Category: Business

Fly Big or Stay Home?

Nicholas Vickery

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2 Prin.L.J. 42

Whether it be for business, vacation, medical treatment, family matters, or something else, Americans are frequently flying. It is thus no surprise that the recent events surrounding the proposed JetBlue acquisition of Spirit Airlines are of great public interest. The two airlines reached a merger agreement on July 28, 2022, and following an investigative period, antitrust regulators from the Department of Justice (DOJ) announced on March 7, 2023 that they would sue to block the merger. The DOJ claims that “by eliminating that competition and further consolidating the United States airlines industry, the proposed transaction will increase fares and reduce choice on routes across the country, raising costs for the flying public and harming cost-conscious fliers most acutely.”[1] JetBlue and Spirit airlines have responded to the DOJ with counter arguments asserting that the merger would reduce the power of the “Big Four” (American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines) through the creation of a new, more potent challenger. JetBlue’s CEO Robin Hayes, in fact, said that their merger will create a “national low-fare, high-quality competitor to the Big Four carriers which— thanks to their own DOJ-approved mergers— control about 80% of the U.S. market.”[2]

Many others, moreover, have expressed avid support for the proposed acquisition, most notably the Association of Flight Attendants-CWA (AFA). Sara Nelson, the president of this union, wrote in a letter to Attorney General Garland and Secretary of Transportation Buttigieg, “On behalf of 50,000 Flight Attendants at 19 airlines, including more than 5,600 Flight Attendants at Spirit Airlines, the Association of Flight Attendants-CWA, AFL-CIO (“AFA”) writes in strong support of the proposed merger between JetBlue Airways and Spirit Airlines.”[3] She later specifies that this support results from agreements from both airlines with unions to expedite collective bargaining negotiations and provide better benefits for airline workers.[4] Though there seems to be widespread support for the acquisition, I argue that the United States DOJ has sufficient standing and valid reason to sue and enjoin the merger, since it is clear it will have anticompetitive effects.

Over the last several decades, many similar mergers and acquisitions have occurred, and those have often resulted in a less competitive airline industry. In fact, in violation of the Clayton Act and other antitrust legislation, several airline companies—perhaps one of the best representations of a zeitgeist of consolidated market power—have engaged in anti-competitive behavior, including mergers, acquisitions, and partnerships that harm the consumer. Given relevant court precedents regarding similar antitrust issues, it is clear that the government has standing and legitimate reason to take action through the judicial system in order to enjoin further harmful, anti-competitive actions in the airline industry, including in the case of the JetBlue-Spirit Merger.

The rest of this article proceeds as follows: I will first examine antitrust legislation and the relevant case law that establish a very low burden of proof in antitrust cases. I will then explain how prior airline mergers and acquisitions have violated the aforementioned antitrust laws before applying these arguments to the current proposed merger between Spirit and JetBlue.

First, it is important to establish the standards for preventing a merger according to the operative legislation. Section 7 of the Clayton Act, which provides perhaps the most forceful and relevant legal guidelines, stipulates the following:

“That no person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[5]

In short, the Clayton Act clearly prohibits any merger or acquisition that may have substantial anticompetitive effects. Emphasis, here, should be placed on the word “may,” which presents the possibility of preventing a merger without certainty of its effects.

Case precedent has also established a number of guidelines for determining whether the federal government can prevent a merger or acquisition. In Brown Shoe Co. v United States (1962), for example, Chief Justice Warren writes that “it is the probable effect of the merger upon the future as well as the present which the Clayton Act commands the courts and the Commission to examine.”[6] Not only does Warren assert that judges should consider future effects in conjunction with present effects, but he also establishes that it is merely the “probable effect” that is relevant. In the majority opinion for U.S. v. E. I. du Pont de Nemours & Co. (1957), furthermore, Justice Brennan writes, “We hold that any acquisition by one corporation of all or any part of the stock of another corporation, competitor or not, is within the reach of the section [Section 7 of the Clayton Act] whenever the reasonable likelihood appears that the acquisition will result in a restraint of commerce or in the creation of a monopoly of any line of commerce.”[7] Like in Brown Shoe Co. v. U.S., this decision likewise establishes a low standard for proving anticompetitiveness, highlighting that there need only be a “reasonable likelihood” as opposed to certainty. In U.S. v. General Dynamics Corp (1974), the Supreme Court upheld its earlier decision in Brown Shoe Co. v. U.S., with Justice Stewart writing in the majority opinion that “the mere nonoccurrence of a substantial lessening of competition in the interval between acquisition and trial does not mean that no substantial lessening will develop thereafter; the essential question remains whether the probability of such future impact exists at the time of trial.”[8] In perhaps the clearest description of the low standard required for proving the anticompetitive nature of an acquisition, Judge Posner of the U.S. Court of Appeals for the Seventh Circuit writes in the opinion for F.T.C. v. Elders Grain Inc. (1989) that “Section 7 forbids mergers and other acquisitions the effect of which ‘may’ be to lessen competition substantially. A certainty, even a high probability, need not be shown.”[9] These are only a small sampling of the currently effectual case precedents that establish that only a “reasonable likelihood”[10] is necessary—not certainty or even high probability. In essence, the standard of evidence for proving potential anticompetitive effects in violation of  the Clayton Act is fairly low.

Many airline mergers have violated the Clayton Act and, due to a lack of forceful government intervention in many cases, created an airline industry with highly concentrated market power. In 2020, the “Big Four” airlines (American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines) made up roughly 76% of the operating revenue in the industry according to data from the U.S. Bureau of Transportation Statistics.[11] Their dominance is clearly pronounced. How did we get here? The answer: a series of largely uncontested yet anticompetitive mergers. In 2001, for example, American Airlines acquired Trans World Airlines, which made them one of the largest airlines in the United States. The DOJ did not contest this merger because Trans World had previously filed for bankruptcy, leading the officials to believe it would not pose a significant threat to competition. In 2005, US Airways, which American Airlines would later acquire, merged with America West Airlines. Similar to Trans World, US Airways was bankrupt at the time of the merger, leading to minimal government involvement. Then, in 2008, Delta merged with Northwest Airlines, making Delta the world’s largest airline for a short time. In 2010, United merged with Continental after avoiding antitrust litigation by transferring their Newark, N.J. assets to Southwest, which then acquired AirTran Airways. More recently, JetBlue and American Airlines began a partnership in 2020, which allows them to coordinate routes, connect perk programs, and share revenues on Northeastern routes. Now, JetBlue and Spirit are planning to further consolidate market power, and if this merger goes through, it would benefit American Airlines as well by extension.

Historically, mergers and acquisitions, such as the one pending for JetBlue and Spirit, have negatively impacted consumers as a result of decreased competition. After all, when there is lessened competition, airlines have less motive to provide high quality, low cost travel in order to attract consumers. In a study titled “Competition and Service Quality in the U.S. Airline Industry,” Michael Mazzeo uses information from the U.S. Bureau of Transportation Statistics and concludes that flight delays are more frequent and longer on airline routes where there is no competition, which “suggests that airlines may lack sufficient incentive to provide service quality in markets where they do not face competition.”[12] He continues to write that in markets with competition, airlines have greater incentive to invest in increasing quality because, since consumers have other options, low quality has revenue implications. In short, “Margins may be higher on monopoly routes because airlines that do not face competitive pressure can save the costs that would be needed to provide higher quality, on-time service.”[13] In another article titled “Mergers and Product Quality: Evidence from the Airline Industry,” economists Yongmin Chen and Philip Gayle arrive at a similar conclusion from studying the mergers between Delta and Northwest in 2008 and Continental and United in 2010. They determine that mergers are associated “with a quality decrease in markets where they [merging airline companies] did” compete,[14] and that these quality decreases can have a “substantial” impact on consumers.

Not only do mergers and acquisitions between previously competing airlines affect product quality, but prices usually rise as well when competition is eliminated. As evidence of this, Han Kim and Vijay Singal in “Mergers and Market Power: Evidence from the Airline Industry” find that, after studying several mergers that occurred between 1985 and 1988, “merging firms increased airfares by an average of 9.44 percent relative to other routes unaffected by the merger. Rival firms responded by raising their prices by an average of 12.17 percent.”[15] They also found that these price increases, moreover, “do not appear to be the result of an improvement in quality or of an industry-wide contraction of air services to rectify a supply-demand imbalance.”[16] In essence, not only do mergers and acquisitions between previously competitive firms result in quality decreases, but they also lead to higher air fares. Both of these effects are anticompetitive.

Because it is clear that mergers and acquisitions between previously competitive firms have anticompetitive effects that harm consumers, the government certainly has reason to be concerned about the proposed JetBlue-Spirit merger. Thus, to determine the legality of this specific merger and those that may occur in the future, the court must simply determine whether the two airlines were significantly competitive prior to merging, which would establish a “reasonable likelihood” that the merger would have an anticompetitive effect on the airline industry.

Spirit Airlines has a reputation for being a low cost flight option for consumers, and throughout 2022, they began plans to expand their routes and further compete with larger airline companies. In March of that year, for example, they announced plans to open crew bases in Miami and Atlanta, and, in July, to open a crew base in Houston. Spirit is undoubtedly among one of America’s fastest growing, lowest cost airlines. As they expanded and added routes, major airlines were forced to reduce their prices as a result of the introduction of low cost competition. The most prominent example of this would be when Spirit entered the Detroit-Boston route in 1996 with a notably low fare starting at $69. Shortly thereafter, Northwest Airlines, according to the court brief for Spirit Airlines, Inc. v. Northwest Airlines, Inc. (2005), lowered their fare dramatically from above $300 to a matching $69. Spirit also entered the Detroit-Philadelphia market and began competing with Northwest there as well, offering flights for $49.[17] For this route, too, Northwest lowered their fare as a result of Spirit’s entrance. Spirit Airlines, by virtue of being an ultra low cost competitor, lowered prices not only for Northwest flights but for many of the routes on which they competed. Before the merger announcement, Spirit was on pace to continue their rapid expansion and compete even more potently against other airline carriers, but this merger deal would end that expansion and the subsequent competition.

Like Spirit, JetBlue is also considered a low cost airline that drives airfares in competitive markets down, a fact demonstrated through the creation of the term “JetBlue Effect.” While JetBlue is considered a “low cost carrier” (LCC), it is not considered as affordable as Spirit, which is an “ultra-low cost carrier” (ULCC). Thus, Spirit’s price on routes they both fly causes JetBlue to lower their own prices. According to information compiled by Brad Shrago from the U.S. Department of Transportation in “The Spirit Effect: Ultra-Low Cost Carriers and Fare Dispersion in the U.S. Airline Industry,” in quarter 3 of 2019, 36.9% of JetBlue passengers flying directly could have also flown directly with Spirit airlines.[18] This data elucidates that JetBlue and Spirit routes have a significant amount of route overlap and are, therefore, significant competitors. This competition results in several benefits for consumers, especially lower airfares that appeal to more cost-conscious air travelers who are willing to sacrifice the slightly higher quality of a JetBlue flight for the affordability of one from Spirit. Shrago corroborates this argument, concluding that his “results support this hypothesis – the presence of Frontier and Spirit are associated with significant increases in fare dispersion. Increased dispersion results because carriers reduce fares aggressively at the bottom of the fare distribution when Frontier or Spirit is present, but only modestly at higher points in the fare distribution.”[19] In a word, Spirit’s presence as a ULCC reduces prices among LCCs, like JetBlue, and among Legacy carriers like the “Big Four.”

Supporters of this particular merger might contend, here, that the JetBlue-Spirit merger would allow the newly consolidated airline to compete more potently with the Big Four and drive down their costs. As has been demonstrated, however, the merger will eliminate a notorious ULCC and result in higher prices among routes on which they used to compete. Though their prices may remain lower than the legacy carriers, costs will likely rise, quality may decline, and options will certainly be reduced for travelers of those routes who will no longer have Spirit as an ULCC option. Legacy carriers, moreover, operate in a slightly different market, targeting wealthier clientele and offering more international flights. Thus, the merger would have major anticompetitive effects for those who typically fly with non-legacy carriers.

Spirit Airlines and other ULCCs, in essence, provide consumers with a more affordable option, which often forces LCCs like JetBlue and legacy carriers like American to lower their fares and make quality improvements. Airline mergers, which further consolidation in an industry already plagued by concentrated market power, are usually anticompetitive in nature, leading to decreased quality and increased fares when they occur between previously competitive companies. Section 7 of the Clayton Act clearly prohibits such mergers and acquisitions, and thus, the federal government has standing to and should sue to enjoin any merger or acquisition that will have anticompetitive effects. In the case of the JetBlue-Spirit merger, this is most certainly the case. Not only does Spirit lower the airfares of other airlines, but the two airlines have significant route overlap, especially in the Northeast and Southeast. Thus, any merger between the two would eliminate a major ultra low cost carrier and create a much larger airline likely to increase fares and reduce quality as a result of decreased competition. Because of this, the federal government has standing to sue and the court has reason to grant their request to enjoin this and future mergers, acquisitions, and partnerships between the top ten airlines.

[1] DOJ Office of Public Affairs, “Justice Department Sues to Block JetBlue’s Proposed Acquisition of Spirit,” Justice News (2023): https://www.justice.gov/opa/pr/justice-department-sues-block-jetblue-s-proposed-acquisition-spirit.

[2] David Koenig, “Biden administration sues JetBlue over $3.8 billion purchase of Spirit Airlines, claiming it could wipe out half of all low-ticket fares,” Fortune (2023): https://fortune.com/2023/03/07/jetblue-spirit-airlines-3-8-billion-biden-doj-antitrust-sues-block-merger/.

[3] Sara Nelson, “Letter to Garland and Buttigieg: ‘Re: DOT OST-2023-0023; DOT OST 2023-0024,’” Association of Flight Attendants-CWA, (2023): 1, https://assets.nationbuilder.com/afacwa/pages/3239/attachments/original/1677529231/02242023_AFA_Support_JetBlueSpirit_Merger.pdf?1677529231.

[4] Ibid, 2.

[5] 63rd Congress, Clayton Act, (2004): https://www.govinfo.gov/content/pkg/COMPS-3049/pdf/COMPS-3049.pdf.

[6] Brown Shoe Co. v. United States, 370 U.S. 294, (Supreme Court of the United States 1962).

[7] U.S. v. E. I. du Pont de Nemours & Co., 353 U.S. 586, (Supreme Court of the United States 1957).

[8] U.S. v. General Dynamics Corp., 415 U.S. 486, (Supreme Court of the United States 1974).

[9] F.T.C. v. Elders Grain Inc., 868 F.2d 901, (United States Court of Appeals, Seventh Circuit 1989).

[10] U.S. v. E. I. du Pont de Nemours & Co.

[11] Bureau of Transportation Statistics, “Airline Rankings 2020,” (2020): https://www.bts.gov/topics/airlines-and-airports/airline-rankings-2020

[12] Michael Mazzeo, “Competition and Service Quality in the U.S. Airline Industry,” Review of Industrial Organization 22, (2003): 276. https://doi.org/10.1023/A:1025565122721.

[13] Ibid, 294.

[14] Yongmin Chen and Philip Gayle, “Mergers and Product Quality: Evidence From the Airline Industry,” International Journal of Industrial Organization 62, (2019): 131, https://doi.org/10.1016/j.ijindorg.2018.02.006.

[15] Han Kim and Vijay Singal, “Mergers and Market Power: Evidence from the Airline Industry,” The American Economic Review 83, no. 3, (1993): 550, https://www.jstor.org/stable/2117533.

[16] Ibid, 567.

[17] Spirit Airlines, Inc. v. Northwest Airlines, Inc., 431 F.3d 917, (United States Court of Appeals, Sixth Circuit 2005).

[18] Brad Shrago, “The Spirit Effect: Ultra-Low Cost Carriers and Fare Dispersion in the U.S. Airline Industry,” Research Gate, (2023): 7, https://www.researchgate.net/publication/365187048_The_Spirit_Effect_Ultra-Low_Cost_Carriers_and_Fare_Dispersion_in_the_US_Airline_Industry.

[19] Ibid, 20.

Steering Towards Safety: Analyzing the Constitutionality and Effectiveness of Alternative Regulatory Frameworks in the Production of Self-Driving Vehicles

Clay Reiferson

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2 Prin.L.J. 33

I. Introduction: A “Patchwork” System

How do we weigh the value of the lives of future generations against the people of today? In the United States, federal and state governments are left to ponder this question as they seek to regulate the burgeoning self-driving car industry. It is widely accepted that, by removing human error, self-driving cars will offer a safer alternative to human-driven ones. Proponents of rapid innovation in the field point to the fact that 94 percent of all crashes, which account for over 30,000 US deaths per year, can be attributed to human error. As such, the faster we can achieve a reality dominated by high-level Automated Driving Systems (ADSs), the better off future generations will be. But rapid innovation comes at a cost—one the country saw for the first time in 2018. In an effort to accelerate the pace of innovation and create a safer transportation system for future generations, Arizona elected to adopt a loose regulatory framework surrounding ADSs. This decision flushed automakers who wished to test their self-driving vehicles out of neighboring California, whose legislators took a more stringent regulatory position. One such testing vehicle belonged to Uber, and would go on to tragically kill Elaine Herzberg on a public Arizona roadway in what marked the first fatal self-driving car accident. Herzberg’s death raised two pressing legislative debates: should the regulation of ADSs remain a state-led issue? And what changes, if any, should our lenient federal regulatory system undergo to prevent similar tragedies?

The first of these questions hinges on a debate over federalism that has plagued American politics since the country’s founding. The current division of power allows states to dictate policy regarding issues of licensing and driver education, while the National Highway Traffic Safety Administration (NHTSA) is tasked with regulating vehicle safety more broadly. With the hope of guiding states towards a consistent regulatory framework, the NHTSA published a Model State Policy in 2016, noting that a “patchwork of inconsistent State laws” could “impede innovation.” But these suggestions have gone unheeded in recent years, threatening both public safety and innovation. As such, I will argue that Congress must use its power under the Commerce Clause to regulate the “instrumentalities of interstate commerce” and preempt state authority in a manner similar to the failed SELF DRIVE Act of 2017. To make this legal argument, I will analyze the opinions of Justices Scalia and O’Connor in Gonzales v. Raich, a case in which the Supreme Court voted to uphold the federal prohibition of local marijuana use otherwise permissible under California law. Operating at the intersection of Congress’s commerce power and states’ police powers, the regulation of ADSs grapples with similar issues as those proposed in Raich. As a result, a thorough examination of its contents is necessary to assess the constitutionality of sweeping federal regulations in the rapidly developing ADS market.

Even if we are to accept a preemption of state authority, however, the debate over how to design our federal regulatory system still remains. Tasked with constructing this framework, the NHTSA established a self-certification model to control the production of ADSs, in line with its handling of human-driven vehicles. Under this system, manufacturers must ensure that their products meet legal requirements as outlined by the Federal Motor Vehicle Safety Standards. The NHTSA may then purchase the certified vehicles and test them for compliance after they reach the market. Researchers Adam Thierer and Caleb Watney support this self-certification model, arguing that the opportunity costs of a more intrusive regulatory framework outweigh the present benefits. Legal scholar Spencer Mathews, meanwhile, suggests a complete overhaul of our current self-certification system in favor of type approval, which denotes a rigorous procedure where regulators approve products directly before sale while being involved in each stage of the design process. The Federal Aviation Administration (FAA) uses type approval to regulate the production of aircrafts, a decision Mathews claims “permit[s] innovation while ensuring public safety.”

To strike the proper balance of regulation so as to promote innovation and short-term safety goals, I will suggest both a reallocation of power amongst federal and state governments and a restructuring of our current self-certification system to include pre-market safety assurance tools. The safety of American citizens will always be decided by the policies of the least regulated state, and as such, the regulation of ADSs cannot remain a state-led issue—preemptive policies similar to those proposed in the failed SELF DRIVE Act, which I will discuss later on, are necessary to prevent a chaotic medley of conflicting laws. The precedent set by Gonzales v. Raich allows for such a bill, establishing that intrastate issues of public safety, although not normally defined as within the scope of congressional power, can be the subject of federal regulation when they threaten the effectiveness of legislation regarding interstate commerce. Alongside this preemption of state authority, a more rigid version of the NHTSA’s current self-certification framework must be adopted to promote public safety, ensure consumer confidence, and allow automakers and regulators to realize their dream of zero road deaths. In constructing such a system, however, it is important not to overextend our regulatory framework in order to protect future generations. As a result, we must disregard Mathews’ suggestion of a type approval system in favor of a restructuring of our current self-certification model, since it fails to properly balance private innovation with public safety.

II. A Brief Legal History

Before analyzing Gonzales v. Raich, it is necessary to introduce two foundational cases in our modern understanding of the Commerce Clause. The first of these cases, Wickard v. Filburn, redefined the scope of congressional authority over local activities. In it, the Court ruled against a local Ohioan farmer who was found to have violated federal restrictions on wheat production after harvesting additional wheat to feed his cattle. Although the Court recognized that this action may have had a negligible impact on his participation in the national wheat market, the unanimous decision contended that the aggregate effects of such an action played out on a national scale may prove more substantial. Thus, Wickard established Congress’s ability to regulate commerce at a local level so long as the cumulative effects of the commercial activity significantly influenced interstate commerce. The case of United States v. Lopez, meanwhile, worked to limit the broad authority granted to Congress in Wickard. The majority found a federal law forbidding the possession of firearms in school zones to be unconstitutional, noting that gun possession in such an area was not an economic activity that could substantially affect interstate commerce. Unlike in Wickard, the Court argued that the repetition of such an action elsewhere did not produce a larger net effect. Both of these cases will serve as important background as we shift our attention to Raich.

In a 6-3 ruling, the Court found that the prohibition of marijuana possession under the Controlled Substances Act fell within Congress’s commercial jurisdiction and thus took precedence over California legislation explicitly authorizing the use of the drug for medicinal purposes. Justice Scalia explains this decision in his concurring opinion, claiming that Congress’s power over commerce supersedes any state authority when the regulation of local activities is deemed necessary to maintain a comprehensive regulatory scheme. Justice O’Connor disagrees, however, offering a more narrow definition of commerce in her dissenting opinion, while admonishing the majority for allowing Congress to encroach on states’ traditional power over the health and safety of their citizens. With this context in mind, we can begin to dissect the justices’ positions and apply the lessons from our analysis to the production of ADSs.

III. Lessons From Gonzales v. Raich

Obsessing over the sanctity of states’ police powers, Justice O’Connor fails to critically examine the Court’s Commerce Clause jurisprudence, instead dismissing the case of Wickard v. Filburn after pointing to seemingly irrelevant incongruencies between it and Raich. Justice O’Connor defends her dismissal of Wickard, because unlike Raich, it “did not extend Commerce Clause authority to something as modest as the home cook’s herb garden.” If the scope of federal regulation is what matters—whether or not it offers exemptions to small-scale producers—then Justice O’Connor’s contention with Raich relies on the same “superficial and formalistic distinctions” she claims riddle the opinion of her opponents. If the respondents had cultivated larger quantities of marijuana (say as much as Roscoe Filburn’s excess wheat), albeit still for personal use, would Justice O’Connor then find the decision in Wickard to be suitable? Attempting to clarify this stance, she notes that in contrast to Wickard, the decision in Raich “impl[ies] that small-scale production of commodities is always economic.” But even the Court’s opinion in United States v. Lopez, which Justice O’Connor holds as the primary relevant precedent, recognizes that the economic nature of a local activity is not an essential factor in determining Congress’s ability to regulate it. A noneconomic intrastate activity can be regulated, the Court found in Lopez, if it is deemed to be “‘an essential part of a larger regulation of economic activity.’” These ideas hearken back to the majority’s opinion in Wickard and present a steep challenge for Justice O’Connor’s repeated assertion that the local use of marijuana central to Raich is not economic in nature. As such, Justice O’Connor’s limited acknowledgment and ultimate dismissal of the precedent set by Wickard detracts from the legal accuracy of her argument.

Justice O’Connor places emphasis on the Court’s definition of economic activity out of fear that, absent any clear “objective markers,” the balance of power between states and Congress will be thrown off by the Court’s decision in Raich; analysis of Justice Scalia’s concurring opinion quells such concerns, however, with the recently deceased justice identifying markers that place clear limits on congressional authority., Describing her objection to the majority opinion, Justice O’Connor claims that the Court must “identify a mode of analysis that allows Congress to regulate more than nothing and less than everything.” The decision in Raich, she contends, leans too heavily towards regulating everything. She argues that the majority’s invocation of the Necessary and Proper Clause, which together with Congress’s commercial authority grants the federal government the power to regulate intrastate activities “necessary to and proper for” interstate commercial regulation, “will always be a back door for unconstitutional federal regulation.”, Justice Scalia appeals to the words of Chief Justice Marshall in McCulloch v. Maryland, however, to highlight the flaws inherent in this reasoning. If Congress wishes to exercise its power under the Necessary and Proper Clause for a “constitutional and legitimate” end, he argues, “the means must be ‘appropriate’ and ‘plainly adapted’ to that end.” Justice Scalia applies these restraints to the case of Raich, concluding that the prohibition of intrastate marijuana use is an appropriate means of regulating what he considers a constitutional end. Further application of this test to the case of Lopez, meanwhile, exemplifies the limits of congressional authority. While the goal of the federal government in Lopez may be considered legitimate, the legislation passed by Congress to achieve this end proved to be inappropriate. With an opinion founded on the precedent of Lopez and a dismissal of Wickard that fails to adequately address the clearly defined restraints on congressional authority outlined by Justice Scalia, Justice O’Connor’s dissent must be disregarded.

Applying the broad definition of interstate commerce central to Raich, it is evident that the preemption of intrastate authority over the manufacturing and production of ADSs is within Congress’s commercial jurisdiction, and does not destroy the notion of enumerated powers. The federal government’s command over the “instrumentalities of interstate commerce” extends to even noneconomic, local activity, so long as such activity “substantially affect[s]” interstate commerce. The manufacturing and production of ADSs, two components of commerce accepted by the majority in Raich, is therefore within Congress’s regulatory power. Even accounting for the interplay of public safety and states’ traditional preeminence over this domain, Raich clearly establishes that congressional power supersedes state authority in all commercial contexts. As the majority opinion notes, Wickard establishes that “‘[n]o form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress.’” Instead of allowing a state such as Arizona to “‘serve as a laboratory’” for “‘novel social and economic experiments,’” a reality Justice O’Connor calls “one of federalism’s chief virtues,” Congress must exercise its plenary commerce power if it wishes to maximize both the safety of its citizens today and the efficiency with which we reach an ADS-dominated future. Our current patchwork system threatens to harm both of the goals central to the NHTSA’s federal regulatory framework.

If Congress wishes to uphold the federal regulatory system, as is within its legal authority under Raich, it must reconsider preempting certain state regulations in a manner similar to when it nearly passed the bipartisan SELF DRIVE Act five years ago. This bill, which failed to pass the Senate in 2017 and is being pushed once again by members of the Energy and Commerce Committee, includes a provision preventing states from establishing any law “regarding the design, construction, or performance of highly automated vehicles, […] unless such law or regulation is identical to a standard prescribed under this chapter.” This provision is then followed by a higher performance requirement, which grants states the authority to prescribe greater performance standards than is federally mandated. In doing so, the bill grants states freedom while also ensuring a rigid and uniform federal regulatory framework. This eliminates the issue presented earlier when discussing the death of Elaine Herzberg and asymmetric regulation in the case of Arizona and California; no longer would the policy of the least regulated state dictate the safety of American citizens. In addition to creating a safer environment, establishing a more uniform system may help manufacturers navigate the legal challenges before them and encourage innovation as a result. Preemption is an appropriate means of achieving these legitimate ends.

IV. Analyzing Alternative Regulatory Systems: Self-Certification vs. Type Approval

With the legal debate over the federal encroachment of state authority settled, we must now turn to the content of our national regulatory system and identify the optimal strategy for maximizing safety and innovation; although Mathews acknowledges the threat type approval poses to innovation, he incorrectly assumes that it can be mitigated after exaggerating the limited nature of its scope. In a 2016 report, the NHTSA reviewed the applicability of the FAA’s type approval process and outlined significant barriers to entry. First, it found that certification lasts three to five years on average. In an industry that is oversaturated with manufacturers and dominated by yearly release cycles, such a timetable would severely hamper innovation and require an overhaul of the car market altogether. But certification can last even longer than five years in some cases. The NHTSA found that it took the Boeing 787 Dreamliner eight years to receive approval due to “the very advanced nature of the aircraft and the production of key components in locations geographically distant from one another.” Mathews would be remiss to assume that ADSs may not face a similarly difficult approval process, since the technology they rely upon is both advanced and constantly evolving. In response to the lengthy timetable of type approval, Mathews strips down his proposal and ultimately argues for a hybrid-type system. “Self-certification,” he writes, “could be preserved for vehicle hardware not critical to the operation of the ADS, and type approval instituted for the ADS and ADS-critical hardware.” Due to their advanced nature, however, anything critical to the ADS would presumably require more time to approve than the hardware associated with typical vehicles. As such, this hybrid approval process faces the same issues as type approval. If America wishes to remain at the forefront of production and innovation in the self-driving car market, it cannot adopt a model similar to what Mathews suggests.

The safety benefits Mathews attributes to type approval, meanwhile, become blurred when viewed through the lens of Thierer and Watney’s predictive model, which applies a broader time-frame when quantifying safety. While Mathews assumes a negative relationship between innovation and safety, Thierer and Watney argue that the two are fundamentally related ends, since future generations are left better off. Although I do not refute the existence of a negative relationship when looking at the short-term effects of regulatory policy, a long-term positive relationship can be established with minimal regulations in place to protect society today. Modeling the potential costs of type approval, Thierer and Watney project that a mere slowdown of 5 percent in the deployment of automated vehicles would lead to “an additional 15,500 fatalities over the course of the next 31 years.” A more drastic change resulting in a regulatory delay of 25 percent, meanwhile, would bring about 112,400 deaths over 40 years. If we are to accept this bleak reality and consider a broader lens when deciding on regulatory policy, type approval no longer offers the extreme benefits to public safety outlined by Mathews.

While type approval may not be a viable alternative to self-certification, Mathews raises an important discussion about consumer confidence in ADSs that presents significant challenges for Thierer and Watney and their hope of maintaining the status quo. If consumers are unwilling to purchase automated vehicles or step foot in self-driving taxis, innovation will naturally slow as a result of low demand. Mathews argues that knowledge of the regulatory approval required before automated vehicles can appear on public roads may increase consumer confidence and ensure high demand. Furthermore, the benefits of type approval in regard to present safety may “prevent the kinds of accidents, such as the Uber crash in Arizona, that undermine public confidence and put the entire future of automated vehicles at risk of a public backlash.” Thierer and Watney fail to mention consumer confidence in their analysis of type approval, nor does it appear to be a factor in their projections regarding the deployment of automated vehicles. A survey conducted by the Pew Research Center in 2017—before the death of Elaine Herzberg spawned increased negative sentiment towards ADSs—validates Mathews’ fears. It found that 56 percent of US adults would not ride in a driverless car, with the majority of this uneasiness stemming from safety concerns and a lack of trust. If this poor confidence slows the pace of innovation, then it too is a grave threat to future safety. Thus, any regulatory framework that aims to promote the safety of both present and future citizens must also be sufficiently strict so as to raise consumer confidence in ADSs.

Although finding this Goldilocks zone may be a near impossible task, I will suggest basic pre-market safety assurance to supplement our current self-certification system. The US Department of Transportation (of which the NHTSA is a member) mentioned safety assurance in a 2016 report on Federal Automated Vehicles Policy as a possible improvement, but seems to have forgotten about it in the years following its publication. Safety assurance tools such as pre-market reporting by vehicle manufacturers of internal testing and data analysis, USDOT argued, could help ensure that “design, manufacturing, and testing processes apply NHTSA performance guidance, industry best practices, and other performance criteria.” By engaging with manufacturers before vehicles are allowed on public roads, safety assurance might help alleviate consumers’ concerns regarding their safety and trustworthiness. With this change, our regulatory framework would remain one of self-certification and thus maintain the innovation-related benefits associated with such a model, while also boosting public safety by both marginally improving present safety and raising consumer confidence so as to promote future safety. Best of all, while a shift to type approval would require congressional approval, no additional statutory authority is required for the NHTSA to implement safety assurance.,

V. Conclusion: Maximizing Safety Without Slowing the Pace of Innovation

Confronted with a sea of regulatory options, Congress and the NHTSA must guide the development of ADSs in a manner that best promotes both present and future safety. Mathews’ analysis fails to address the shortcomings of type approval, which can be disregarded as a harmful alternative to self-certification due to its tendency to slow innovation and threaten long-term public safety as a result. But self-certification may not be the boon to innovation and public safety Thierer and Watney suggest either, since their defense of our current system fails to address issues of consumer confidence. When considering demand in a predictive model of future innovation, increasing regulatory standards becomes more appealing. To achieve the proper balance of regulation so as to accelerate the pace of innovation and maximize short-term safety, I suggest a restructuring of our current self-certification system that relies on the addition of pre-market safety assurance tools.

But even this construction of a more robust national framework falls short if our current regulatory patchwork of state laws remains intact. With the SELF DRIVE Act once again sitting on the floor of Congress, it is imperative that the Senate reconsiders its earlier position. The NHTSA cannot achieve its vision of a safe and innovative self-driving car market if states are left to their own devices. Although far-reaching, this preemption of state authority does not represent an egregious or unconstitutional extension of federal power, but instead fits within the broad definition of interstate commerce championed by the majority of the Supreme Court in Raich. The safety of American citizens, both today and in the future, depends on these changes.

El Salvador’s Bitcoin Law: Contemporary Implications of Forced Tender Legislation

by Cecilia Quirk

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1 Prin.L.J.F. 48

Background

From the invention of paper money in 7th century China to the FDR administration’s decision to drop the gold standard in 1933, money has constantly evolved in unexpected, even unsettling ways. Just as a world without paper money, or even without credit cards, seems unimaginable today, it’s no wonder that the future of money lies in some new technology, namely Bitcoin. First minted in 2009, Bitcoin has soared to new popularity in the past couple of years. This monetary evolution, even revolution, was made possible due to advancements in technology and shifts in consumer perspective and has inspired regulatory and legislative innovations which pose interesting and novel legal challenges dealing with freedom of exchange and contract. A fascinating backdrop for these challenges lies in the context of El Salvador’s Bitcoin Law. 

On September 7, 2021, El Salvador became the first country to adopt Bitcoin as legal tender with the passage of that nation’s so-called “Bitcoin Law”, which placed Bitcoin alongside the U.S. dollar as El Salvador’s official currency. (An important distinction, however, is that while both the U.S. dollar and Bitcoin are legal tender in El Salvador, only Bitcoin is forced legal tender). This meant that all Salvadoran businesses must accept Bitcoin as a means of transaction, taxes are payable in Bitcoin, and the government can now distribute subsidies in Bitcoin. To accompany this law, El Salvador rolled out a supporting network of 200 Bitcoin ATMs, introduced a new digital bitcoin wallet app called Chivo, and distributed $30 worth of Bitcoin to every citizen to kickstart the change. 

Pros and Cons

Proponents of the new Bitcoin Law in El Salvador, such as President Nayib Bukele, say that Bitcoin will give the 70% of Salvadorans without bank accounts access to financial services, and help “reduce the fees they pay to send and receive remittances.” One in every four Salvadorans live abroad, and with the exception of Haiti, El Salvador is the country most reliant on remittances in the Western Hemisphere, accounting for almost three of every 10 dollars, or nearly $6 billion, in El Salvador’s economy. In fact, many advocate for the use of crypto in developing countries, arguing that the prevailing global financial system serves wealthy countries and individuals best. 

On the other hand, less developed economies are more vulnerable to Bitcoin’s notorious volatility and lack of regulation by a central bank. Soon after El Salvador announced that they would be adopting Bitcoin as forced legal tender, the International Monetary Fund (IMF) paused negotiations for the 1.3 billion dollar assistance package to tackle the country’s debt and allow for sustainable public spending taking issue with lack of transparency and environmental costs of cryptocurrency. In a reactionary blog post to El Salvador’s consideration of making Bitcoin a legal tender, IMF cited legal issues including the lack of wide accessibility, a necessary component of a legal tender, due to inconsistent internet access and technological inequities. Just over 50% of El Salvador’s population has internet access, making a legal tender, especially a forced tender, that relies on internet access untenable for much of the population and calling into question who politicians and legislators really had in mind when developing the Bitcoin Law. Within the country, there is a notable lack of support for the law, with a poll by the Universidad Centroamericana Jose Simeon Canas finding that 67.9% of Salvadorans were not in support of the decision to adopt Bitcoin as a legal tender due to both a lack of trust in Bitcoin (8 out of 10 respondents) and a lack of understanding of how to use the new technology (9 out of 10 respondents). 

Article 7 of El Salvador’s Bitcoin Law

Despite the notable complexity, both technologically and legally, of adopting Bitcoin as a forced legal tender, El Salvador’s Bitcoin Law, and Article 7 which enforces the legal tender, is incredibly brief. According to Article 7, “Every economic agent must accept bitcoin as payment when offered to him by whoever acquires a good or service.” In other words, paying with and accepting Bitcoin is not only legal, but its acceptance as payment is compulsory. Policy aside, experts have also argued that forced tender, such as that prescribed by Article 7, is legally unsound as it contradicts the freedom of exchange and contract. Dror Goldberg, an expert on the history of compulsory tender laws, expands upon this claiming that “As [forced tender legislation’s] practical implication has typically been to force producers to part with all their produce for paper, it can also be a severe violation of property rights. It is a rule that penalizes passive behavior. It is, or should be, a controversial rule, unlike a rule prohibiting counterfeiting of money.” Even the U.S. dollar is not a forced tender in El Salvador. Most countries, including the United States, conscious of forced tenders’ restriction on personal freedoms do not have forced tender laws (ex. “Credit only” businesses may refuse to accept cash without legal repercussions). 

Historical Perspective

While forced tender legislation may seem like a new issue, or at least newly relevant, it in fact has a rich and relevant history. In his 2016 article Forced money: legal development of a criminal economic rule, Goldberg argues that forced tender legislation not only infringes upon the freedom of exchange and contract but also represents economic authoritarianism. Tracing the transportation and translation of legal tender laws from Revolutionary to Napoleonic France, the Ottoman Empire, British Cyprus, British Palestine, and Israel, Goldberg concludes that forced legal tender was able to take hold in these instances due to the presence of struggling economies, weak governments, and legislators in favor of economic authoritarianism. As the COVID-19 Pandemic has reversed El Salvador’s previously declining inflation rates, economic growth and direct foreign investment remain chronically low, and weak government institutions have proven to be especially vulnerable to corruption, the country certainly fits the trends Goldberg identified in his research. Interestingly, and unanticipated by Goldberg’s historically-oriented analysis, Bitcoin is a symbol not of the state itself but of its future, of the inter- or even a-national tech hub that President Bukele and legislators hope El Salvador will become. Thus, the “symbolic implications on sovereignty” that Goldberg notes are characteristic of forced tender laws are even more devious in the case of El Salvador where Bitcoin is not stamped with the visages of current or previous Heads of State but is rather the digital face of a disembodied blockchain network. Symbolically then, if Bitcoin’s notorious volatility leads to a drastic downturn in value, it may be shoved off as a failure of technology rather than the laws and leadership of El Salvador. As Goldberg states, “Accepting the state’s money against one’s will is a symbolic obedience to the state,” yet in the case of El Salvador, accepting Bitcoin as forced tender is an obedience to a technological future that as of now, and without the help of the government, will leave many Salvadorans behind. 

Domestic and Foreign Response

The initial rollout of Bitcoin in El Salvador was far from smooth, complete with thousands taking to the streets of El Salvador to protest and technical issues making the Chivo wallet app unusable and its cash inaccessible. There was even a 10% fall in the value of Bitcoin compared to the U.S. dollar on the day it was made legal tender in the country—and has since seen more declines in its value. While Bukele is selling the rollout as a success, claiming that a third of Salvadorans are using Chivo, it is possible that a majority of that demographic is simply using the app for the $30 incentive from the government. In fact, according to The Financial Times, one of El Salvador’s largest banks reported that Bitcoin constituted less than 0.0001% of its daily transactions in early September. Other media outlets also noted excessively long lines at ATMs with people rushing to convert their Bitcoin to more trusted cash.  

Despite the general lack of popularity and ease of use for the Salvadoran public, El Salvador has projected an Insta-worthy image of technological advancement to appeal to young entrepreneurs. TIME describes a sleek launch party where primarily English-speaking crypto fans and social media influencers, even YouTuber Logan Paul, celebrated the law. Bukele, apparently, wants these festivities to last and has promised permanent residency to those who spend three Bitcoin (about $125,000) in the country. Bukele has also pointed out that the legal tender status of Bitcoin, rather than simply an investment asset, in El Salvador allows foreigners moving to El Salvador to avoid the capital gains tax on any profits made as a result of Bitcoin’s value fluctuations. In a tweet of about the same length as Article 7 itself, he further advertises “Great weather, world class surfing beaches, beach front properties for sale” as reasons that crypto entrepreneurs should move to El Salvador. Given the subsidization by the government and foreign facing nature of the incentives, the adoption of Bitcoin as forced tender seems more like a get-rich-quick economy-boosting gambit than a true attempt to systematically improve the lives and financial well being of El Salvadoran citizens. This is dangerous as, while it’s uncertain if the average El Salvadoran citizen will benefit as much as the tech-savvy international, forced tender ensures they will bear the brunt of the risk regardless. 

The IMF and more importantly the majority of El Salvadoran citizens aren’t the only ones discontent with the Bitcoin Law. Notably, the deputy of the leading opposition party in El Salvador, Farabundo Marti National Liberation Front (FMLN), has filed a suit regarding the constitutionality of the Bitcoin Law. Even some crypto enthusiasts take issue with Bitcoin as legal tender, not necessarily because it undermines the rights of citizens but more so because it arguably undermines the legitimacy of cryptocurrency in general. Cryptocurrency in its decentralized state was created exactly to exist outside of government controls so its adoption and potential regulation by governments such as El Salvador seems to defeat the purpose. While not directly related to the Bitcoin Law, the U.S. recently released a memo expressing concern over the September 3rd decision “which authorized immediate presidential re-election in contravention of the Salvadoran constitution.” This decision seems to confirm the authoritarian trend in El Salvador evident in economic authoritarianism of forced tender and Article 7. The adoption of Bitcoin as legal tender, which some fear will soon completely replace the U.S. dollar, could also reduce the potential effect of U.S. economic sanctions in the case of future more authoritarian decisions. 

Conclusion

As the potential for more regulation over and integration of Bitcoin into the mainstream U.S. economy looms large, other countries may prove to be important case studies pertaining to the feasibility and legality of the transition to digital dollars. While countries such as China have notably increased regulations before declaring all crypto transactions illegal, other countries, or at least their leadership as seen in the case of El Salvador, have embraced the crypto movement. Although the concerns arising from Bitcoin as forced legal tender should extend to its role in El Salvador and certainly not be limited to the potential impact on our own country, Goldberg’s observation that “The young United States knew forced money laws from its own Revolution, but continuing it in peace was incompatible with the values of a free-market democracy” should no longer be taken for granted.

The Role of Environmental Personhood in Corporate Practices

by Anna Shin

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1 Prin.L.J.F. 13

Climate change has been at the forefront of environmental issues in both local communities and the global stage. The United Nations now labels climate change as a crisis that affects every country on every continent, and the problem only seems to be worsening by the year. While ordinary individuals can make small, everyday contributions in an effort to lower carbon emissions, much of the attention has been spotlighted on businesses and corporations, calling for them to adopt a “net zero emission” policy by either 2030 or 2050. While many large corporations such as Google and Microsoft have proclaimed their commitment to slashing carbon emissions, both environmental activist groups and the companies themselves have found that the actions to these large claims tend to fall short. Much of this inadequacy has been due to the lack of implementing rigorous, comprehensive standards for companies to reveal their true net emissions data. 

There is a question as to whether corporations are lawfully bound to adopt sustainable practices at the expense of their own resources. Currently, the corporations, excluding their stockholders, are entitled to “corporate personhood” under the law, which defines corporations as able to enjoy and exercise some of the rights and privileges granted to individual people. Corporate personhood also suggests that corporations are defined as “persons” in the Fourteenth Amendment. This is what allows corporations to enter contracts, and also sue others or get sued themselves. The Supreme Court case Citizens United v. Federal Election Committee (2010), which established that corporations were entitled to their First Amendment right of free speech in donating to political campaigns, has not been challenged to this day and therefore the statement that corporations are considered persons continues to stand. 

Considering that corporations are considered as persons, the question of whether the environment, or Earth, is held to the same standard, persists. The concept of “earth jurisprudence,” or the belief that the Earth itself and all of its inhabitants have legal rights, has been used to argue that corporations that follow unsustainable or polluting practices are taking advantage of the Earth’s legal status. While earth jurisprudence has not officially been adopted into U.S. law, there has been much legal discourse on the issue of large corporations exploiting natural resources for profitability. Because the only witness to the Earth’s deterioration is the Earth itself, companies utilize this to silently engage in mass pollution and avoid many of the economic and societal ramifications. 

The fact that U.S. courts view corporations as individuals comes at a cost. Unlike most individuals, large corporations enjoy the influence of money, power, and privilege. Corporations and businesses are built to work solely in favor of themselves and their profitability — establishing constitutionality to protect their interest-driven actions bears significant consequences for the protection of individual rights, and opens doors to corruption and special interests. The environment is one of the greatest victims of these influences, yet its very essence disallows it from seeking rightful protection. In addition to this, every business relies on the use of natural resources to advance its economic and industrial profits, either directly or indirectly. If the government and its laws fail to protect the Earth from misuse and destruction, it renders serious and irreversible damage for all its inhabitants. If the government recognizes nature as an individual and regulates eco-friendly business practices, it will not only benefit the environment, but also the corporation itself. Furthermore, the corporation will be setting itself up for long-term sustainability and profitability. 

The country of Ecuador has already made progress in this issue. In 2008, Ecuador rewrote a portion of its Constitution by including a section called “Rights of Nature.” This acknowledges Earth as an individual and allows other people to bring lawsuits on behalf of it. If the United States were to adopt a similar legal doctrine, it would provide greater authority for the government to pursue environmental issues in higher rigor and reach. 

Earth jurisprudence, although currently far from attaining the status it needs, must be carefully considered within the conversation of climate change as a whole. Without both the physical presence and well-being of the ecosystems we live in, other societal issues are essentially meaningless. It is by the efforts within the legal sphere to acknowledge Earth as an individual that humans will be able to protect the places we live in for the sake of future endeavors.