Constitutional Law I Spring 2004Con Law I Market Participant Doctrine April 27, 2004

2 Market Participant Doctrine State laws that discriminate against IC are presumptively invalid What about state’s own purchases?  Doesn’t it have to favor 1 supplier over others? Or state’s own sales (e.g., timber sales)  Doesn’t it have to favor 1 purchaser over others? When state is acting like private party, does it have same freedom of action? Should there be a distinction between the governmental & proprietary functions of gov’t?

3 Market Participant Doctrine Hughes v. Alexandria Scrap (1976) State car recycling program favoring Maryland sellers. Reeves v. Stake (1980) S.Dak. cement plant favored in-state buyers  What’s a nice state like S.D. doing making cement?

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5 MPD Theories Com. Clause designed to limit state taxing & regulatory powers, not market activities DCC fails on originalism grounds When regulating, states exercise sovereign power over markets; when participating, states are governed by market economics Sovereign / proprietary distinction When participating in market, states act as fiduciaries over public funds Sovereignty basis for exempting states

6 MPD Theories Sovereignty basis for exempting states Internal inconsistencies  MPD applies only when acting in non-sover’n capacity  When acting in sovereign capacity, is state both exempt from Commerce Clause on 10 th amd grounds and exempt from DCC on MPD grounds? Under MPD, states can be protectionist Despite their effect on interstate markets But, if truly a market participant,  Then subject to federal laws regulating markets  Including anti-trust laws

7 Market Participant Doctrine White v. Mass Employer’s Council (1983) Mass-hire restriction for public works contract  City can discriminate in spending own funds  Even though municipalities are the nation’s largest employers Has MPD gone too far? Any other constitutional restraints?

8 Downstream regulation S.Central Timber v. Alaska (1984) Low-price timber sales to firms processing in AK Designed to protect existing (lumber) industries What market is AK a participant in? Timber sales? Lumber processing? Can it use its MPD exemption in the former to impose conditions on the latter? No. AK is engaging in “downstream regulation” outside of the “discrete, identifiable class of economic activity in which it is a participant”

9 Downstream regulation S.Central Timber v. Alaska (1984) With the in-state processing conditions, AK is acting more like a sovereign than a proprietor Rehnquist dissent:  Distinction without a difference AK could sell only to companies with in-state mills AK could process the timber itself, then sell wood products AK could directly subsidize in-state mills  Is formalism important here? Does it matter that most of AK’s timber sales were to Japanese companies?

10 Exceptions to MPD When state has monopoly power in the market in which it participates Monopolists enjoy “market power,” i.e., the ability to “regulate” the market Sale of natural resources States have special stewardship responsibilities (akin to regulatory power) over nat. resources Foreign commerce The “dormant” foreign commerce doctrine is even stronger than the DCC, and may not admit of same exception for state market acts