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Microbreweries file lawsuit over distribution rights

Interesting.

beer

Three Texas breweries filed a lawsuit against the state on Wednesday seeking to to overturn a 2013 law they say violates the Texas Constitution by forcing them to give away their territorial distribution rights for free.

In their complaint, filed in state district court in Austin, the heads of Live Oak Brewing in Austin, Peticolas Brewing Company in Dallas and Revolver Brewing in Granbury, say that were it not for Senate Bill 639, they would be expanding. Instead, their plans to bring their beer to new markets around the state have been put on hold.

In the suit, they accuse the law of “stifling the Texas craft beer renaissance.”

[…]

There are three “tiers” in the alcoholic beverage industry: brewers who make the beer, retailers who sell it, and distributors who pick it up from the former and bring it to the latter.

Prior to 2013, craft brewers could negotiate payment from distributors for the exclusive rights to deliver their beverages in a certain area. But the law, authored by state Sen. John Carona, R-Dallas, prohibited the sale of these territorial rights.

Carona was not immediately available for comment on Wednesday. He told the Dallas Observer in 2013: “What happens when the large manufacturers decide to require payment from a distributor for the right to distribute their brand? We could be back where we started from, with those who won’t pay to play getting muscled out of the marketplace.”

Distributors are not prohibited from selling territorial rights that they have acquired to another distributor. The craft brewers’ complaint says, “A distributor is thus able to receive territorial rights for free and re-sell them for a profit.”

This strikes the brewers at Live Oak, Peticolas and Revolver as unfair — and in violation of the state’s constitution, which says that a person’s property can not be taken without consent unless it is for use by the public or an entity granted the power of eminent domain. Miller said it was likely that other craft breweries will join the lawsuit.

These territorial rights are “a valuable piece of property” that brewers should be able to sell in order to generate revenue for the growth and expansion of their companies, the lawsuit says.

You can read the lawsuit here. SB 639 generated controversy from the moment it was filed; it was clearly seen as a sop to the distributors that were trying to derail the package of craft beer bills that ultimately passed last session. It was a modified version of SB 639 that ultimately passed, but the objections to it remained. Austin brewery Jester King singled out SB 639 after the session as a remaining obstacle to the continued success of craft beer in Texas. I’ll be very interested to see who else gets involved in this litigation, and what bills get filed in the Lege this session to address those lingering concerns with SB 639.

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