Joint FTC and DOJ Letter Raises Concerns about California Assembly Bill 1541, which would Impose New Restrictions on Beer Manufacturers Who Wish to Terminate Distribution Agreement with Wholesalers

The staff of Federal Trade Commission’s Office of Policy Planning, Bureau of Economics, and Bureau of Competition, together with the staff of the Antitrust Division of the Department of Justice, have submitted a letter to California State Assembly Member Jim Wood raising concerns that California Assembly Bill 1541 would harm competition along the chain of beer distribution in California, to the detriment of California’s consumers.

According to the letter, A.B. 1541 is likely to diminish competition among California beer wholesalers and increase manufacturers’ costs of obtaining distribution services from wholesalers. These effects, in turn, are likely to increase the cost of beer distribution. If the bill is passed, California consumers would likely pay higher prices for beer and may enjoy less variety.

As noted in the letter, the bill “would make it more difficult—and more costly—for a brewer to enforce contractual arrangements designed to reduce wholesale prices or increase wholesaler incentives to provide demand-enhancing services. It would also make it more difficult—and more costly—for a brewer to alter a contract, or simply decline to renew one, with an under-performing wholesaler.”

According to the letter, the bill’s restrictions “are likely to burden members of California’s large, and growing, craft brewing industry especially, as smaller, developing brewers might find it hard to bear the costs of the proposed restrictions, and might be ill-equipped to enforce, alter, or decline to renew distribution agreements, especially in dealing with large distributors, or with distributors owned by large manufacturers.”

While noting the likely harm to competition and California consumers, the FTC and Antitrust Division staff saw “no countervailing consumer protection benefits in evidence.” Hence, the agencies urged the California legislature to reject A.B. 1541, just as it has rejected similar proposals in the past.  

The Commission vote approving the letter to the California State Assembly was 4-0-1, with Commissioner Rebecca Kelly Slaughter abstaining.

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