A top liquor distributor (Major Brands) is attempting to obtain near-monopoly status for its Missouri operations courtesy of its allies in the state legislature. Such an arrangement would not only erode economic freedom; the resulting loss of efficiency would lead to higher liquor prices for millions of Missouri residents. Because this attempt at ultimate crony capitalism involves simple changes in legal jargon found in state law, the vast majority of citizens are unaware of the attempt by a private enterprise to manipulate the law.
In the state of Missouri, liquor suppliers, wholesale distributors, and retailers must all operate independently of each other. In order for a franchise relationship to exist, several requirements must be met, including the existence of (1) a “community of interest” between supplier and distributor and (2) a trademark license between a liquor supplier and liquor distributor. This relationship can only be severed for “good cause.” Without this “good cause” requirement, suppliers could easily enter arrangements with other distributors and simply terminate their relationships with others. Thus, this requirement on terminations provides much protection to distributors.
As one of the few liquor distributors in Missouri, Major Brands claims to be in a franchise relationship with several liquor suppliers. Recently, these suppliers chose to utilize the services of another distributor. Major Brands filed lawsuits against three of the liquor suppliers and the new distributor, arguing that the new distributor is wrongfully interfering with its franchise relationship.
If the court determines that under existing state law a franchise relationship does not exist between Major Brands and the liquor suppliers, the company would lose distribution rights and competitors would be free to operate. To avoid any such ruling by the court, Major Brands wants the Missouri legislature to drastically alter the definition of “franchise relationship” as it applies to liquor distribution.
Rather than requiring a “community of interest” and a “trademark license,” House Bill 759 considers a “franchise” relationship for liquor sales to be in effect “with or without the grant of a license to use a trade name, trademark, service mark, or related characteristic, and whether or not there is a community of interest in the marketing of goods or services.” This change in definition would forcibly create franchise relationships between parties — analogous to a forced marriage.
Major Brands, Inc. stands to benefit from this widely expanded definition because “good cause” would now be required for liquor suppliers to either unilaterally terminate or substantially change the relationship. This effectively blocks competitors from entering the marketplace.
Even more startling, the legislation further attempts to instruct the court as to the proper interpretation of the existing law. The bill specifically lists court cases which “correctly interpreted” the definition of “franchise” and also delineate a case which “was not correctly interpreted.” This is a blatant attempt to affect the pending lawsuit between two private parties, and erodes the separation of powers.
So who is behind this brazen attempt to rewrite Missouri law in in a way that favors one distributor at the expense of consumers? None other than Susan McCollum, CEO of Major Brands. McCollum is well known in the political world as one of the top campaign contributors to the Democratic Party. According to data from Missouri Ethics Commission and the Federal Election Commission, McCollum personally donated over $160,000 to Democrats, including President Obama, Hillary Clinton, Sen. Claire McCaskill of Missouri, and members of the Carnahan family, a dynasty in Missouri Democratic politics. However, her company infuses both Democrats and Republicans with campaign cash. In the 2012 Missouri statewide election races, Major Brands gave more than $72,000 to Republicans and more than $34,000 to Democrats. And the “investment” is paying off as state legislators from both parties are seeking to grant their patron a near-monopoly by unjustly squashing competition and short-circuiting the judiciary.
Imposing franchise relationships where they do not truly exist under current law will benefit a select few existing distributors, but hurt the majority of consumers. Consumers will be faced with higher costs for products and suppliers will face potentially lower profit margins. Economic freedom, particularly the freedom to contract, will be inhibited. New competitors will be shut out of the market. It’s time for Missouri legislators to refuse McCollum’s call to grant her company a near-monopoly in liquor distribution. The people of Missouri deserve better than crony capitalism.