The plaintiffs, Live Oak Brewing Company, Revolver Brewing, and Peticolas Brewing Company, all say that the law violates the property rights and economic liberty afforded them by the Texas Constitution.
In 2013, the state of Texas made it illegal for brewers to receive compensation for their distribution rights. The law has been deemed unconstitutional by brewers because it forces them to give away a valuable part of their business for free.
“This law is like the government forcing authors to give the rights to their books to publishers for free,” said Matt Miller, managing attorney of the Texas office of the Institute for Justice, a Virginia-based law firm representing the brewers in a statement. “It is unconstitutional for Texas to force brewers to give distributors property that they never earned and don’t deserve.”
Those who support the law say it prohibits the practice of “reach back pricing” where manufacturers increase prices of its products based on what distributors are charging retailers. Proponents also say the law allows distributors to remain independent and not operate under pressure from craft brewers.
Stunts craft beer industry growth
The money received from distributors prior to 2013 has historically helped the craft beer industry grow as many breweries used it to expand their businesses to new markets, Chip McElroy owner of Live Oak Brewing Company said.
“The Sale Restriction deprives Live Oak Brewing of its right to negotiate for the sale of its territorial right, and frustrates its efforts to expand into other parts of Texas by denying it potential revenue to hire more staff and buy more equipment to increase it brewing capacity,” McElroy wrote in the court document.
Another area of concern stated by the three plaintiffs in the court document is that the sale restriction does not prohibit distributors from accepting payment when they re-sell the territorial rights to another distributor.
A final court ruling is expected within the next two weeks.
*The case is Live Oak Brewing Company, LLC; Revolver Brewing, LLC; and Peticolos Brewing Company, LLC v Texas Alcoholic Beverage Commission in Case No. D-1-GN-14-005151, in the District Court of Travis County, Texas