Court Says Connecticut’s E-waste Program Doesn’t Unlawfully Interfere with Interstate Commerce

Connecticut’s electronics recycling program does not unlawfully interfere with interstate commerce, says a federal appeals court.

In 2007, the Connecticut legislature created a system where certain electronics manufacturers doing business in the state would have to register with the state’s Department of Energy and Environmental Protection (DEEP) and pay a fee associated with the cost of recycling the products they produce. Essentially, the law mandates producer participation to facilitate the collection, transportation and recycling of certain electronic devices. 

As a manufacturer of non-cathode ray tube televisions sold nationwide, including Connecticut, VIZIO, Inc. was swept up in the state's recycling program. VIZIO did not dispute that it is a covered manufacturer under the law, nor did it contest the state's power to compel VIZIO to pay into the recycling program. VIZIO did, however, challenge how Connecticut calculates its recycling fee.

The program is operated by "covered electronic recyclers" (CERs)—private entities that register with the state and collect all "covered electronic devices" for recycling and dispose of them. For their part, the manufacturers pay their assigned fees directly to the CERs.

Under the law, DEEP had to enact regulations "to establish annual registration and reasonable fees for administering the [recycling] program . . . ."  The fees must be "representative of the manufacturer's market share” using national market share data." DEEP's regulations, which took effect in 2010, determine each manufacturer’s market share based on:

In 2015, VIZIO filed a complaint in federal district court, naming the DEEP commissioner as defendant and alleging that the national market share approach unlawfully regulates interstate commerce by directly regulating VIZIO's out-of-state sales and by controlling VIZIO's conduct outside of the state's boundaries. In short, as VIZIO saw it, Connecticut's national market share approach improperly ties in-state fees to out-of-state transactions and overcharges on out-of-state sales.

VIZIO cited costs associated with the e-waste law that increase the cost of doing business in Connecticut and nationwide. The result, VIZIO argued, is a disproportionate share of the regulatory costs falling on producers like VIZIO that manufacture products that are sold in-state and out-of-state. Additionally, VIZIO asserted that by considering a company's national sales, Connecticut double charges manufacturers for sales made outside the state. All of this, VIZIO claimed, infringes on the interstate market for televisions "by reducing the narrow revenue margins that VIZIO can capitalize upon to price and compete."

Because its assigned national market share was higher than the company's actual share of the Connecticut market, VIZIO contends that the fees it paid were correspondingly disproportionate. VIZIO claimed to have spent more than $2.5 million to comply over a three-year period. These costs have accrued despite VIZIO's insistence that the e-waste law principally funds the recycling of cathode ray tube televisions, a product VIZIO has never manufactured. Thus, VIZIO asserted that it is assessed a fee not in proportion with its true share of the Connecticut market or the actual burdens VIZIO places on the recycling program.

U.S. District Judge Victor A. Bolden rejected VIZIO’s complaint as legally inadequate but allowed the company to "add factual allegations from which the Court could reasonably infer that the National Market Share provision of the E-Waste Law has the practical effect of directly controlling the interstate prices of its televisions." But despite VIZIO’s supplemental filing of additional material, Judge Bolden concluded that the company had not presented a viable legal claim under the Commerce Clause of the U.S. Constitution. He dismissed VIZIO’s lawsuit.

On appeal, VIZIO continued to maintain that the Connecticut e-waste law violates the Commerce Clause by directly controlling out-of-state business activity, by imposing an impermissible user fee and by impermissibly burdening interstate commerce in relation to local benefits. However, a three-judge panel of the U.S. Court of Appeals for the Second Circuit upheld the district court decision with the same rationale: VIZIO failed to provide a recognized legal basis for invalidating Connecticut's e-waste law under the Commerce Clause.

The Commerce Clause gives Congress the exclusive power to regulate business activity among the several states. But this provision has long been interpreted to contain a negative aspect that denies the states the power to discriminate against or burden the interstate flow of articles of commerce. The job of the courts is to first determine whether a challenged law discriminates against interstate commerce or merely regulates evenhandedly with only incidental effects on interstate commerce.

Here, VIZIO argued that Connecticut's e-waste law discriminates against interstate commerce because the effect of the law is to control prices beyond Connecticut's borders. VIZIO claimed that by assessing a recycling fee calculated by reference to a manufacturer's national, rather than local, market share, Connecticut impermissibly regulates interstate commerce. In response, the appeals court said: “Such a principle has not before been acknowledged in our Commerce Clause [cases] and we decline to extend that doctrine here.”

The panel also rejected VIZIO’s claim that because Connecticut's law influences national pricing decisions, it has an unconstitutional, extraterritorial effect by controlling conduct beyond the boundaries of the state. “The practical effect of Connecticut's E-Waste Law does not [require] out-of-state conformance with its dictates such that VIZIO cannot successfully argue that the law is unconstitutionally extraterritorial in its effect,” the opinion noted. “Connecticut's E-Waste Law does nothing to control interstate commerce, but rather merely considers out-of-state activity in imposing in-state charges. Indeed, VIZIO is not compelled to conduct its business outside of Connecticut on the state's proscribed terms. Rather, VIZIO is free to arrange its business in one manner or another without consideration of out-of-state compliance with Connecticut's E-Waste Law.” In short, the opinion concluded, Connecticut does not—nor did VIZIO claim it did—direct VIZIO's decision-making or that of any other interstate commercial participant.

“The benefits provided by Connecticut's E-Waste Law are legion,” said the panel. “Primarily, the law funds the state's recycling efforts, a clear benefit to the public at large. Secondarily, the market share approach itself provides additional benefits in that it, among other things: apportions costs amongst state market participants, reduces the administrative strain other approaches may carry in identifying producers, and guarantees that any ‘orphan’ products—those for which an original manufacturer is unidentifiable—will be recycled.”

As for VIZIO’s claim that the Connecticut law double charges recycling costs in different states, the court found no impermissible burden on interstate commerce. “Neither Connecticut's consideration of out-of-state sales as a basis for its e-waste fees nor any resultant allegedly "duplicative" charges in multiple states constitute a regulatory inconsistency. Rather, it is merely an inconvenience for VIZIO to pay a seemingly larger e-waste bill. Connecticut has done nothing to create—or increase the likelihood of—inconsistent obligations with which VIZIO must comply in different states.”

VIZIO, Inc. v. Klee, No. 17-227-cv, 2d Cir., March 29, 2018

Barry Shanoff is a Bethesda, Md., attorney and general counsel of the Solid Waste Association of North America.