Where Two Streams of Commerce Meet

By Professor Aaron Caplan

This post is part of the Strange Bedfellows series at Prawsblawg.

Those of us who also teach Civil Procedure are familiar with the “stream of commerce” concept within the constitutional law of personal jurisdiction. Under circumstances that the Supreme Court has notoriously failed to make clear, an entity that manufactures and sells a product in one state may be subject to personal jurisdiction to the courts of another if the product causes injury after traveling there through “the stream of commerce.” Less well remembered is that the “stream of commerce” once had a significant role to play in the law of the Commerce Clause.

These two streams of commerce are taught under different pedagogical silos, but may have something to say to each other.

During the Lochner era, SCOTUS cases involving the commerce power attempted to draw a line between transactions deemed to have “direct” impact on interstate commerce (which Congress could regulate) and those with only “indirect” interstate impact (which Congress could not regulate). Conversely, the federal government was allowed to impose regulations on interstate commerce that affected local commerce, so long as their impact was “indirect.” In appropriate cases, SCOTUS was willing to see “direct” impact when purely in-state activities took place within a stream of commerce that would predictably flow to other states.

The metaphor was introduced in Swift & Co. v. United States, 196 U.S. 375 (1905), which upheld an antitrust injunction against price-fixing in the meat industry. Even though the agreement to fix prices occurred within the boundaries of one state, that transaction had a significantly plain impact on the interstate flow of goods as to justify federal regulation. As Justice Holmes opinion said:

When cattle are sent for sale from a place in one state, with the expectation that they will end their transit, after purchase, in another, and when in effect they do so, with only the interruption necessary to find a purchaser at the stock yards, and when this is a typical, constantly recurring course, the current thus existing is a current of commerce among the states, and the purchase of the cattle is a part and incident of such commerce.

This ruling was only ten years after SCOTUS had ruled in United States v. E.C. Knight Co., 156 U.S. 1 (1895) that federal antitrust laws could not reach the purportedly local activity of operating a sugar refinery. The tension between the two rulings was fairly obvious. In both cases, an economic combination (monopolization in E.C. Knight, price fixing in Swift) affected customers in other states with regard to their purchase of a commodity food item, yet only one could be federally regulated. After decades of back and forth over where the “stream of commerce” began and ended, NLRB v. Jones & Laughlin Steel, 301 U.S. 1 (1937) put the entire framework to rest:

We do not find it necessary to determine whether these features of defendant’s business dispose of the asserted analogy to the “stream of commerce” cases. The instances in which that metaphor has been used are but particular, and not exclusive, illustrations of the protective power which the government invokes in support of the present act. The congressional authority to protect interstate commerce from burdens and obstructions is not limited to transactions which can be deemed to be an essential part of a “flow” of interstate or foreign commerce.

Now consider the stream of commerce as used in modern personal jurisdiction decisions. World-Wide Volkwagen v. Woodson, 444 U.S. 286 (1980), said in widely quoted dicta: “The forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.” The opinion did not cite to any Commerce Clause decisions, but instead to a well-known Illinois Supreme Court decision—Gray v. American Radiator & Standard Sanitary Corp., 176 N.E.2d 761 (Ill. 1961)—that did not use a riparian analogy, but noted that goods had passed from one state to another “in the course of commerce.” The image of a stream helpfully captured the idea for a jurisdictional context. If a person poured poison into a river in one state, knowing that it would be carried downstream and cause injury in another state, personal jurisdiction in the second state ought to be proper. So too for pouring injurious items (like malfunctioning automobiles or radiator parts) into the stream of commerce.

Since World-Wide Volkswagen, SCOTUS has not been able to clearly articulate when a manufacturer has a legitimate “expectation” that its goods will be purchased in the forum state, and hence whether it has been properly introduced into a stream of commerce that predictably flows there. Fractured decisions in Asahi Metal Industries v. Superior Court, 480 U.S. 102 (1987), and J. McIntyre Machinery Ltd v. Nicastro, 131 S.Ct. 2780 (2011), have left confusion about how the concept should be applied.

The stream of commerce under the Commerce Clause is not regularly taught, since it has been successfully interned. The stream of commerce remains a live topic in Civil Procedure. Some useful comparisons can nonetheless be made.

Both lines of “stream of commerce” cases involve a similar problem: when should a person’s local activity, having effects elsewhere, give rise to legal consequences outside the home state? Both also involve line-drawing problems: where should the stream of commerce be declared to begin and end? In both settings, the stream of commerce concept seems to have been introduced as a way to soften an otherwise draconian rule that prevented the government from taking action desired by the political branches. And in both settings, the concept has been an unreliable guide to deciding concrete cases. In response to the doctrinal confusion, Justice Kennedy’s plurality opinion in Nicastro sought to inter the stream of commerce metaphor, but unlike Jones & Laughlin, there was no majority willing to take that step. If Justice Kennedy’s view in Nicastro prevails, the stream of commerce concept would be banished from personal jurisdiction because a conservative court perceived that it allowed governments to do too much—contrasting with Jones & Laughlin, where the stream of commerce was be banished from the Commerce Clause because a newly liberal Court perceived that it forced government to do too little.

Prof. Caplan is the author of the new casebook, <a href="http://www.caplanintegratedconlaw.com/">An Integrated Approach to Constitutional Law</a>.