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Wednesday, May 3, 2006 - Page updated at 02:20 PM

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State to appeal Costco wine ruling

Seattle Times retail reporter

The Washington State Liquor Control Board said today it plans to appeal a federal court ruling that fundamentally alters who profits from the sale of wine and beer and how much consumers pay for it.

On April 21, U.S. District Court Judge Marsha Pechman ordered the state to stop enforcing key parts of its system that governs the sale and distribution of wine and beer —ruling that the state's interests do not trump federal law.

The state's decades-old system regulates the sale of wine and beer by creating strict controls, which include artificially inflating prices, requiring beer and wine distributors to sell their products to every retailer at the same price, and banning volume discounts to large retailers.

Costco sued the state Liquor Control Board in February 2004, charging that its regulatory system was anticompetitive and violatedfederal antitrust law.

Pechman agreed with Costco in December, ruling that the system violated federal law.

The aim of the trial, held in late March, was to determine whether the state was shielded by the 21st Amendment despite the violation. The 21st Amendment granted each state broad power to control the sale of alcoholic beverages within its borders.

In announcing plans to appeal the ruling, the Liquor Control Board said the judge ruled incorrectly when it placed the state's right to regulate alcohol as secondary to federal antitrust laws that encourage commerce.

David Hankins, a state assistant attorney general, said the state will seek to stay the judge's decision while the U.S. Ninth Circuit Court of Appeals considers the appeal.

The state will file the appeal and the motion to stay the ruling in the next two weeks, Hankins said.

Costco Chief Executive Jim Sinegal said the company was not surprised by the appeal. "We fully expected that this was going to wind its way through the courts," he said.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

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