Purposeful Availment and Commercial Exploitation

Mike Richards

This is the second in a series of three posts discussing the Supreme Court’s decision last term in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).

This post looks at the role of economic incentives in the decision. For the factual background of the case, see the first post in this series, which examined the case’s confused approach to the idea of due process of law.

In my last post, I noted what I take to be the circular reasoning of Justice Kennedy’s plurality opinion in J. McIntyre, viz., that a state can only subject a defendant to the jurisdiction of its courts when it would be lawful to do so. In response to Justice Kennedy’s contention that jurisdiction over the defendant failed to satisfy due process because the defendant had not “purposefully availed” itself of New Jersey, I observed that it is not self-evident, at least to me, why economic benefit from the sale of a $25,000 piece of equipment in the forum does not constitute such purposeful availment simply because of the interposition of a distributor in the chain of possession between the defendant manufacturer and the injured operator. That view of purposeful availment systematically and improperly permits foreign manufacturers to externalize any harmful effects their products have in the United States while still enjoying the benefits of selling to the U.S. market.

It is true that actual payment to J. McIntyre came, at least in most instances, from a sale made to the Ohio distributor. (However, the New Jersey Supreme Court noted in its overruled decision that at least some of the machines appear to have been sold on a consignment basis. 987 A.2d 575, 579 (N.J. 2010)). Justice Kennedy also relied in part on the failure of the plaintiff to show or allege that “the distributor was under J. McIntyre’s control.” Slip op. at 3. But it is not clear why an agency relationship should be necessary to show purposeful availment. In no event could the English manufacturer deny that its derivation of that economic benefit was directly—and completely—the result of the distributor’s resale of the machines. It would be entirely unreasonable for the manufacturer to think that the machines would not end up someplace other than the distributor’s warehouse, and indeed, if the distributor did cease reselling the machines, the economic benefit to J. McIntyre obviously would have stopped. J. McIntyre based its business model, then, upon making its machinery available through the United States.

Compare the facts of J. McIntyre to those of World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). In that case, the Supreme Court held that a New York car dealership could not be subject to personal jurisdiction in Oklahoma for an accident that occurred there. The Court rejected the argument that jurisdiction was proper in Oklahoma because the mobile nature of automobiles made it foreseeable that the car at issue might end up there. In a memorable phrase, the Court refused to endorse a simple foreseeability rule that would mean that “[e]every seller of chattels would in effect appoint the chattel his agent for service of process.” Id. at 296.

Permitting New Jersey courts to exercise personal jurisdiction over J. McIntyre would have been entirely consistent with World-Wide Volkswagen. The issue raised by the comparison of World-Wide Volkswagen with J. McIntyre is not whether mere foreseeability that a product will end up in the forum should be sufficient to sustain personal jurisdiction there (it should not); the central inquiry should be the degree to which the defendant manufacturer derives some material economic benefit from commercial activity occurring in the forum. The New York car dealer in World-Wide Volkswagen surely could have in some sense “foreseen” that the unilateral conduct of a car buyer might cause the car to end up in Oklahoma; but the dealer took no steps to make it happen, and, more important, was commercially indifferent to whether it happened. The dealer was concerned with selling cars to customers in New York. (Given the geography of Massena, NY, where the retailer was located, the relevant market possibly also included customers coming to the New York dealership from Quebec or Ontario.) Contrast this with the business model in J. McIntyre: the English manufacturer sold its machines to the Ohio distributor for the sole purpose of resale throughout the United States.

As it stands, Justice Kennedy’s resolution of J. McIntyre is an invitation for a foreign manufacturer to shield itself from personal jurisdiction—and, a fortiori, liability—simply by telling its distributor to sell throughout the United States without specifying any particular state. Since the foreign manufacturer has not satisfied Justice Kennedy’s definition of “purposeful availment” of any specific state, it will be subject to personal jurisdiction nowhere (other than perhaps the state where its distributor is located). Under this rule, a defendant who reaps the benefits of a national market is subject to jurisdiction only a single state; whereas a defendant that asked its distributor to focus on sales in, say, a dozen states would be subject to personal jurisdiction in all of them. The Constitution does not require such a result. When a foreign defendant purposefully avails itself of the entire U.S. market, whether or not through an intermediary, due process should be satisfied by that decision to exploit the U.S. market. Only by so linking the practical realities of a defendant’s commercial gains with the accountability that personal jurisdiction guarantees will foreign defendants have economic incentives that are not wholly misaligned.

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The final post in this series will explore the implications of J. McIntyre for interstate federalism.

The Debate Within Libertarianism on Antitrust Law

Brandon Kressin

As far as American political ideologies go, libertarianism probably qualifies as the most readily definable. Libertarians are consistent in advocating individual liberty, where liberty is defined in its negative sense as the absence of coercion. Government is generally considered a necessary evil, legitimate only as needed to prevent private intrusions on liberty. Markets and people are to be left alone.

Perhaps because their ideology is so well defined, libertarians tend to agree with one another on most major policy issues. With only minor and unimportant dissent, libertarians agree on lower and flatter taxes, deregulation, ending the drug war, free trade, free speech, free love, etc. While cracks of dissent begin form on issues involving foreign policy, libertarians are normally of a like mind on issues of purely domestic policy. But one major exception to this uniformity of opinion reveals an inherent tension within the libertarian movement that is rarely discussed.

Two Schools of Libertarianism

When traveling in libertarian circles, one quickly learns to recognize and distinguish two separate and sometimes opposing branches of libertarian thought. In my personal experience, the majority of libertarians subscribe to the “consequentialist” or “utilitarian school.” They base their arguments for minimal government in economic theory, arguing that libertarian policies produce the best outcomes. From their perspective, free markets and small government are desirable because they tend to create a better world for the most people.

The other, smaller (in my estimation) subset of libertarians might be alternately referred to as “deontological” or “natural rights” libertarians. These libertarians take their cues from moral and ethical philosophy rather than economics. For deontological libertarians, liberty is not a means to better outcomes but a side constraint on what human beings may legitimately do to each other. They would therefore tend reject a policy reducing individual liberty, even if they could be convinced that the policy was Pareto-optimal in that it would make everybody “better off.” The purpose of government, for such libertarians, is to ensure that individuals do not violate each other’s personal autonomy, not to make everybody better off.

Both the deontological and consequentialist libertarian camps have their detractors, and the debates between different libertarians over how they justify their policy preferences are often lively and heated. But the general state of peace within the wider libertarian movement is helped by the fact that the consequentialist and deontological approaches tend to lead to the same policy prescriptions in the vast majority of circumstances.

There is, however, one major area of public policy on which consequentialist and deontological libertarians are hopelessly split: antitrust law. It is informative to examine the debate within libertarianism over laws preserving competition because doing so leads to a greater understanding of the two major theories underlying the movement.

Consequentialist Libertarianism’s Accommodation of Antitrust Law

Economists almost universally agree that the most blatantly anticompetitive activities – horizontal restraints such as price fixing – have net negative effects on aggregate social welfare. A consequentialist, then, would support policies prohibiting horizontal restraints provided that the costs of administering such policies do not outweigh the evils they are meant to combat. This qualification – that the regulatory costs not outweigh the benefits of forestalling anticompetitive conduct – is an important one. Milton Friedman – perhaps the archetypical consequentialist libertarian – largely based his opposition to America’s antitrust regime on those administrative inefficiencies, not the underlying theory of horizontal restraints’ effects on competition:

“My own views about the antitrust laws have changed greatly over time. When I started in this business, as a believer in competition, I was a great supporter of antitrust laws; I thought enforcing them was one of the few desirable things that the government could do to promote more competition. But as I watched what actually happened, I saw that, instead of promoting competition, antitrust laws tended to do exactly the opposite, because they tended, like so many government activities, to be taken over by the people they were supposed to regulate and control. And so over time I have gradually come to the conclusion that antitrust laws do far more harm than good and that we would be better off if we didn’t have them at all, if we could get rid of them.”

Many consequentialist libertarians have adopted Friedman’s more nuanced approach to the antitrust laws, arguing that while prohibitions on anticompetitive conduct may be theoretically beneficial, in practice the regulatory cure proves more toxic than the disease. But this does not bridge the schism between the consequentialist and deontological libertarian camps on the antitrust issue.

Deontological Libertarianism’s rejection of Antitrust Law

Refusing to go after collusive conduct is one thing, but the deontological approach to libertarianism requires going one step further. A deontological libertarian cannot be content with merely not prosecuting collusive agreements between competitors. Under the purely natural rights conception of libertarianism, courts would enforce collusive contracts just as they would any other agreement.

This willingness to enforce anticompetitive contracts represents a dramatic departure from history and is inimical to the consequentialist school of thought. Even before the adoption of the Sherman Act, courts refused to enforce contracts that had the primary purpose of restraining free competition. And while strictly consequentialist libertarians might balk at using the law to actively prevent collusion, none would support using courts to facilitate anticompetitive agreements.

Consequentialist libertarians often argue that antitrust laws are unnecessary because horizontal restraints on trade are inherently unstable. Participants in price-fixing or territory distribution schemes have strong incentives to cheat in order to gain larger market shares. Chicago School economists such as Friedman would rather rely on these incentives to undermine such restraints rather than government action. If the courts begin to actually enforce collusive contracts, however, horizontal restraints on trade become exponentially more viable. The consequentialist is therefore justifiably concerned that the purely deontological approach to libertarianism may lead to widespread cartelization, higher prices, and artificial production restraints. But under the deontological libertarian theory, these unhappy outcomes are not sufficient for overriding voluntary contracts between private actors.

For the deontological libertarian, an agreement to engage in price-fixing is like any other contract entered into voluntarily by two parties. The fact that a collusive contract would inflict pecuniary externalities on third parties is no justification for forbidding such agreements. Indeed, the world might be a better place if such contracts are prohibited, but deontological libertarians are unwilling to use government coercion to overrule the private decisions of autonomous actors.

Categorizing Libertarians

The literature of libertarianism is filled with appeals to economic rationality on the one hand and natural law on the other. Often, the same author will make consequentialist and deontological justifications for libertarianism in the same work. Therefore, as these positions are usually in harmony, discerning the primary motivations animating a libertarian’s commitment to liberty is often difficult. But if you can pin down a libertarian’s position on antitrust policy, you can learn a lot about which school of thought holds most sway in his or her mind.

Substantive Property Rights in the Public Domain?

Mike Richards

On October 5, the Supreme Court heard oral arguments in Golan v. Holder. At issue is whether Congress exceeded its power under the Copyright Clause or violated the First Amendment by taking thousands of works previously in the public domain and granting them copyright protection.

For decades, works by non-U.S. authors passed immediately into the public domain in the United States if they failed to comply with certain registration and notice requirements of the Copyright Act. In 1994, Congress passed the Uruguay Round Agreement Act, section 514 of which gave copyright protection to those works. The appellants in Golan argue that section 514 violates both the Progress Clause and the Limited Times Clause of Article I, § 8 of the Constitution, and the First Amendment. A number of news articles, including these from the New York Times, the Washington Post, and SCOTUSblog, give more details on the background of and legal arguments at issue in the case.

Much of the oral argument focused on Article I, § 8, and the First Amendment. But an exchange between the appellants’ counsel, Anthony Falzone, and Justice Kennedy raised another question: does the public have an affirmative substantive property interest in works that are in the public domain?

JUSTICE KENNEDY: Can you tell me a little bit about the phrase and the argument about the public domain? Is in your view that just a synonym for when the time has ended? Or is there something more substantive to it that—is it your position that the public somehow owns what's in the public domain?

Tr. at 15. Falzone seemed to answer that “public domain” is simply a shorthand designation to indicate that a work is no longer subject to any copyright protection.

MR. FALZONE: [W]hen I refer to the public domain, it’s the collection of things for which Congress had said protection is done, it's over, we’ve hit the limit, it’s done. So things that went—

JUSTICE KENNEDY: Once again, it's just a conclusion for the argument.

MR. FALZONE: I—I think that's the operative concept here. That's right.

Tr. at 16. But later in the oral argument, while discussing the First Amendment, Falzone suggested that “public domain” is a much more robust, substantive concept. He argued that section 514 “t[ook] away public speech rights,” converting them into “somebody else’s private property.” Tr. at 23. Justice Kennedy asked again for clarification whether the notion of the public domain implies that “the public does own something,” saying he understood Falzone to have disavowed any substantive dimension to public domain.

MR. FALZONE: In that case, I misspoke. The public—the public domain is owned collectively by the public, and in fact, decisions of this Court going back to the 19th century refer to it as public property.

Tr. at 24. Although not framed as a central issue in the case, the notion that the American public has a collective affirmative property interest in works in the public domain is potentially of great importance. Indeed, the wording of the question presented on which the Court granted certiorari assumes such an interest, observing that section 514 gave “copyright protection in thousands of works that the Copyright Act had Public Domain, where they remained for years as the common property of all Americans.” Brief for Pet’rs at i (emphasis added). Such a theory would also help resolve what Rebecca Tushnet, recapping the oral argument in colorful and meticulous detail for SCOTUSblog, characterized as a “seemingly arbitrary consequence” of the appellants’ position:

The Chief Justice pointed out that Falzone’s rule has a seemingly arbitrary consequence: Congress can extend a term that’s about to expire . . . but on the next day it loses its power to extend that term.

Viewed through the lens of a collective substantive property right in the public domain, however, that consequence is perfectly sensible: until the copyright term has expired, the public right in the work is a contingent interest subject to Congressional modification. Once the public’s right in the work vests, however, Congress can’t simply take the property away and reassign it to a private party. Whether or not this ends up being a decisive issue in the case—and I suspect, however the Court rules, it will not be—the possibility of affirmative substantive rights in the public domain deserve careful scholarly attention.

The transcript of the oral argument is available here, the recording here.

The al-Alwaki Assassination and Due Process

by Jamelle Nelson

On Friday, September 30, Anwar al-Awlaki, a radical Muslim cleric and leading figure in Al-Qaeda in the Arab Peninsula (AQAP), was killed in a CIA drone strike in Yemen. According to U.S. officials, Mr. al-Awlaki, a native of New Mexico, was linked to several attacks in the U.S., including a 2009 attempt to attack a Detroit-bound flight. Samir Khan, also an American citizen working with Al-Qaeda, was unintentionally killed in the attack. Mr. al-Alwaki’s death was praised by President Obama as a “major blow” to AQAP and a tribute to the intelligence community. Mr. al-Alwaki was an influential preacher of jihad, and his online sermons are said to have inspired the attack at Fort Hood and Times Square bomb plot among others.

While the White House has touted Mr. al-Alwaki’s killing as its biggest counter-terrorism achievement since the death of Osama bin Laden, the government’s operation has generated a whirlwind of responses, both supporting and denouncing, the use of lethal military force by American officials against an American citizen. Among the most prominent legal issues has been whether Fifth Amendment guarantees of due process were violated by the govenment in Mr. al-Awlaki’s killing.

Many libertarians, like Republican presidential candidate Ron Paul, have denounced Mr. al-Awlaki’s killing. While Mr. Paul’s criticisms arise from his dissatisfaction with the lack of evidence provided by the government to prove the specific crime he committed, many civil libertarians have claimed that the killing violated Mr. al-Awaki’s due process rights protected by the Fifth Amendment.

Last year, the ACLU filed a suit on behalf Mr. al-Awlaki’s father Nasser al-Awlaki in federal district court challenging the U.S. government’s authority to target American citizens for killing outside of clearly defined battlefields and without an imminent threat to lives of American citizen’s. The ACLU claimed, inter alia, that the government disregarded the Fifth Amendment, which prevents citizens from being “deprived of life, liberty, or property without due process of law.” Judge John Bates dismissed the case under the political questions doctrine. Judge Bates ruled that courts were not in the position to rule on whether a person was a terrorist whose activities threatened national security and against whom deadly force could be justified.

Somewhat shockingly, even AQAP has released a statement claiming that the U.S. acted unconstitutionally in killing its American members. Of the killings of Mr. al-Awlaki and Mr. Khan AQAP wrote, “[The U.S.] did not prove any crime they committed, they never presented any proof against them from their laws or unjust freedom. Where is the freedom, justice, human rights, and respect of freedoms they boast of?”

An editorial by the New York Times elucidates some of the specific due process flaws many critics find with the killing. These criticisms include that the decision was made entirely within the Executive Branch and that a memo written advancing specific legal arguments in support of killing Mr. al-Awlaki was never presented to Congress or reviewed by an independent judge or panel of judges. The editorial requests some form of independent judicial review, perhaps similar to the Foreign Intelligence Surveillance Court, before an American citizen, or anyone for that matter, is put on an “assassination list”.

Despite the deluge of voices claiming the government violated Mr. al-Awlaki’s Fifth Amendment due process rights, some scholars have argued that no such violation occurred; that the U.S. had legal justification and authority to kill Mr. al-Awlaki. The domestic origins [1] of this claim to authority arise from the Authorization for Use of Military Force (AUMF) a Congressional resolution passed soon after 9/11 that authorizes the President to “use all necessary and appropriate force” against, among others, persons and organizations that aided in the September 11 terrorist attacks. The legality of the U.S.’s action gains further support, according to Kenneth Anderson at Opinio Juris, from its decision to declare Mr. al-Awlaki an operational leader of an Al-Qaeda affiliate that had been involved in plotting terrorist attacks on U.S. soil. The rationale is that this classification permits the U.S. to target Mr. al-Awlaki because he has now entered into an operational role with a group engaged in an armed conflict with the U.S. Mr. Anderson contends that historically, the fact that an American citizen was fighting with a group in an armed conflict against the U.S. has not been relevant.

As far as violations of Mr. al-Awlaki’s Fifth Amendment due process rights, many raise questions as to what exactly due process requires. Benjamin Wittes at Lawfare Blog says, “One must specify what process is due to someone being targeted in a particular circumstance before one concludes that targeting violates due process.” Robert Chesney says that the U.S. might argue that lethal force was compatible with the Fifth Amendment only in this situation because Mr. al-Awlaki was purposefully located so as to make it implausible for Yemen, the host state, or the U.S. to capture him.

Government officials, former and current, say that there is a process by which enemies are placed on the kill or capture list. They claim the approval process involves a subset of members from the National Security Council and lawyers that investigate the review the situation with military input. Of course, this does little to alleviate the problem critics have with the whole process occurring within the Executive Branch.

Recently, the New York Times revealed information it received concerning a legal memo written by the Office of Legal Counsel (OLC) with legal rationales supporting the killing of Mr. al-Awlaki. In regards to the Fifth Amendment’s due process requirements, OLC cites Hamdi and Ex Parte Quirin, to claim that “what was reasonable, and the process that was due, was different for Mr. al-Awlaki than for an ordinary criminal.” The memo also cites several cases that find it constitutional for the police to act in ways that might put a suspect in serious risk of death in order to prevent imminent risk to innocent people. The document goes on to aver that imminent risks include those posed by an enemy leader that continually plots to attack the U.S., even if he is not in the process of launching an attack at the precise moment.

How the many legal issues surrounding Mr. al-Awlaki’s killing will be resolved remains unclear. So far, the White House has refused to officially release the OLC memo explaining its legal rationales justifying the killing, and the courts will likely remain unwilling to submerge themselves into the morass of legal issues surrounding this episode. What is clear is that Mr. al-Awlaki remains as controversial a figure in death as he was during his life.

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[1] I specify domestic origins here because the U.S. also justifies its actions using international law, specifically the doctrine of self-defense. This justification stands on somewhat more shaky ground. For present purposes, it is unnecessary to consider the validity of the international justification.