, and Richard M. Sheridan, Assistant Attorney General. William A. Wechsler filed briefs for appellant in No. 88-513.
Jeffrey I. Glekel argued the cause for appellees in both cases. With him on the brief were Jerome I. Chapman, Wayne C. Holcombe, V/illiam H. Allen, Timothy G. Reynolds, and Gary Nateman
Together with No. 88-513, Wine & Spirits Wholesalers of Connecticut, Inc. v. The Beer Institute et al., also on appeal from the same court.
Briefs of amici curiae urging affirmance were filed for the Commonwealth of Pennsylvania by Morey M. Myers and Christopher A. Leiois; and for the Distilled Spirits Council of the United States, Inc., by Arnold M. Lerman and Louis R. Cohen.

Opinion:
Justice Blackmun
delivered the opinion of the Court.
The State of Connecticut requires out-of-state shippers of beer to affirm that their posted prices for products sold to Connecticut wholesalers are, as of the moment of posting, no higher than the prices at which those products are sold in the bordering States of Massachusetts, New York, and Rhode Island. In these appeals, we are called upon to decide whether Connecticut's beer-price-affirmation statute violates the Commerce Clause.
I
Although appellees challenge Connecticut's beer-price-affirmation statute as amended in 1984, this litigation has its roots in the 1981 version of Connecticut's price-affirmation scheme. Having determined that the domestic retail price of beer was consistently higher than the price of beer in the three bordering States, and with the knowledge that, as a result, Connecticut residents living in border areas frequently crossed state lines to purchase beer at lower prices, Connecticut enacted a price-affirmation statute tying Connecticut beer prices to the prices charged in the border States. See United States Brewers Assn., Inc. v. Healy, 532 F. Supp. 1312, 1314, 1316-1317 (Conn. 1982). In an effort to eliminate the price differential between Connecticut and the border States, Connecticut required that brewers and importers (out-of-state shippers) post bottle, can, and case prices for each brand of beer to be sold in Connecticut. Id., at 1317. These posted prices would take effect on the first day of the following month and would continue without change for the rest of that month. Conn. Gen. Stat. Ann. § 30 — 63(c) (1975 and Supp. 1982). The 1981 statute further required that out-of-state shippers affirm under oath at the time of posting that their posted prices were and would remain no higher than the lowest prices they would charge for each beer product in the border States during the effective period. §30-63b(b), quoted in 532 F. Supp., at 1314, n. 3. Moreover, in calculating the lowest price offered in the border States, the statute deducted from the reported price the value of any rebates, discounts, special promotions, or other inducements that the out-of-state shippers offered in one or more of the border States. §30-63c(b), quoted in 532 F. Supp., at 1314, n. 4. To the extent that such inducements lowered border-state prices, the statute thus obligated out-of-state shippers to lower their Connecticut prices as well.
In 1982, a brewers' trade association and various beer producers and importers (a subset of the appellees in the instant litigation) filed suit in the United States District Court for the District of Connecticut, challenging the 1981 statute as unconstitutional under the Commerce Clause. The District Court, relying primarily on this Court's decision in Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U. S. 35 (1966), upheld the 1981 law. United States Brewers Assn., Inc. v. Healy, 532 F. Supp., at 1325-1326. The Court of Appeals, however, reversed. It held that the 1981 Connecticut statute was facially invalid under the Commerce Clause because it had the practical effect of prohibiting out-of-state shippers from selling beer in any neighboring State in a given month at a price below what it had posted in Connecticut at the start of that month. The court explained: "Nothing in the Twenty-first Amendment permits Connecticut to set the minimum prices for the sale of beer in any other state, and well-established Commerce Clause principles prohibit the state from controlling the prices set for sales occurring wholly outside its territory." United States Brewers Assn., Inc. v. Healy, 692 F. 2d 275, 282 (CA2 1982) (Healy I). This Court summarily affirmed. 464 U. S. 909 (1983).
In 1984, the Connecticut Legislature responded to Healy I by amending its beer-price-affirmation statute to its current form. The statute now requires out-of-state shippers to affirm that their posted prices are no higher than prices in the border States only at the time of the Connecticut posting. Conn. Gen. Stat. §30-63b(b) (1989). The legislature also added §30-63b(e), which provides that nothing in §30-63b prohibits out-of-state shippers from changing their out-of-state prices after the affirmed Connecticut price is posted. The legislature, however, did not amend § 30-63a(b), which continued to make it unlawful for out-of-state shippers to sell beer in Connecticut at a price higher than the price at which beer is or would be sold in any bordering State during the month covered by the posting.
In the wake of the 1984 amendments, appellees (a brewers' trade association and major producers and importers of beer) filed suit in the United States District Court for the District of Connecticut, seeking declaratory and injunctive relief and claiming that the effect of the amended law was not different from that of the law struck down in Healy I See United States Brewers Assn. v. Healy, 669 F. Supp. 543, 544-545 (1987). In response to appellees' complaint, Connecticut filed a "Declaratory Ruling" by the Department of Liquor Control, interpreting the statute as amended as requiring out-of-state shippers to affirm that their posted prices in Connecticut were no higher than their lowest prices in any border State only at the time of posting — the sixth day of each month. Id., at 547, and n. 9. After the moment of posting, the ruling stated, the statute imposes no restrictions on the right of out-of-state shippers to raise or lower their border-state prices at will. Ibid.
Appellees argued, however, that the Connecticut beer-affirmation statute, even as modified by the declaratory ruling, regulated out-of-state transactions, constituted economic protectionism, and unduly burdened interstate commerce, all in violation of the Commerce Clause. On cross-motions for summary judgment, the District Court upheld the statute as modified by the legislature and construed in the Department of Liquor Control's declaratory ruling, resting its decision on Seagram, supra, and distinguishing this Court's subsequent decision in Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U. S. 573 (1986), which struck down a statute analogous to Connecticut's 1981 beer-affirmation statute. The District Court found the 1984 Connecticut law constitutional on its face because, "unlike the version in Healy I and Brown-Forman," the 1984 law "leaves brewers free to raise or lower prices in the border states before and after posting in Connecticut and does not, therefore, regulate interstate commerce." 669 F. Supp., at 553.
As in Healy I, the Court of Appeals reversed. It held that the 1984 law (even as interpreted by the declaratory ruling), like its predecessor, violated the Commerce Clause by controlling the prices at which out-of-state shippers could sell beer in other States. First, and foremost, the court held that the Connecticut statute's "purposeful interaction with border-state regulatory schemes" means that shippers cannot, as a practical matter, set prices based on market conditions in a border State without factoring in the effects of those prices on its future Connecticut pricing options. In re Beer Institute, 849 F. 2d 753, 760-761 (CA2 1988) (Healy II). Second, the Court of Appeals found that the 1984 statute unconstitutionally restricted the ability of out-of-state shippers to offer volume discounts in the border States. Id., at 760. Furthermore, relying on Brown-Forman, supra, the court rejected appellants' argument that the statute was a proper exercise of its regulatory authority under the Twenty-first Amendment. 849 F. 2d, at 761.
We noted probable jurisdiction. 488 U. S. 954 (1988).
II
In deciding this appeal, we engage in our fourth expedition into the area of price-affirmation statutes. The Court first explored this territory in Seagram, where it upheld against numerous constitutional challenges a New York statute that required liquor-label owners or their agents to affirm that " 'the bottle and case price of liquor . is no higher than the lowest price' " at which such liquor was sold "anywhere in the United States during the preceding month." 384 U. S., at 39-40, quoting the New York law. The Court ruled that the mere fact that the New York statute was geared to appellants' pricing policies in other States did not violate the Commerce Clause, because under the Twenty-first Amendment's broad grant of liquor regulatory authority to the States, New York could insist that liquor prices offered to domestic wholesalers and retailers "be as low as prices offered elsewhere in the country." Id., at 43. Although the appellant brand owners in Seagram had alleged that the New York law created serious discriminatory effects on their business outside New York, the Court considered these injuries too conjectural to support a facial challenge to the statute and suggested that the purported extraterritorial effects could be assessed in a case where they were clearly presented. Ibid.
Eighteen years after Seagram, we summarily affirmed the Second Circuit's judgment in Healy I, and then, another two years later, granted plenary review in Brown-Forman, supra. The New York law at issue in Brown-Forman required every liquor distiller or producer selling to wholesalers within the State to affirm that the prices charged for every bottle or case of liquor were no higher than the lowest price at which the same product would be sold in any other State during the month covered by the particular affirmation. 476 U. S., at 576. Appellant Brown-Forman was a liquor distiller that offered "promotional allowances" to wholesalers purchasing Brown-Forman products. The New York Liquor Authority, however, did not allow Brown-Forman to operate its rebate scheme in New York and, moreover, determined for the purposes of the affirmation law that the promotional allowances lowered the effective price charged to wholesalers outside New York. Because other States with affirmation laws similar to New York's did not deem the promotional allowances to lower the price charged to wholesalers, appellant argued that the New York law offered the company the Hob-son's choice of lowering its New York prices, thereby violating the affirmation laws of other States, or of discontinuing the promotional allowances altogether. This, appellant alleged, amounted to extraterritorial regulation of interstate commerce in violation of the Commerce Clause. Id., at 579-582.
This Court agreed, reaffirming and elaborating on our established view that a state law that has the "practical effect" of regulating commerce occurring wholly outside that State's borders is invalid under the Commerce Clause. We began by reviewing past decisions, starting with Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511 (1935). The Court in Seelig struck down a New York statute that set minimum prices for milk purchased from producers in New York and other States and banned the resale within New York of milk that had been purchased for a lower price. Because Vermont dairy farmers produced milk at a lower cost than New York dairy farmers, the effect of the statute was to eliminate the competitive economic advantage they enjoyed by equalizing the price of milk from all sources. Writing for the Court, Justice Cardozo pronounced that the Commerce Clause does not permit a State "to establish a wage scale or a scale of prices for use in other states, and to bar the sale of the products . . . unless the scale has been observed." Id., at 528. Relying on Seelig, the Court in Brown-Forman concluded: "While a State may seek lower prices for its consumers, it may not insist that producers or consumers in other States surrender whatever competitive advantages they may possess." 476 U. S., at 580; see also Schwegmann Brothers Giant Super Markets v. Louisiana Milk Comm'n, 365 F. Supp. 1144, 1152-1156 (MD La. 1973), summarily aff'd, 416 U. S. 922 (1974). After drawing upon Seelig, the Brown-Forman Court also discussed Healy I with approval. There, as we have noted, the Court of Appeals struck down an earlier version of Connecticut's price-affirmation statute, which was essentially identical to the one at issue in Brown-Forman, because the statute "made it impossible for a brewer to lower its price in a bordering State in response to market conditions so long as it had a higher posted price in effect in Connecticut." 476 U. S., at 581-582.
Applying these principles, we concluded that the New York statute had an impermissible extraterritorial effect: "Once a distiller has posted prices in New York, it is not free to change its prices elsewhere in the United States during the relevant month. Forcing a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce." Id., at 582 (footnote omitted). Although New York might regulate the sale of liquor within its borders, and might seek low prices for its residents, it was prohibited by the Commerce Clause from " 'projecting] its legislation into [other States] by regulating the price to be paid'" for liquor in those States. Id., at 583, quoting Seelig, 294 U. S., at 521. Despite the language in Seagram, the Court did not find the prospect of these extraterritorial effects to be speculative. The maj ority rej ected as "Pollyannaish" the dissent's suggestion that flexible application by the relevant administrative bodies would obviate the problem and noted that the proliferation of affirmation laws after Seagram had greatly multiplied the likelihood that distillers would be subject to blatantly inconsistent obligations.
The Court squarely rejected New York's argument that the Twenty-first Amendment, which bans the importation or possession of intoxicating liquors into a State "in violation of the laws thereof," saved the statute from invalidation under the Commerce Clause. Although the Court acknowledged that the Amendment vested in New York considerable au- tenance of a national economic union unfettered by state-imposed limitations on interstate commerce and with the autonomy of the individual States within their respective spheres. Taken together, our cases concerning the extraterritorial effects of state economic regulation stand at a minimum for the following propositions: First, the "Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State," Edgar v. MITE Corp., 457 U. S. 624, 642-643 (1982) (plurality opinion); see also Brown-Forman, 476 U. S., at 581-583; and, specifically, a State may not adopt legislation that has the practical effect of establishing "a scale of prices for use in other states," Seelig, 294 U. S., at 528. Second, a statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State's authority and is invalid regardless of whether the statute's extraterritorial reach was intended by the legislature. The critical inquiry is whether the practical effect of the regulation is to control conduct beyond the boundaries of the State. Brown-Forman, 476 U. S., at 579. Third, the practical effect of the statute must be evaluated not only by considering the consequences of the statute itself, but also by considering how the challenged statute may interact with the legitimate regulatory regimes of other States and what effect would arise if not one, but many or every, State adopted similar legislation. Generally speaking, the Commerce Clause protects against inconsistent legislation arising from the projection of one state regulatory regime into the jurisdiction of another State. Cf. CTS Corp. v. Dynamics Corp. of America, 481 U. S. 69, 88-89 (1987). And, specifically, the Commerce Clause dictates that no State may force an out-of-state merchant to seek regulatory approval in one State before undertaking a transaction in another. Brown-Forman, 476 U. S., at 682. thority to regulate the domestic sale of alcohol, the Amendment did not immunize the State from the Commerce Clause's proscription of state statutes that regulate the sale of alcohol in other States. 476 U. S., at 585. Accordingly, the Court's conclusion that the New York law regulated out-of-state sales conclusively resolved the Twenty-first Amendment issue against New York. Ibid.
The Court acknowledged that its Brown-Forman decision was in considerable tension with Seagram. The statutes at issue in the two cases were, it observed, factually distinguishable: the Seagram statute was retrospective, tying New York prices to out-of-state prices charged during the previous month, while the Brown-Forman statute was prospective, mandating that New York prices could be no higher than out-of-state prices for the following month. But the Court explicitly refused to give this retrospective/prospective distinction any constitutional significance, and even suggested that the effects of the two statutes might well be the same for the purposes of constitutional analysis. Nonetheless, since the Court was not squarely presented with a retrospective statute, it declined to evaluate Seagram's continued validity. 476 U. S., at 584, n. 6.
III
In light of this history, we now must assess the constitutionality of the Connecticut statute, which is neither prospective nor retrospective, but rather "contemporaneous." As explained above, the statute requires only that out-of-state shippers affirm that their prices are no higher than the prices being charged in the border States as of the moment of affirmation.
The principles guiding this assessment, principles made clear in Brown-Forman and in the cases upon which it relied, reflect the Constitution's special concern both with the main-
When these principles are applied to Connecticut's contemporaneous price-affirmation statute, the result is clear. The Court of Appeals correctly concluded that the Connecticut statute has the undeniable effect of controlling commercial activity occurring wholly outside the boundary of the State. Moreover, the practical effect of this affirmation law, in conjunction with the many other beer-pricing and affirmation laws that have been or might be enacted throughout the country, is to create just the kind of competing and interlocking local economic regulation that the Commerce Clause was meant to preclude.
First, as explained by the Court of Appeals, the interaction of the Connecticut affirmation statute with the Massa chusetts beer-pricing statute (which does not link domestic prices with out-of-state prices) has the practical effect of controlling Massachusetts prices. See 849 F. 2d, at 759. Massachusetts requires brewers to post their prices on the first day of the month to become effective on the first day of the following month. See Mass. Gen. Laws § 138:25B (1986). Five days later, however, those same brewers, in order to sell beer in Connecticut, must affirm that their Connecticut prices for the following month will be no higher than the lowest price that they are charging in any border State. Accordingly, on January 1, when a brewer posts his February prices for Massachusetts, that brewer must take account of the price he hopes to charge in Connecticut during the month of March. Not only will the January posting in Massachusetts establish a ceiling price for the brewer's March prices in Connecticut, but also, under the requirements of the Massachusetts law, the brewer will be locked into his Massachusetts price for the entire month of February (absent administrative leave) even though the Connecticut posting will have occurred on February 6. Thus, as a practical matter, Connecticut's nominally "contemporaneous" affirmation statute "prospectively" precludes the alteration of out-of-state prices after the moment of affirmation. More generally, the end result of the Connecticut statute's incorporation of out-of-state prices, as the Court of Appeals concluded, is that "[a] brewer can . . . undertake competitive pricing based on the market realities of either Massachusetts or Connecticut, but not both, because the Connecticut statute ties pricing to the regulatory schemes of the border states." 849 F. 2d, at 759. In other words, the Connecticut statute has the extraterritorial effect, condemned in Brown-Forman, of preventing brewers from undertaking competitive pricing in Massachusetts based on prevailing market conditions.
Second, because New York law requires that promotional discounts remain in effect for 180 days, see N. Y. Aleo. Bev. Cont. Law §55-b(2) (McKinney 1987), and the Connecticut statute treats promotional discounts as a reduction in price, the interaction of the New York and Connecticut laws is such that brewers may offer promotional discounts in New York only at the cost of locking in their discounted New York price as the ceiling for their Connecticut prices for the full 180 days of the New York promotional discount.
Third, because volume discounts are permitted in Massachusetts, New York, and Rhode Island, but not in Connecticut, the effect of Connecticut's affirmation scheme is to deter volume discounts in each of these other States, because the lowest of the volume-discounted prices would have to be offered as the regular price for an entire month in Connecticut. See 849 F. 2d, at 760.
With respect to both promotional and volume discounts, then, the effect of the Connecticut statute is essentially indistinguishable from the extraterritorial effect found unconstitutional in Broivn-Forman. The Connecticut statute, like the New York law struck down in Broivn-Forman, requires out-of-state shippers to forgo the implementation of competitive-pricing schemes in out-of-state markets because those pricing decisions are imported by statute into the Connecticut market regardless of local competitive conditions. As we specifically reaffirmed in Brown-Forman, States may not deprive businesses and consumers in other States of "whatever competitive advantages they may possess" based on the conditions of the local market. 476 U. S., at 580. The Connecticut statute does precisely this.
The Commerce Clause problem with the Connecticut statute appears in even starker relief when it is recalled that if Connecticut may enact a contemporaneous affirmation statute, so may each of the border States and, indeed, so may every other State in the Nation. Suppose, for example, that the border States each enacted statutes essentially identical to Connecticut's. Under those circumstances, in January, when a brewer posts his February prices in Connecticut and the border States, he must determine those prices knowing that the lowest bottle, can, or case price in any State would become the maximum bottle, can, or case price the brewer would be permitted to charge throughout the region for the month of March. This is true because in February, when the brewer posts his March prices in each State, he will have to affirm that no bottle, can, or case price is higher than the lowest bottle, can, or case price in the region — and these "current" prices would have been determined by the January . posting. Put differently, unless a beer supplier declined to sell in one of the States for an entire month, the maximum price in each State would be capped by previous prices in the other State. This maximum price would almost surely be the minimum price as well, since any reduction in either State would permanently lower the ceiling in both. Nor would such "price gridlock" be limited to individual regions. The short-circuiting of normal pricing decisions based on local conditions would be carried to a national scale if a significant group of States enacted contemporaneous affirmation statutes that linked in-state prices to the lowest price in any State in the country. This kind of potential regional and even national regulation of the pricing mechanism for goods is reserved by the Commerce Clause to the Federal Government and may not be accomplished piecemeal through the extraterritorial reach of individual state statutes.
IV
The Connecticut statute, moreover, violates the Com--merce Clause in a second respect: On its face, the statute discriminates against brewers and shippers of beer engaged in interstate commerce. In its previous decisions, this Court has followed a consistent practice of striking down state statutes that clearly discriminate against interstate commerce, see, e. g., New Energy Co. of Indiana v. Limbach, 486 U. S. 269 (1988); Sporhase v. Nebraska ex rel. Douglas, 458 U. S. 941 (1982); Lewis v. BT Investment Managers, Inc., 447 U. S. 27 (1980), unless that discrimination is demonstrably justified by a valid factor unrelated to economic protectionism, see, e. g., Maine v. Taylor, 477 U. S. 131 (1986). By its plain terms, the Connecticut affirmation statute applies solely to interstate brewers or shippers of beer, that is, either Connecticut brewers who sell both in Connecticut and in at least one border State or out-of-state shippers who sell both in Connecticut and in at least one border State. Under the statute, a manufacturer or shipper of beer is free to charge wholesalers within Connecticut whatever price it might choose so long as that manufacturer or shipper does not sell its beer in a border State. This discriminatory treatment establishes a substantial disincentive for companies doing business in Connecticut to engage in interstate commerce, essentially penalizing Connecticut brewers if they seek border-state markets and out-of-state shippers if they choose to sell both in Connecticut and in a border State. We perceive no neutral justification for this patent discrimination. Connecticut has claimed throughout this litigation that its price-affirmation laws are designed to ensure the lowest possible prices for Connecticut consumers. While this may be a legitimate justification for the statute, it is not advanced by, in effect, exempting brewers and shippers engaging in solely domestic sales from the price regulations imposed on brewers and shippers who engage in sales throughout the region.
V
A
Appellants advance two basic arguments in defense of Connecticut's statute: first, that the Twenty-first Amendment sanctions Connecticut's affirmation statute regardless of its effect on interstate commerce; and, second, that the statute is constitutional under this Court's analysis in Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U. S. 35 (1966), in which the Court stated that a retrospective affirmation statute does not violate the Commerce Clause merely because it is geared to prices in other States. Appellants' reliance on the Twenty-first Amendment is foreclosed by Brown-Forman, where we explicitly rejected an identical argument. In Brown-Forman, the Court specifically held that the Twenty-first Amendment does not immunize state laws from invalidation under the Commerce Clause when those laws have the practical effect of regulating liquor sales in other States. 476 U. S., at 585. Here, as in Brown-Forman, our finding of unconstitutional extraterritorial effects disposes of the Twenty-first Amendment issue. Appellants' reliance on Seagram is similarly foreclosed by Brown-Forman. While our decision in Brown-Forman did not overrule Seagram, it strictly limited the scope of that decision to retrospective affirmation statutes.
B
More important, Brown-Forman removed the legal underpinnings of Seagram's Commerce Clause analysis. 476 U. S., at 581-584, and n. 6. Seagram rested on the following reasoning: the Twenty-first Amendment gives States wide latitude in the field of liquor regulation; although such state regulation might violate the Commerce Clause in some extreme instances, in particular where a State's regulations controlled liquor commerce outside the State's boundaries, the extraterritorial effects of New York's retrospective affirmation statute were too conjectural to support such a claim. 384 U. S., at 42-43. Brown-Forman, however, holds unequivocally that to the extent that an affirmation statute has the practical effect of regulating out-of-state liquor prices, it cannot stand under the Commerce Clause irrespective of the Twenty-first Amendment. 476 U. S., at 585. In striking down the statute at issue, the Court in Broivn-Forman found, in light of 20 years of experience with the affirmation laws that proliferated after Seagram, that prospective affirmation statutes have such extraterritorial effects. Indeed, Brown-Forman leaves Seagram intact only to the extent that the Court in the former case felt no compulsion, in a case not directly raising the question, to address whether retrospective affirmation shared the extraterritorial effects of prospective affirmation laws. 476 U. S., at 584, n. 6.
In the interest of removing any lingering uncertainty about the constitutional validity of affirmation statutes and of avoiding further litigation on the subject of liquor-price affirmation, we recognize today what was all but determined in Brown-Forman: to the extent that Seagram holds that retrospective affirmation statutes do not facially violate the Commerce Clause, it is no longer good law. Retrospective affirmation statutes, like other affirmation statutes, have the inherent practical extraterritorial effect of regulating liquor prices in other States. By tying maximum future prices in one State to the lowest prices in other States as determined at a specified time in the past, retrospective affirmation laws control pricing decisions in nonaffirmation States by requiring that those decisions reflect not only local market conditions, but also market conditions in the affirmation States — market conditions that would be irrelevant absent the binding force of the affirmation statutes. Every pricing decision made in a nonaffirmation State will reflect the certain knowledge that the price chosen will become in the future the maximum permissible price in the States requiring affirmation. For the reasons noted today and in Broivn-Forman, this extraterritorial effect violates the Commerce Clause.
The judgment of the Court of Appeals is affirmed.
It is so ordered.
The Commerce Clause states: "The Congress shall have Power . To regulate Commerce . . . among the several States . . . ." U. S. Const., Art. I, §8, cl. 3. This Court long has recognized that this affirmative grant of authority to Congress also encompasses an implicit or "dormant" limitation on the authority of the States to enact legislation affecting interstate commerce. See, e. g., Hughes v. Oklahoma, 441 U. S. 322, 326, and n. 2 (1979); H. P. Hood & Sons, Inc. v. Du Mond, 336 U. S. 525, 534-535 (1949).
The Connecticut beer industry is divided into three marketing levels: (1) brewers and importers, (2) wholesalers, and (3) retailers. Participants in each tier of the industry must obtain a license to sell to the tier below, with the retailers selling to the consuming public. While generally each wholesaler carries the products of more than one brewer or importer (because Connecticut currently has no brewery of its own, brewers and importers are referred to collectively as "out-of-state shippers"), wholesalers may resell these products only to retailers within the geographic area specified in their respective licenses. United States Brewers Assn. v. Healy, 669 F. Supp. 543, 545-546 (Conn. 1987); United States Brewers Assn., Inc. v. Healy, 532 F. Supp. 1312, 1317 (Conn. 1982).
The affirmation statute did permit differentials in price based on differing state taxes and transportation costs. Conn. Gen. Stat. § 30-63c(b) (1989).
The statute also required out-of-state shippers to offer Connecticut wholesalers every package configuration for each brand of beer offered to wholesalers in the border States. §30-63c(b), quoted in 532 F. Supp., at 1314, n. 4.
As amended by 1984 Conn. Pub. Acts 332, § 30-63b(b) provides:
"At the time of posting of the bottle, can, keg or barrel and case price required by section 30-63, every holder of a manufacturer or out-of-state shipper's permit, or the authorized representative of a manufacturer, shall file with the department of liquor control a written affirmation under oath by the manufacturer or out-of-state shipper of each brand of beer posted certifying that, at the time of posting, the bottle, can or case price, or price per keg, barrel or fractional unit thereof, to the wholesaler permittees is no higher than the lowest price at which each such item of beer is sold, offered for sale, shipped, transported or delivered by such manufacturer or out-of-state shipper to any wholesaler in any state bordering this state."
In addition, Connecticut regulations now provide for posting on the sixth day of each month. App. 157.
As added by 1984 Conn. Pub. Acts 332, §30-63b(e) provides:
"This section shall not prohibit a manufacturer or out-of-state shipper permittee or the authorized representative of a manufacturer from changing prices to any wholesaler in any other state of the United States or in the District of Columbia, or to any state or agency of a state which owns and operates retail liquor outlets at any time during the calendar month covered by such posting."
Conn. Gen. Stat. § 30-63a(b) provides in relevant part:
"No holder of any manufacturer or out-of-state shipper's permit shall ship, transport or deliver within this state, or sell or offer for sale to a wholesaler permittee any brand of beer . at a bottle, can or case price, or price per keg, barrel or fractional unit thereof, higher than the lowest price at which such item is then being sold or offered for sale or shipped, transported or delivered by such manufacturer or out-of-state shipper to any wholesaler in any state bordering this state."
Appellants are the Connecticut officials responsible for enforcing the affirmation statute, and the liquor-wholesalers trade association which entered the case as an intervenor.
The Brown-Forman Court cited a third extraterritorial decision, Edgar v. MITE Carp., 457 U. S. 624 (1982), which, though not discussed at length there, significantly illuminates the contours of the constitutional prohibition on extraterritorial legislation. In MITE Corp., the Court struck down the Illinois Business Takeover Act, which required that a takeover offer for a target company having a specified connection to Illinois be registered with the Secretary of State and mandated that such an offer was not to become effective for 20 days, during which time the offer would be subject to administrative evaluation. The statute empowered the Secretary of State to deny registration of the tender offer under certain conditions, such as inequity or fraud. A plurality found the statute to be infirm under the Commerce Clause because it "directly regulates transactions which take place across state lines, even if wholly outside the State of Illinois." Id., at 641. The plurality observed that, if the target company had sufficient in-state contacts, the Illinois law, unless complied with, could prevent interstate-securities transactions in stock even if not a single one of the target company's shareholders was a resident of Illinois. Moreover, the plurality noted that if Illinois were free to enact such legislation, others States similarly were so empowered, "and interstate commerce in securities transactions generated by tender offers would be thoroughly stifled." Id., at 642. Under the Commerce Clause the projection of these extrater ritorial '"practical effeet[s],'" regardless of the statute's intention, "'ex-ceedfed] the inherent limits of the State's power.' " Id., at 642-643, quoting Shaffer v. Heitner, 433 U. S. 186, 197 (1977).
At the time of our decision in Brown-Forman, 39 States, including New York, had adopted affirmation laws. Of these, 18, known as "control" States, each purchased all liquor to be distributed and consumed within its borders. These States subscribed to a standard sales contract that required distillers to guarantee that the price charged the State was no higher than the lowest price offered anywhere in the United States. Twenty States had adopted statutes similar to the New York statute that was under challenge. See 476 U. S., at 576, and n. 1.
One Member of the Court concurred separately to advocate that Seagram then be overruled as a "relic of the past." Id,., at 586.
The entire Constitution was "framed upon the theory that the peoples of the several states must sink or swim together, and that in the long run prosperity and salvation are in union and not division." Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511, 523 (1935).
The plurality in Edgar v. MITE Corp. noted: "The limits on a State's power to enact substantive legislation are similar to the limits on the jurisdiction of state courts. In either case, 'any attempt "directly" to assert extraterritorial jurisdiction over persons or property would offend sister States and exceed the inherent limits of the State's power.' " 457 U. S., at 643, quoting Shaffer v. Heitner, 433 U. S., at 197.
As a general matter, the Court has adopted a two-tiered approach to analyzing state economic regulation under the Commerce Clause. We summarized in Brown-Forman:
"When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits." 476 U. S., at 579 (citations omitted).
We further recognized in Broivn-Fomian that the critical consideration in determining whether the extraterritorial reach of a statute violates the Commerce Clause is the overall effect of the statute on both local and interstate commerce. Ibid. Our distillation of principles from prior cases involving extraterritoriality is meant as nothing more than a restatement of those specific concerns that have shaped this inquiry.
Recent economic scholarship confirms:
"[B]oth [prospective and retrospective] types of price affirmation burden interstate commerce because they both cause firms to consider jointly their demand and marginal cost curves in more than one state. Accordingly, the impact of an affirmation law adopted by one state will be transmitted to other states, affecting prices charged in those other states in the process." Pustay & Zardkoohi, An Economic Analysis of Liquor Price Affirmation Laws: Do They Burden Interstate Commerce?, 48 La. L. Rev. 649, 673-674 (1988).