Section 102(1) of New York’s Alcoholic Beverage Control Law prohibits the direct sale of alcoholic beverages to consumers within the state by entities not having physical presence in the state. Plaintiffs Swedenburg and Lucas are proprietors of wineries located outside of New York; these wineries sell their products over the Internet. Plaintiffs contended that the prohibition of out-of-state wineries from selling wine directly to New York state consumers, while permitting in-state wineries to make such sales, violated the Commerce Clause, as well as the Privileges and Immunities Clause of the Fourteenth Amendment. In addition, plaintiffs argued that the statute violates the First Amendment rights by subjecting to misdemeanor liability any person who sends advertising information about alcoholic beverages into the state, including over the Internet.The district court granted plaintiffs’ motion for summary judgment, finding that the New York regime directly discriminated against interstate commerce. It said that it was unreasonable for the State to require an out-of-state winemaker to become a resident in order to compete on equal terms. Moreover, it recognized the technological advancements which facilitate commerce between and among the states and the increasing role of the Internet for the direct sale and shipment of goods to consumers.
The court of appeals reversed the lower court’s decision, holding that the prohibition on direct sales is within the ambit of the Twenty-first Amendment, which repealed the nation's prohibition on alcohol, but left states with the power to regulate delivery of alcohol within their borders. In addition, the Court ruled that the statutory scheme did not violate the Privileges and Immunities Clause, since it operates without regard to residency and does not provide New York residents with advantages unavailable to nonresidents.
However, the court of appeals affirmed the district court’s decision that the statute’s prohibition of advertisement or solicitation by out-of-state entities violates the First Amendment, insofar as it prohibits all commercial speech pertaining to the sale of alcoholic beverages directed to New York consumers by unlicensed entities. It found the statute, which prohibits “any” advertising activity by unlicensed wineries, dangerously overbroad. For example, if plaintiffs’ wineries advertised on the Internet and included an order form that is lawful in their own states, the advertisement would be illegal in New York, even if it contained language limiting sales to states in which such orders were lawful. The court did not find persuasive the New York state’s arguments defending the advertising ban on the ground that it is narrowly interpreted.