The International Work of the California Attorney General: a New Era for California and Federalism

• Publication year: 2016
• Author: By Emilio E. Varanini

The International Work of the California Attorney General: A New Era for California and Federalism

By Emilio E. Varanini^*

California's economy, the eighth largest in the world,¹ is closely linked to international commerce in an era with companies relying on global supply-chains² and a great amount of foreign investment and export activity.³ In our federalist system, states such as California can end up playing a far from insignificant role in foreign affairs and foreign commerce.⁴

Federal law is not inhospitable to that role. The United States Supreme Court has found not only that federal laws should be interpreted to avoid usurping state law even if those federal laws result from international treaties,⁵ but also that state laws impacting foreign commerce should not be nullified if Congressional intent indicates an acceptance of that law.⁶ And states such as California have played a key role in the implementation of international treaties and norms of customary international law in the domestic sphere.⁷ In fact, the extraterritorial impact of California's laws, as furthered by the work of such state actors as the California Attorney General, provides some of the best illustration as to the important and appropriate role that a state like California can play in furthering international commercial norms within our constitutional scheme.⁸

For example, California's antitrust laws have provisions that countenance its extraterritorial application,⁹ including its specific application to foreign firms doing business in this state.¹⁰Accordingly, the California Attorney General has brought cases against foreign cartels with members that directly or through subsidiaries do business in this state.¹¹ In turn, the United States Department of Justice has viewed the ability to file and prosecute such state-law civil claims as being important to the ability of victims to recover damages flowing from these cartels.¹² A recent series of settlements by the California Attorney General in the international price-fixing Cathode Ray Tubes (CRTs) case—that just received preliminary approval—involved substantial monetary and non-monetary relief, including unprecedented cooperation from foreign companies, compliance training and reporting requirements applicable to foreign companies and domestic subsidiaries, and injunctive relief applicable across multiple product lines.¹³

The ability to file such claims, and obtain specific relief, has become consonant with evolving international practice; whereas American state and federal laws were once nearly alone as allowing for such claims, now such claims can be filed all over the globe.¹⁴ Thus, cases such as the one filed by the California Attorney General in CRTs substantially impacts international norms.

But the extension of state law to international actors, and the role of the California Attorney General in addressing such, is not limited to international cartels. For example, the California Attorney General worked closely with the U.S. Government in its successful defense of a state environmental law that phased out a fuel additive when a foreign investor challenged that law under the North American Free Trade Agreement ("NAFTA") as amounting to an illegal expropriation.¹⁵ This case was important for demonstrating that international treaties designed to further foreign investment and trade could not be used to displace local, even-handed laws designed to meet neutral environmental or labor goals—a norm whose establishment may pave the way for more integrated multilateral trade accords such as the Trans-Pacific Partnership.

Indeed, the recently enacted California Transparency in Supply Chains Act grants to the California Attorney General the specific power to enforce a law requiring every retailer and manufacturer doing more than $100,000,000 worth of business, as measured by gross receipts, in California to detail its efforts to eradicate slavery and human trafficking from the supply chain for its goods.¹⁶ This law applies even though such companies may have relatively limited contacts with California, i.e., $500,000 in sales in the state, personal property worth $50,000 in the state, or payment of $50,000 in compensation.¹⁷ It enables the California Attorney General to enforce its provisions by requiring the California Franchise Tax Board to provide the California Attorney General with a list of all retailer manufacturers and sellers who are subject to this law.¹⁸ And, in 2015, the California Attorney General published a Resource Guide to enable foreign and domestic businesses to understand and follow the requirement of the statute.¹⁹ This law enables California to set norms for all businesses, foreign and domestic, with a sufficient nexus to the state, norms that may in turn influence international law and commerce.

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Finally, the California Attorney General filed a lawsuit under California's Unfair Competition Law against two foreign apparel companies, one in China and the other in India.²⁰ The Attorney General alleged that these companies engaged in intellectual property piracy and that such piracy gave them both short-term and long-term competitive advantages against American apparel manufacturers.²¹

Los Angeles is one of the key centers of the apparel and fashion industry in the United States.²² In an industry with razor-thin profit margins, not paying license fees for software can give companies a short-term competitive advantage.²³ And, in an industry where one's intellectual property cannot be protected against theft, American companies have less of an interest in not offshoring production, thus giving foreign companies that engage in piracy a long-term advantage.²⁴ This latter point cannot be emphasized enough given that the apparel industry is on the verge of a production revolution, driven by such advances as 3-D printing, in which everyone will be able to order clothes customized to taste and fit, for rapid delivery.²⁵

This lawsuit thus fills a void in international intellectual property treaties and customary law, namely the lack of any remedies for the downstream effects of intellectual property piracy. And, by filling such a void, the California Attorney General can influence international norms for the benefit of safeguarding innovation. Recently, the California Attorney General settled with one of the two...