A toast to the judge who sides with consumers

The lawsuit Costco brought against the Washington State Liquor Control Board has come to a muddled pass. In Seattle, U.S. District Judge Marsha Pechman had given Costco, and consumers, a clear victory. In San Francisco, the 9th Circuit Court of Appeals took some of it away.

The case, Costco v. Hoen, which came down Jan. 29, had to do with Washington's rules for the sale of beer and wine in the private sector. Under these rules, a brewer or vintner was generally free to set a price, but had to post it with the state and offer it to everyone. A producer of wine or beer could not offer quantity discounts.

The same rule applied to the wholesaler. All retailers, from Safeway to Joe's Market, had to pay the same price for a case of beer. If a producer or wholesaler changed its price it had to offer the new price for 30 days. The effect was to discourage any price-cutting.

That rule has been thrown out — and good riddance. But the appeals court restored some other rules, including the one that says a retailer that sends a truck to pick up beer at the wholesaler's has to pay freight twice — once for the truck he sent and once for the truck the wholesaler didn't send. If the retailer has a warehouse, he may not take delivery there, because that might save him some money. A retailer may not buy from another retailer. A retailer may not buy on credit. You may buy on credit, but Safeway may not.

These are totally unlike the ordinary rules of American business. At the 9th Circuit, there was no argument about their effect: The rules raised prices of wine and beer in Washington. The argument in the courtroom was about whether the state had a legitimate reason to do that.

The state argued that the reason it had these policies was to promote temperance — that it wanted the people of Washington to drink less beer and wine. Judge Pechman took this statement and poured it on the ground. There was no evidence, she said, that such a motive was behind any of the rules limiting competition in the beverage industry. If the state wanted to make wine and beer cost more, she said, it could tax them more.

Costco found the real motive in the historical record. Most of the rules limiting competition among brewers, vintners and wholesalers, the company told the court, had been put into effect at the urging of the trade associations of brewers, vintners and wholesalers. In Costco's lawsuit, these trade groups were at it again, filing papers on the side of the Liquor Board. Please, please keep regulating us, they said. Please forbid us from offering discounts.

On Costco's side were the supermarkets and the restaurants — two groups closer to the final customer. They wanted lower prices.

The judges' task was not to defend consumers as such, but to say whether the state had a right to squeeze them. And the answer from the federal court here and the appeals court in San Francisco was that the state can squeeze beer and wine drinkers all it likes so long as it acts as "the sovereign." That was U.S. Circuit Judge Diarmuid O'Scannlain's word for it. The state has to act alone. But if it joins with private interests and gives them discretionary power, then a line has been crossed.

The difference between the courts was in how narrowly they defined this. The lower court judged the rules by their effect, and threw out all the ones that tended to create private monopoly power. That included, for example, the ban on quantity discounts. The appeals court thought the ban on quantity discounts was OK, because that banned only a private practice. It thought the price-posting rule was not OK because the state was enforcing a privately set price.

I think that's a distinction without a difference. I'll drink to Judge Pechman. She had it right.

Bruce Ramsey's column appears regularly on editorial pages of The Times. His e-mail address is bramsey@seattletimes.com; for a podcast Q&A with the author, go to Opinion at seattletimes.com