Geographical Information and the Dormant Commerce Clause: Four Principles
[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 pervasive reality of geolocation and filtering services on the internet should thus affect Dormant Commerce Clause analyses of state internet regulation. Most courts that examine state internet regulations do so under the undue burden test and some version of the extraterritoriality test. Whichever of these tests courts deploy, and whatever version of the extraterritoriality test they use, the previous posts suggest that four principles related to the geographical element of online transactions should govern the analysis.
First, the internet is not a borderless medium. All major firms operating on the internet, and many smaller ones, collect and use location data about consumers and users, and shape content by geography. The technology that supports these practices is quickly growing more pervasive, more accurate, and less expensive.
Second, because geolocation and filtering technology is pervasive, courts should not presume that internet operators have any greater difficulties than “real-space” operators in identifying internet users based on geography and tailoring their products to state law. Assessing the costs and benefits of complying with state regulations, or of the extraterritorial impact of state regulations, must include realistically assessing compliance costs based on the current state of geolocation and filtering technology.
In this regard, courts should consider the ways that the firm challenging state regulation on Dormant Commerce Clause grounds uses geographical-identification technology to further its business interests. They should also consider the extent to which the costs of such technology can be decreased by the legal regime. For example, as courts have made geo-identification and filtering technology more relevant to personal jurisdiction, firms have increasingly deployed such technology to avoid activities that may expose them to personal jurisdiction, which has contributed to the expanded market for and lowered costs of such technology. Similarly, a Dormant Commerce Clause jurisprudence that accommodates state differences will contribute to more sophisticated and less expensive geofiltering tools.
Third, in assessing the costs of compliance with state law for Dormant Commerce Clause purposes, a firm’s preferred national market structure is irrelevant. For instance, the plaintiff in Exxon v. Governor challenged a Maryland law that banned national oil producers from operating retail service stations in the state, arguing that the law would interfere “with the natural functioning of the interstate market [through] burdensome regulation,” would “change the national market structure,” and might have “serious implications for their national marketing operations.” The Supreme Court rejected the argument on the ground (among others) that the Dormant Commerce Clause does not “protect the partic
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