ICLE Welcomes DOJ and NEC Effort to Identify State Laws with Out-Of-State Impacts

Kristian Stout September 16, 2025

Portland, Ore. (Sept. 16, 2025) — The International Center for Law & Economics (ICLE) submitted comments yesterday to the U.S. Justice Department (DOJ) and the National Economic Council in response to their effort to “identify State laws that significantly and adversely affect the national economy or interstate economic activity and to solicit solutions to address such effects.”

ICLE scholars note a pattern of large states—and particularly California—wielding their economic power to impose regulatory preferences on the entire nation, creating a fundamental threat to the constitutional structure of federalism and the efficiency of interstate commerce. This represents a departure from the traditional understanding that states possess sovereign authority within their borders, not beyond them. As White House Senior Adviser Sriram Krishna reportedly noted at the Politico AI & Tech Summit: “We don’t want California to set the rules for AI across the country.”

ICLE Director of Innovation Policy Kristian Stout offered the following statement regarding the comments he submitted, alongside ICLE fellow scholars:

“American states increasingly use their economic power to force regulatory preferences on the entire nation, threatening our constitutional structure and the free flow of interstate commerce. This regulatory fragmentation imposes economic costs on businesses and consumers, disproportionately burdening small businesses and stifling innovation. While the judiciary has been reluctant to intervene, Congress can restore uniformity to our markets through direct preemption, conditional spending, or by mandating recognition of contractual choice-of-law provisions. Moreover, the DOJ has a long history of intervening in cases involving interstate conflicts, as well as the ability to issue guidance to help states keep their legislative activity within constitutional bounds. The window for action is narrowing, and policymakers must choose between preserving the principles that have underpinned our economic prosperity, or simply allowing the largest states to dictate national policy.”

Policy Recommendations 

ICLE scholars offer the following policy recommendations across the issues and state policies included in the comments: 

• Automobile-Dealer Franchise Laws: These anachronistic and anticompetitive laws protect in-state dealers from competition by forcing new manufacturers to employ a dealership model, stifling innovation and increasing costs for consumers. The DOJ should issue a report on the harms these laws cause, support ongoing legal challenges with amicus briefs, and explore direct legal challenges to the constitutionality of such laws by invoking the Dormant Commerce Clause.
• State and Local Land-Use Regulations: Local-land use policies, such as restrictive zoning and urban growth boundaries, limit housing supply and drive up costs, hindering labor mobility and suppressing national economic growth. Congress and the executive branch should condition federal housing, community development, and transportation funds on states implementing meaningful land-use reforms, such as legalizing higher-density housing.
• Prevailing-Wage Laws: Prevailing-wage laws and project-labor agreements distort competition and inflate costs in the construction industry. Oregon’s new law, which extends these requirements to offsite manufacturing regardless of location, is cited as a direct attempt by one state to regulate economic activity outside its borders. The DOJ should challenge this law on grounds that it violates the Dormant Commerce Clause through its explicit extraterritorial reach.
• Certificates of Convenience and Necessity (CCNs) and Certificates of Need (CONs): These laws are government-imposed barriers that protect incumbent, in-state providers from new competition, particularly in health care and utilities. They lead to higher costs, lower quality, and hinder the entry of out-of-state businesses. Congress should preempt these laws by passing legislation that would dismantle these state-level cartels and restore competition to critical sectors.
• Corporate Practice of Medicine (CPOM) Doctrine: The CPOM doctrine refers to state regulations that prevent corporations and non-physician entities from employing physicians or directly practicing medicine. The doctrine, rooted in historical concerns about corporate interests, now encompasses an outdated and incoherent patchwork of laws that stifle innovation. The DOJ and FTC should collaborate on an empirical assessment of CPOM restrictions to determine if their intended benefits outweigh the significant costs of stifled investment and innovation.
• Marijuana Trafficking: The conflict between state legalization and federal prohibition of marijuana has engendered significant negative externalities in the form of illicit interstate trafficking. Criminal organizations exploit price differentials across states’ legal regimes, burdening states that have not legalized marijuana. The DOJ should formally reestablish and vigorously enforce the federal priority of preventing the diversion of marijuana by targeting, investigating, and prosecuting criminal organizations that traffic marijuana across state lines.
• State Antitrust and Unfair-Competition Laws: Some state laws, such as California’s Unfair Competition Law, diverge from federal antitrust policy and can stifle efficient business practices. This creates compliance costs and regulatory uncertainty for businesses operating in national markets. Federal legislative or regulatory intervention is needed to clarify the relationship between state unfair-competition laws and federal antitrust standards, particularly in markets where operations are inherently interstate.
• Automotive and Fuel Markets: California’s unique waiver under the Clean Air Act and its specific fuel regulations create a fragmented national market. This forces vehicle manufacturers to design entire fleets to meet California’s standards and imposes compliance costs on out-of-state fuel producers. Congress should repeal California’s unique waiver authority in favor of a single, uniform national market for vehicles and fuel.
• State Interchange-Fee Regulations: Illinois’s new law regulating interchange fees on the gratuity and sales-tax portions of a transaction extends its reach far beyond the state’s borders, imposing substantial compliance costs on out-of-state banks and payment networks. The law faces serious legal challenges, as it significantly interferes with national banks’ powers. The DOJ should join the legal challenge in support of the plaintiffs to make clear that federal law preempts this and similar laws that would effectively raise the cost of payment cards nationwide.
• Digital Privacy: The lack of a preemptive federal law has led to a patchwork of state-level data-privacy regulations that impose extraordinary compliance costs on businesses, stifle innovation, and create barriers to entry for startups. Congress should enact a federal statute requiring states to recognize and enforce contractual choice-of-law provisions for privacy policies, allowing businesses to comply with a single state’s legal framework while fostering competition among states to create the most efficient regulations.
• Artificial Intelligence: States are racing to regulate AI, which threatens to create a new and complex regulatory patchwork that will stifle innovation, impose immense costs, and put U.S. firms at a global competitive disadvantage. Congress should enact a federal statute that requires states to recognize and enforce contractual choice-of-law provisions for AI systems, which would allow developers to comply with a single, coherent set of rules, while fostering competition among states. The DOJ should weigh in on relevant cases that express the federal preference for a uniform federal policy. 

The full comments can be downloaded here. To schedule an interview with Kristian about these comments, contact Jim Fellinger at [email protected].  

About ICLE  

The International Center for Law & Economics is a nonprofit, nonpartisan research center working with a roster of more than eighty academic affiliates and research centers from around the globe. ICLE scholars promote the use of law and economics methodologies to inform public policy debates.