Designer Skin LLC v. S & L Vitamins, Inc., et al.
Ford Motor Company v. Texas Department of Transportation, et al.
106 F. Supp.2d 905 (W.D. Texas, July 21, 2000), affirmed, 264 F.3d 493 (5th Cir., August 27, 2001)
Court rejects Ford Motor Company's ("Ford's") claims that enforcement proceedings undertaken by the Texas Department of Transportation ("Texas DOT") to prevent Ford, through a web site, from acting as an automobile dealer and selling used cars to Texas consumers, violates the Commerce Clause of the United States Constitution, or deprives Ford of its rights under either the First Amendment or the Due Process or Equal Protection clauses.
Ford, an automobile manufacturer, operates the Showroom web site. At this site, Ford advertises for sale various used vehicles at set no haggle prices. At the time such advertisements are posted to the Internet, Ford holds title to the advertised vehicles. If a Texas consumer is interested in purchasing one of these vehicles, he can contact and deliver to Ford a refundable deposit. The vehicle will then be transferred to a Texas automobile dealer, who will take title to the vehicle from Ford by assignment. If the consumer, after a test drive, wishes to purchase the vehicle he will enter into a contract with the dealer at the price stated on the Showroom web site. If he elects not to purchase the vehicle, the dealer can either return it to, or purchase it from, Ford.
Texas has a statutory scheme designed to "equalize the market power between manufacturers and dealers, and further the public interest of the citizens of Texas, by prohibiting manufacturers from acting in the capacity of a dealer." Under this scheme, licensed automobile manufacturers, such as Ford, are prohibited from "directly or indirectly owning an interest in a dealer or dealership, operating or controlling a dealer or dealership, or acting in the capacity of a dealer."
Believing that Ford, by utilizing its Showroom web site, was acting as an automobile dealer in violation of this statutory scheme, the Texas DOT commenced an administrative proceeding to prevent Ford from continuing such conduct. Ford responded by commencing the instant action, arguing that such enforcement actions violated the Commerce Clause, as well as Ford's rights under the First Amendment, Due Process and Equal Protection Clauses. Ford sought an injunction preventing the DOT from continuing with its enforcement action. The Court rejected Ford's contentions, and granted summary judgment to the Texas DOT. It did not, however, rule on the question of whether Ford was acting as an automobile dealer under Texas law.
Plaintiff argued that the DOT's efforts to enforce its statutory scheme against commerce conducted over the Internet ran afoul of the Commerce Clause because it imposed an undue burden on interstate commerce, and unfairly discriminated against out-of-state interests. The court rejected this argument, noting that all manufacturers of automobiles are treated equally under the law. The court further noted:
[T]he plaintiff is prohibited from selling motor vehicles to consumers by mail, phone calls, leafleting, skywriting, or drum signals. The court rejects the plaintiff's argument that an activity which is appropriately regulated when accomplished through any other medium becomes sacrosanct when accomplished through the internet. If the court were to accept the plaintiff's interpretation of American Libraries Association v. Pataki, 969 F. Supp. 160 (S.D.N.Y. 1997) then all state regulatory schemes would fall before the mighty alter of the internet. ... Although the internet is a mighty powerful tool, it is not so potent as to demolish every state's regulatory schemes as they apply to the sale of goods and services.Plaintiff also argued that the DOT's actions violated the Equal Protection clause because it prohibited automobile manufacturers, but not other large companies such as IBM, from operating web sites like Showroom. Plaintiff argued that other large companies were in a position, like plaintiff, to significantly effect the automobile marketplace by virtue of their economic size and clout. The court rejected this argument, holding that Ford, because it controlled a dealer's supply of cars, was in a unique position to effect the automobile marketplace, and could appropriately be regulated differently from other large companies that did not manufacture automobiles. The court rejected plaintiff's argument that the statutes in question were vague in so far as they prohibited plaintiff from "acting in the capacity as a dealer." Clearly, held the court, whatever that phrase meant, it encompassed the activities of plaintiff described above. Lastly, the court rejected plaintiff's First Amendment argument on the ground that the speech in question was not commercial speech subject to protection under the First Amendment. Such speech is not subject to protection, held the court, because it concerns unlawful activity, namely the sale by an automobile dealer of used vehicles directly to Texas consumers.