The Dormant Commerce Clause and Internet User Protections
[Jack Goldsmith and I will have an article out about the Dormant Commerce Clause, geolocation, and state regulations of Internet transactions in the Texas Law Review early next year, and I’m serializing it here. There is still plenty of time for editing, so we’d love to hear any recommendations you folks might have; in the meantime, you can read the entire PDF of the latest draft (though with some formatting glitches stemming from the editing process) here.]
The same basic analysis [as we laid out for tort law yesterday] applies to laws aimed at protecting not the subjects of speech on internet sites but rather the users of internet sites. Such laws are generally upheld against a Dormant Commerce Clause challenge, at least if they are limited to transactions with users in the state, and the site operators are able to at least roughly determine whether a user is in that state.
Let’s begin with the Ninth Circuit’s decision in Greater L.A. Agency on Deafness, Inc. v. CNN, Inc. The California Disabled Persons Act (DPA) required CNN to provide closed captioning on programs accessed on the internet in California. Such a requirement would require CNN, which is headquartered in Georgia, to create the closed captioning because California told it to do so. And of course the easiest way for CNN to comply with the California law would be to provide such closed captioning to everyone else in the country, which would affect not just CNN’s Georgia-to-California communications (which at least would be “present” in some sense in California) but also its, say, Georgia-to-Texas communications (which would be purely extraterritorial with respect to California).
But, the court held, CNN didn’t have to change what it displays to Texans, because modern technology allows it to identify where its users are, and to comply with California law just for Californians. As a result, the court held, the law did not violate the Dormant Commerce Clause: “even though CNN.com is a single website, the record before us shows that CNN could enable a captioning option for California visitors to its site, leave the remainder unchanged, and thereby avoid the potential for extraterritorial application of the DPA.” And the court concluded that the DPA’s burden on interstate commerce might not be “clearly excessive in relation to [its] significant benefits,” partly because “CNN already serves different versions of its home page depending on the visitor’s country, . . . and provides no explanation for why it could not do the same for California residents.”
The Sixth Circuit’s decision in Online Merchants Guild v. Cameron analyzed matters similarly with regard to Kentucky’s price-gouging law, which limits charging supposedly “grossly” “excess[ive]” prices during an emergency. An association of online merchants claimed that the law, as applied to sales on Amazon.com, violated the Dormant Commerce Clause’s extraterritoriality prong: Amazon requires online third-party sellers to set a single national price for goods and doesn’t permit them to withhold sales in specific states, and the association claimed that, since it would have to reduce its prices everywhere to comply with the Kentucky law, the law was impermissibly extraterritorial.
The court, though, upheld the law, because the law’s purported extraterritorial impact stemmed not from Kentucky’s actions as such, but rather from how Amazon structured its online marketplace:
If Amazon allowed for state-specific pricing or allowed third-party sellers to limit where their goods were sold—and no one contends that Amazon lacks the power to structure its marketplace in this fashion—then there would be no effect at all on interstate commerce (or at most the effect would be de minimis).
In both these cases, the courts looked to whether and how the regulated internet operator (CNN and Amazon) might tailor its internet content geographically before examining the burden on interstate commerce. And both courts maintained that the principle that national firms must tailor in-state operations to comply with state law didn’t change, for Dormant Commerce Clause purposes, merely because the in-state operations occurred in part on the internet.
Other courts have likewise stressed online merchants’ ability to comply with different state laws by identifying the protected person’s location. For example, courts have upheld:
- a Connecticut consumer protection law regulating (among other things) online sale of gift cards, in part because vendors could distinguish between online consumers in and out of Connecticu
Article from Reason.com