Texas Craft Brewers Fight for Ownership of Their Distribution Rights


Institute for Justice

Last year the Texas legislature deregulated craft beer in several significant ways, allowing on-site sales at small breweries, letting brewpubs sell their beer in bottles at stores, and raising the production cap under which breweries are allowed to distribute their own products. At the same time, however, legislators decreed that brewers could no longer sell distribution rights to wholesalers, even though they are legally required to pick one distributor for a given territory. That change was a windfall for distributors, who now get these valuable rights for free yet can sell them to other distributors, and a signficant revenue loss for craft brewers, who now find it more difficult to expand beyond their local markets. This week the Institute for Justice filed a lawsuit on behalf of three craft brewers who argue that the legislature's arbitrary reassignment of distribution rights violates the Texas Constitution.

In their complaint, Live Oak Brewing, Peticolas Brewing, and Revolver Brewing (located in Austin, in Dallas, and near Fort Worth, respectively) argue that the new rules violate Article I, Section 17 of the Texas Constitution, which allows the government to take people's property only with "adequate compensation" and only for public use or to eliminate urban blight. They also cite Article I, Section 19, which says people may not be deprived of "life, liberty, property, privileges or immunities…except by the due course of the law of the land." The complaint says the rights protected by this guarantee include "the right to earn an honest living in the occupation of one's choice free from unreasonable governmental interference."

I.J. argues that there is no legitimate public policy rationale for compelling brewers to give away their distribution rights. "This law has nothing to do with protecting consumers," it says. "It is a blatant transfer of wealth from brewers to distributors who got the law changed using political connections." It is easy to understand why distributors, whose status as middlemen controlling access to beer, wine, and liquor is protected by law, would rather not have to pay for the privilege of selling newly popular craft beers. But it is hard to see how catering to that preference serves anyone else's interests. To the contrary, it hurts consumers by making it harder for them to try interesting new beers.