By Matthew Prince
Adjunct Professor of Law
John Marshall Law School
There has been some question over whether Utah has the right to pass the Trademark Protection Act. Santa Clara University Law Professor, Eric Goldman, suggests that SB236 may be a violation of the so-called Dormant Commerce Clause
. To understand his point, and why he is wrong, you need to understand both the Commerce Clause of the U.S. Constitution as well as the history of state trademark statutes in the United States.
The Commerce Clause of the U.S. Constitution was enacted to ensure that we had one cohesive, federal system. That does not mean that every state has to have the same laws, but rather that laws do not discriminate against out-of-state businesses. An old-school Commerce Clause case would involve one state erecting a tax on out-of-state residents. For example, imagine Colorado passed a law which erected a toll booth at the Utah-Colorado border and charged everyone with a non-Colorado license plate a fee as they crossed. That would be a classic violation of the Commerce Clause because the toll booth discriminated against out-of-state residents. No one has alleged that the Utah Trademark Protection Act discriminates against out-of-state businesses in this way.
Because there is no discrimination against out-of-state businesses, critics of the Utah Trademark Protection Act must turn to a more controversial constitutional doctrine: the so-called Dormant Commerce Clause. Instead of one state overtly discriminating against out-of-state residents, the Dormant Commerce Clause is a judicial extension of the Commerce Clause that says states may not "unduly burden" interstate commerce. Professor Goldman, and others, argue that the Utah Trademark Protection Act potentially violates this principle.
But they are likely wrong for two fundamental reasons.
First, in order to "unduly burden" interstate commerce a statute needs to create a burden. To understand why this isn't the case in this instance, you need to understand how search engines sells keyword advertising. For example, check out this web page
in on Google's AdWords website. Google, and other search engines, claim to allow advertisers to select to display their ads not just on a regional level but down to a neighborhood level. In order to allow this, the search engines already have to be tracking the geographic location of every user searching for terms on their sites.
Try it yourself. Search for "Honda Dealer" at www.google.com
. I am writing this from Park City, Utah and, when I run this search, I get ads for Larry H. Miller Honda, Stockton to Malone Honda, and Ken Garff Honda. Your results may vary, depending on where you are located, but the results I get are local Honda dealerships within 30 miles of my home. These dealers have not purchased ads for the entire country on the fanciful hope that a Utah searcher may stumble across their ads. Instead, Google has allowed them to purchase ads and then restrict their display to only those searchers within the state. If search engines are already restricting searches based on the searcher's geographic location, then what is the additional burden preventing them from complying with Utah's law? Moreover, how it is an "undue burden"? The answer is: it isn't.
Second, in order to violate the Dormant Commerce Clause a statute must not be authorized by Congress or be a traditional state police power. In this case, Congress has specifically authorized states to regulate in the area of trademarks. Trademark is an interesting area of law that exists simultaneously on the state, federal, and international level. Well prior to the enactment of Utah's law, all fifty states have their own trademark statutes with their own specific nuances. The right of states to pass their own trademark statutes is not only recognized by history, but also by the Lanham Act itself
. This recognition trumps any potential Dormant Commerce Clause claim.
As the Supreme Court explains:
“When Congress so chooses, state actions that it plainly authorizes are invulnerable to constitutional attack under the commerce clause.” Northeast Bancorp., Inc. v. Bd. of Governors, 472 U.S. 159, 174.The Supreme Court has long observed with respect to the application of the Dormant Commerce Clause, that when “state or local government action is specifically authorized by Congress, it is not subject to the Commerce Clause even if it interferes with interstate commerce.” White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 213 (1983) (holding that Commerce Clause did not prevent City of Boston from giving effect to Mayor's Executive Order requiring all construction projects funded with municipal monies to be performed by a workforce at least half of whom were bona fide residents of Boston), citing Southern Pacific Co. v. Arizona, 325 U.S. 761, 769 (1945); see also Sea Air Shuttle Corp. v. Virgin Islands Port Authority, 800 F.Supp. 293, 304-05 (D.Vi.1992) (port authority's actions were authorized under the proprietary powers exception to Airline Deregulation Act preemption and therefore did not violate the Dormant Commerce Clause); Bowers v. NCAA, 151 F.Supp.2d 526, 539 (D. NJ. 2001) (finding similar implicit authorization by federal statute).
“The limitations on state authority created by the Commerce Clause cannot be ascertained without reference to the relevant federal law” and if authorized by federal law cannot run afoul of the Commerce Clause. Norfolk Southern Corporation v. Oberly, 822 F.2d 388, 393 (3d Cir.1987), upholding Delaware’s coastal zone statute which banned product transfer facilities from operating on the Delaware coast.
In all the Supreme Court cases cited above where state statutes are upheld, virtually none of the delegation of authority from a federal statute are as clear as the Laham Act’s delegation to the states of the right to set the terms and conditions under which their trademarks apply.
Moreover, the history of state trademarks stretches back to the birth of our nation and is a right that is traditionally held by the states, something repeatedly and convincingly considered by courts looking at whether a state has the right to act. Therefore, given the Lanham Act’s clear delegation, overwhelming precedent, and the traditional history of state trademarks, the Commerce Clause analysis would likely never come into play.
This is all beside the fact that every sitting Supreme Court Justice, except the Chief Justice and Justice Alito, has been critical of so-called Dormant Commerce Clauses analysis. See Quill Corp. v. North Dakota, 504 U.S. 298, 309 (1992) (Stevens, J., writing for a unanimous court) (recognizing that the Commerce Clause “says nothing about the protection of interstate commerce in the absence of any action by Congress”); Wyoming, 502 U.S. at 461-62 (Scalia, J., joined by Rehnquist, C.J., and Thomas, J., dissenting) (describing the “negative Commerce Clause” as “nontextual”); U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779, 797, n.12 (1995) (Stevens, J., joined by Kennedy, Souter, Ginsburg, Breyer, J.J.) (“[T]he Constitution is clearly silent on the subject of state legislation that discriminates against interstate commerce.”). The Supreme Court itself has cautioned against an over-implication of the so-called Dormant Commerce Clause, warning that it is not in the text of the Constitution but instead a “judicial creation.” See, e.g., C&A Carbone, Inc. v. Clarkstown, 511 U.S. 383, 401 (1994).
Remember, this is not a part of the U.S. Constitution but instead a doctrine that has been invented by courts. It can just as quickly be disavowed by the same courts. Especially when, as here, real harm is being done to the real economic interest of trademark holders.
One of the best aspects of the U.S. federal system is that each state can function, in the words of Justice Brandeis, as a laboratory for democracy. See New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). We all learn in third grade civics class that one of the strengths of our country is that states can experiment with new ideas. The best ideas rise to the federal level. I don't know whether the Utah Trademark Protection Act will rise to this level, but the level of attention it has drawn from trademark holders and search engines alike indicates that this is at least an issue that warrants discussion.