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In 1976, Michigan enacted the Michigan Container Act — known as the “Bottle Bill” — to encourage beverage container recycling. It is one of ten states that requires consumers to pay a can, plastic bottle, or glass bottle deposit when purchasing specified beverage containers.
This week, the Sixth Circuit Court of Appeals solidified its status as the booze bottle niche court by ruling that a fraud prevention amendment to the Bottle Bill violates the Commerce Clause.
The Bottle Bill requires applicable beverages to be sold in "returnable containers," marked with a "MI 10c" indication. Despite the state's good intentions, the Bottle Bill had an unintended consequence: Individuals were purchasing beverage containers outside the state and returning them in Michigan to redeem the deposit.
A 1998 study estimated that fraudulent redemption of beverage containers originating from outside of Michigan resulted in a loss of $15.6 to $30 million every year in Michigan deposits.
In 2008, the Michigan Legislature decided it could solve the problem with an additional requirement that returnable containers bear a unique-to-Michigan mark --- to allow a reverse vending machine to identify a returnable container. Failure to comply with the new provision could result in a penalty of up to 6 months' imprisonment and/or a $2,000 fine.
That solution created another problem: An American Beverage Association lawsuit alleging Commerce Clause violations.
The Commerce Clause has a negative aspect that bars states from unjustifiably discriminating against or burdening the interstate flow of articles of commerce. The Clause, by negative implication, restricts the states' ability to regulate interstate commerce."
The dormant Commerce Clause is driven by concern about "economic protectionism -- that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors."
The Sixth Circuit notes that this case presents a novel issue of an "unusual extraterritoriality question" that has not been addressed either by the Supreme Court or any other court. To date, no other state has implemented a requirement similar to Michigan's.
The real issue here is that Michigan's unique-mark requirement not only requires beverage companies to package a product unique to Michigan, but also allows Michigan to dictate where the product can be sold. Bottlers must comply with the statute now, or face criminal sanctions. In addition, other states must react today to Michigan's unique-mark requirement or also face legal consequences.
Thus, Michigan is forcing states to comply with its legislation in order to conduct business within its state, which creates an impermissible extraterritorial effect and is in violation of the Supreme Court's precedent stated in Brown-Forman and Healy.
Because the unique-mark requirement forces manufacturers and distributors of beverage containers to adopt the state's unique labeling system -- without the consideration of other less burdensome alternatives -- the appellate court concluded that Michigan's unique-mark requirement has an impermissible extraterritorial effect.