Chapter 4: Constitutional Law for Business and E-Commerce

Introduction to Constitutional Law for Business and E-Commerce

• In 1776, the colonies declared independence from England, and the American Revolution ensued

• The Declaration of Independence was the document that declared the American colonies’ independence from Great Britain

Constitution of the United States of America

• The U.S. Constitution is the fundamental and supreme law of the United States of America

• The U.S. Constitution, as amended, serves two major functions:

  1. It creates the three branches of the federal government (i.e., the legislative, executive, and judicial branches) and allocates powers to these branches.

  2. It protects individual rights by limiting the government’s ability to restrict those rights

• The Constitution itself provides that it may be amended to address social and economic changes

Federalism and Delegated Powers

• Federalism is the U.S. form of government in which the federal government and 50 state governments share powers

• When the states ratified the Constitution, they delegated certain express powers—called enumerated powers—to the federal government

• Article I, Section 8 of the Constitution lists express powers granted to the U.S. Congress

  • Part of the article is the Necessary and Proper Clause (elastic clause) which grants Congress the power to enact laws that are necessary and proper to implement its express powers

• Reserved powers are powers not delegated to the federal government by the Constitution and reserved for the state governments

  • State governments enact partnership and corporation laws, family law, property law, and educational law

Doctrine of Separation of Powers

Article Ⅰ: (1) Legislative Branch

• The legislative branch is the branch of the federal government that consists of the U.S. Congress (the U.S. Senate and the U.S. House of Representatives) with the responsibility of making federal laws

• Congress is the joint name of the Senate and the House of Representatives

• Each state has two senators in the U.S. Senate

• The number of representatives to the U.S. House of Representatives is determined according to the population of each state

Article Ⅱ: (2) Executive Branch

• The executive branch is the part of the U.S. government that enforces the federal law

  • Consists of the president and the vice president

• The president is not elected by popular vote, but instead is selected by the Electoral College, whose representatives are appointed by state delegations

Article Ⅲ: (3) Judicial Branch

• The judicial branch (courts) is the part of the U.S. government that interprets the law

  • Supreme Court and other federal courts

Checks and Balances

• Checks and balances is a system built into the Constitution to prevent any one of the three branches of the government from becoming too powerful

• Examples (there are more)

  • The judicial branch has authority to examine the acts of the other two branches of government and determine whether those acts are constitutional

  • The executive branch can enter into treaties with foreign governments only with the advice and consent of the Senate

  • The legislative branch is authorized to create federal courts and determine their jurisdiction and to enact statutes that change judicially made law

  • The president has veto power over bills passed by Congress

    • If a bill has been vetoed by the president, the bill goes back to Congress, where a vote of two-thirds of both the Senate and the House of Representatives is required to override the president’s veto

Supremacy Clause

• The Supremacy Clause establishes that the U.S. Constitution, federal treaties, laws, and regulations are the supreme law of the land

  • State and local laws that conflict with valid federal law are unconstitutional

• Preemption doctrine: doctrine that provides that federal law takes precedence over state or local law

  • Congress may expressly provide that a federal statute exclusively regulates an area or activity

  • Often, though, federal statutes do not expressly provide for exclusive jurisdiction

    • In these instances, state and local governments have concurrent jurisdiction to regulate the area or activity

Case 4.1 Supremacy Clause

• Case

  • Mutual Pharmaceutical Company, Inc. v. Bartlett

  • 133 S.Ct. 2466 (2013)

• Facts

  • Bartlett was prescribed a medication made by Mutual

  • After Bartlett took the drug, she suffered severe injuries and sued under New Hampshire labeling law

• Issue

  • Does the federal drug labeling law preempt a stricter state drug labeling law?

• Decision

  • The U.S. Supreme Court held that federal drug labeling law preempted New Hampshire’s stricter labeling law under the Supremacy Clause of the U.S. Constitution

  • The Supreme Court reversed the U.S. court of appeals decision

Commerce Clause

• The Commerce Clause grants Congress the exclusive power to regulate commerce with foreign nations, among the several states, and with Indian tribes

  • Intended to foster the development of a national market and free trade among the states

• Federal government has the power to regulate three types of commerce

  1. Commerce with Native American Tribes

  2. Foreign Commerce

  3. Interstate Commerce

1. Commerce with Native American Tribes [Commerce Clause]

• During the formative years of the United States, federal government regulated commerce with Native American tribes

• Federal government entered into treaties with many Native American nations

• Native Americans are treated as domestic dependent nations with limited sovereignty

2. Foreign Commerce [Commerce Clause]

• The Foreign Commerce Clause grants the federal government the authority to regulate foreign commerce

• Direct and indirect regulation by state or local governments that unduly burdens foreign commerce violates the clause and is therefore unconstitutional

3. Interstate Commerce [Commerce Clause]

• Interstate commerce is commerce that moves between states or that affects commerce between states

  • Anything that “effects” commerce

• Under the effects on interstate commerce test, the regulated activity does not itself have to be in interstate commerce

  • Thus, any local (intrastate) activity that has an effect on interstate commerce is subject to federal regulation

State Police Power

• The states did not delegate all power to regulate business to the federal government

• States retained the power to regulate intrastate commerce and much of the interstate commerce that occurs within their borders

• Police power is the power that permits states and local governments to enact laws to protect or promote the public health, safety, morals, and welfare

  • This includes the authority to enact laws that regulate the conduct of business

Dormant Commerce Clause

• The Dormant Commerce Clause is the situation in which the federal government has the Commerce Clause power to regulate an area of commerce but has chosen not to regulate that area of commerce

• A state, under its police power, can enact laws to regulate that area of commerce

• However, if a state enacts laws to regulate commerce that the federal government has the power to regulate but has chosen not to regulate, the Dormant Commerce Clause prohibits the state’s regulation from unduly burdening interstate commerce

Case 4.2 Commerce Clause

• Case

  • Tennessee Wine and Spirits Retailers Association v. Thomas

  • 139 S.Ct. 2449 (2019)

• Facts

  • Tennessee requires people who wish to sell liquor in the state be residents

• Issue

  • Does Tennessee’s two-year residency requirement to obtain a retail liquor store license violate the Dormant Commerce Clause?

• Decision

  • The U.S. Supreme Court held that Tennessee’s two-year residency requirement to obtain a retail liquor store license unduly burdens interstate commerce and violates the Dormant Commerce Clause

E-Commerce and the Constitution

• Electronic commerce (e-commerce) is the sale of goods and services or the licensing of intellectual property by computer over the internet

  • Parties are permitted to obtain website domain names and conduct business electronically

• Because e-commerce is commerce, it is subject to the Commerce Clause of the U.S. Constitution

• E-commerce can be used for:

  • Sales of goods

  • Licensing of intellectual property

  • Sales of services

Bill of Rights and Other Amendments to the U.S. Constitution

• The Bill of Rights are the first ten amendments to the U.S. Constitution

  • Guarantees certain fundamental rights to natural persons

  • Protects from intrusive government action by:

    • Federal government

    • State governments (incorporation doctrine)

      • The incorporation doctrine is a doctrine applied by the U.S. Supreme Court that holds that most of the fundamental guarantees contained in the Bill of Rights are not only applicable to federal government action but are also applicable to state and local government action

• Other Amendments to the U.S. Constitution

  • Freedom of Speech

  • Freedom of Religion

  • Free Exercise Clause

Freedom of Speech

• Freedom of speech is the right to engage in oral, written, and symbolic speech protected by the First Amendment

  • Protects speech only, not conduct

• The U.S. Supreme Court places speech into three categories: (1) fully protected, (2) limited protected, and (3) unprotected speech

(1) Fully Protected Speech

• Fully protected speech is speech that cannot be regulated or prohibited by government

• Can be oral, written, or symbolic

  • Example criticizing the President, burning the U.S. flag as protest

(2) Limited Protected Speech

• Limited protected speech is speech that the government may not prohibit but that is subject to time, place, and manner restrictions

  1. Offensive speech is speech that is offensive to many members of society

     • Example The Federal Communications Commission (FCC) regulates radio, T.V. for offensive language

  2. Commercial speech is speech used by businesses, such as advertising

(3) Unprotected Speech

• Unprotected speech is speech not protected by the First Amendment and may be forbidden totally

• Types of unprotected speech:

  1. Dangerous speech

  2. Fighting words that are likely to provoke a hostile or violent response from an average person

  3. Speech that incites the violent or revolutionary overthrow of the government

  4. Defamatory language

  5. Child pornography

  6. Obscene speech

Case 4.3 Freedom of Speech

• Case

  • Iancu v. Brunetti

  • 139 S.Ct. 2294 (2019)

• Facts

  • An entrepreneur founded a clothing line under the brand FUCT and was denied a trademark by the U.S. Patent and Trademark Office

• Issue

  • Does the ”immoral and scandalous matter” provision of the Lanham Act violate the Free Speech Clause of the First Amendment?

• Decision

  • The U.S. Supreme Court held that the immoral and scandalous matter prohibition of the Lanham Act violates the Free Speech Clause of the First Amendment

Freedom of Religion

(1) Establishment Clause

• The U.S. Constitution requires federal, state, and local governments to be neutral toward religion

• The Establishment Clause is a First Amendment clause prohibiting the government from either establishing a state religion or promoting one religion over another

• However, government action or assistance that implicates religion may be held not to violate the Establishment Clause if the challenged action (1) has a secular purpose; (2) has a principal or primary effect that neither advances nor inhibits religion; and (3) does not foster an excessive government entanglement with religion

(2) Free Exercise Clause

• The Free Exercise Clause is a First Amendment clause that prohibits the government from interfering with the free exercise of religion in the United States

  • Generally, this clause prevents the government from enacting laws that either prohibit or inhibit individuals from participating in or practicing their chosen religions

Case 4.4 Establishment Clause

• Case

  • The American Legion v. American Humanist Association

  • 139 S.Ct. 2067 (2019)

• Facts

  • A war memorial contained a large cross

  • An atheist organization challenged the presence of the cross on public property

• Issue

  • Does the cross on public property and its maintenance by a public entity violate the Establishment Clause?

• Decision

  • The U.S. Supreme Court held that the Bladensburg Cross did not violate the Establishment Clause and reversed the decision of the U.S. court of appeals

Equal Protection

• The Fourteenth Amendment was added to the U.S. Constitution in 1868 that contains the Due Process, Equal Protection, and Privileges and Immunities clauses

• The Equal Protection Clause is a clause of the 14th Amendment that provides that a state cannot deny to any person within its jurisdiction the equal protection of the laws

  • Laws cannot classify and treat “similarly situated” persons differently

  • Artificial persons, such as corporations, are also protected

  • Note that this clause is designed to prohibit invidious discrimination: It does not make the classification of individuals unlawful per se

• Any violations against Equal Protection are tested under Standards of Review

Standards of Review

• The Supreme Court, over years of making decisions involving the Equal Protection Clause, has held that the government can treat people or businesses differently from one another if the government has sufficient justification for doing so

• The Supreme Court has adopted three different standards of review for deciding whether the government’s different treatment of people or businesses violates or does not violate the Equal Protection Clause:

  • (1) Strict scrutiny test, (2) intermediate scrutiny test, and (3) the rational basis test

(1) Strict Scrutiny Test

• The strict scrutiny test is a test that is applied to determine constitutionality of classifications by the government based on:

  1. Suspect class (e.g., race, national origin, religion)

  2. Fundamental rights (e.g., voting, access to courts)

• This means that the government must have an exceptionally important reason for treating persons differently because of their race or suspect class status in order for such unequal treatment to be lawful

• Example A government rule that permits persons of one race but not of another race to receive government benefits such as Medicaid would violate this test.

(2) Intermediate Scrutiny Test

• The intermediate scrutiny test is a test applied to determine the constitutionality of classifications by the government based on protected classes (e.g., gender)

• This means that the government must have an important reason for treating persons differently because of their sex or protected class status in order for such unequal treatment to be lawful

• Example The federal government’s requirement that men (upon reaching the age of 18) must register for a military draft but that women do not have to register for the draft has been held to be constitutional by the U.S. Supreme Court.

(3) Rational Basis Test

• The rational basis test is a test applied to classifications not involving a suspect class, a fundamental right, or a protected class (e.g., age, government regulation)

  • Court will uphold government regulation so long as there is a justifiable reason for it

  • Permits much of the government regulation of business

• Example The federal government’s Social Security program, which pays benefits to older members of society but not to younger members of society, is lawful. The reason is that older members of society have earned this right during their lifetimes.

Case 4.5 Due Process and Equal Protection Clauses

• Case

  • Obergefell v. Hodges

  • 135 S.Ct. 2584 (2015)

• Facts

  • Same sex couples challenged various state laws that defined marriage as a union between one man and one woman

• Issue

  • Do laws that prohibit same-sex marriage violate the Due Process Clause and Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution?

• Decision

  • The U.S. Supreme Court held that state laws that prohibit same-sex marriage or that do not recognize valid same-sex marriages are unconstitutional

  • The Supreme Court reversed the judgment of the Court of Appeals for the Sixth Circuit

Due Process

• The Due Process Clause states that no person shall be deprived of life, liberty, or property without due process of the law

  • Fifth Amendment: federal government action

  • Fourteenth Amendment: state and local government action

    • A state must notify a defendant of the crime with which it is charging the defendant as well as provide the defendant with a proper hearing

  • The government is not prohibited from taking a person’s life, liberty, or property —> *They must follow due process in order to do so*

• There are two categories of due process: (1) substantive and (2) procedural

(1) Substantive Due Process

• Substantive due process requires that government statutes, ordinances, regulations, or other laws to be clear on their face and not overly broad in scope

• Tested using a reasonable person’s understanding of the law

• Laws failing the test are declared void for vagueness

(2) Procedural Due Process

• Procedural due process requires the government to give a person proper notice and hearing of legal action before depriving that person of life, liberty, or property

• Example If the federal government or a state government brings a criminal lawsuit against a defendant for the alleged commission of a crime, the government must notify the person of its intent (by charging the defendant with a crime) and provide the defendant with a proper hearing (a trial).

Government Taking of Property

• The Takings Clause is a clause of the 5th Amendment that allows the government to take private property from property owners for public use

• Requires:

  • (1) Public Use

    • Private property can ONLY be taken for public use

  • (2) Just Compensation

    • The Just Compensation Clause requires the government to compensate the property owner, when the government takes property under its power of eminent domain

Privileges and Immunities

• The purpose of the U.S. Constitution is to promote nationalism

  • If the states were permitted to enact laws that favored their residents over out-of-state residents, the concept of nationalism would be defeated

• The Privileges and Immunities Clause provides that “the Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several states”

• The Fourteenth Amendment contains the Privileges or Immunities Clause, which provides that “no state shall make or enforce any law that shall abridge the privileges or immunities of the citizens of the United States

• Collectively, the clauses prohibit states from enacting laws that unduly discriminate in favor of their residents

  • Note that the clauses apply only to citizens and do not protect corporations or aliens

  • Example A state cannot enact a law that prevents residents of other states from owning property or businesses in that state.

• Courts have held that certain types of discrimination that favor state residents over nonresidents are lawful

  • Examples State universities are permitted to charge out-of-state residents higher tuition than in-state residents. States are also permitted to charge higher fees to nonresidents for hunting and fishing licenses.