The Effects Test: Extraterritoriality's Fifth Business

Abstract

American laws increasingly regulate the conduct of foreigners abroad. The growth in extraterritorial laws, in no small part, can be traced to the effects test - a doctrine that instructs courts to presume that Congress intended to regulate extraterritorially when foreign conduct is found to have a substantial effect within the United States. For many scholars and lawyers, the effects test is the doctrinal lynchpin for determining the geographic reach of domestic laws. Territorial limits on legislative jurisdiction, on the other hand, are seen as anachronistic; a remnant of a pre-modern, pre-globalized world.

This article takes a different, more skeptical view of the effects test. The article argues that many scholars have failed to appreciate the effects test's shortcomings, and the problems that extraterritorial laws create. Rather than place meaningful limits on legislative jurisdiction, the effects test has created confusion and inconsistency, while dramatically increasing the number of laws applied extraterritorially. Contrary to now conventional wisdom, courts would be wise to reembrace territorial limits to legislative jurisdiction. Domestic laws that regulate extraterritorially not only undermine international harmony and are inherently undemocratic, but also threaten long-term American interests. In a globalized world, where territorial borders play a less important role, territorial limits have become ever more important as a necessary constraint to legislative action and as a way to protect not foreign, but American interests. The article concludes that the effects test is best understood as a narrow limit on Congressional power, not as a doctrinal command that reverses the presumption against extraterritoriality. In short, academics have unwisely given the effects test center stage in legislative jurisdiction doctrine, yet it should be no more than a Fifth Business - a minor character, playing merely a supporting role.

Keywords: extraterritorial, extraterritoriality, prescribe, prescriptive jurisdiction, legislative jurisdiction, adjudicative jurisdiction, effects test, comity, rule of reason, reasonableness, conflicts of law, choice of law, aramco, territorial, empagram, international litigation

JEL Classification: k10, K19, K20, K21, K22, K23, K29, K30, K33, K41