Costco Sues State of Washington

SEATTLE -- Costco Wholesale Corp. is suing the Washington State Liquor Control Board, alleging its distribution regulations for alcoholic beverages limit competition and force retailers to charge higher prices for beer and wine, reported the Seattle Post-Intelligencer.

Under state regulations, retailers such as Costco are prohibited from buying alcohol from manufacturers; instead, they must buy from distributors, who mark up prices by at least 10 percent. Retailers also are barred from buying directly from out-of-state wineries and breweries.

Costco claims that such regulations violate federal antitrust laws and obstruct interstate commerce. In its complaint filed Friday in U.S. District Court, it said that the state's liquor distribution rules should be changed so that distributors are subjected to market forces and retailers are allowed to negotiate prices directly with manufacturers, reported the Intelligencer.

The Issaquah, Wash.-based company is the largest U.S. wine retailer, selling $620 million worth of wine in fiscal 2003. Although wine and beer prices can vary, some of its most popular wines sell for $2 to $3 more in Washington than California, said Dave Burman, attorney with Perkins Coie LLP, which filed the lawsuit on behalf of Costco.

"The state has adopted a system which imposes restraints on competition that would clearly be illegal if done by the distributors or the private entities alone," he told the Intelligencer. "The ultimate objective for Costco is to be able to sell cheaper to consumers."

Costco, which has 23 warehouses in Washington, first sought a review of the state's alcohol distribution rules in August when it sent a letter to the antitrust division of the attorney's general office. It then met with the liquor control board in December.

A change in the regulations would need the approval of the state legislature.

Costco could buy wine and beer at a "significantly lower" price if it bought directly from wineries and breweries, CEO Jim Sinegal said. As a result, consumers likely would pay less, reported the news source.