An Economic Perspective on Preemption

IntroductionAfter decades of case law and commentary,1 preemption remains a controversial topic. It has been viewed as part of a program to federalize substantial pieces of state law,2 as a device through which federal government power expands,3 and as a general source of legal doctrines in search of a basis in constitutional law.4This Essay focuses on a specific area of controversy: preemption of products liability lawsuits. This is probably the most important area of the preemption controversy because it involves enormous investments by technology firms and government entities in regulatory inffastruc* ture. In spite of this focus on a specific area of preemption, the approach taken here can be generalized to other preemption disputes.I hope to accomplish two objectives. The first is to present an economic theory of preemption as a choice among regulatory regimes.5 The optimal regime choice model will be used to generate specific implications for the court decisions on preemption of products liability claims. More specifically, the regime choice model generates a positive theory of the preemption case law, reconciling several seemingly conflicting decisions. For example, the seemingly inconsistent U.S. Supreme Court decisions in Geier v. American Honda Motor Co.6 7 in 2000 and in Williamson v. Mazda Motor of America, Inc.1 in 2011, are easily reconciled within this framework.The second objective is to extrapolate from the regime choice model to consider its implications for broader controversies about preemption.8 The topic has been expanded by commentators into a foil for a range of opinions about the relationship between state and federal law.9 The products liability preemption cases, in contrast, deal with a concrete question: should courts regulate, or should an agency, such as the Food and Drug Administration (FDA), regulate?10 The answer to this question has immediate implications for the investments that firms make and the corresponding amount of injuries their products inflict on consumers. From this concrete problem, a much larger set of issues has emerged, many of which are capable of being answered independently of the concrete issues. It would simplify matters greatly if courts recognized the preemption defense, or some version of it, as having a basis in the common law, rather than requiring an explicit view of the Constitution's constraints on the federal government's power to regulate.I. A Model of Regulatory Regime ChoiceTo make the concrete problem in the preemption cases a bit clearer, consider a simple model of a products liability preemption dispute, Suppose a manufacturer of medical devices makes a "medical widget." The medical widget is approved by the FDA, A plaintiff is hurt by the medical widget and sues the manufacturer on the theory that the medical widget is defectively designed. The manufacturer walks into court and argues that the plaintiff's lawsuit should be dismissed because the medical widget is regulated by the FDA and its design has been approved by the agency.The decision facing the court is at bottom a choice between regulatory regimes:11 the court itself or the FDA. If the court finds that the plaintiff s lawsuit is preempted, it says in effect that the FDA will be the primary, and in some instances the sole, regulator of the design of the medical widget If it finds that the plaintiffs lawsuit is not preempted, then it is saying, in effect, that the FDA's regulatory decisions will be subject to reconsideration by state (or federal) courts. After all, any finding that a design that was approved by the FDA is defective under products liability law will have the effect of encouraging firms to adopt designs that comply with the court's product-design views rather than, or in addition to, the product-design views of the FDA.A defective design claim is, as many courts have noted, a species of negligence claim.12 Under the increasingly standard risk-utility test in products liability law, a court compares the incremental risk of the specific product design that is challenged with its incremental utility, in comparison to some safer, feasible, alternative design. …