By Thomas Farlow
On July 4, 2025, President Trump signed Public Law 119-21, more commonly known as the “One Big Beautiful Bill Act” (OBBBA)[1]. Notably absent from the signed version was the State AI Law moratorium, which would have required state and local governments to cease enforcement of most AI-specific laws for initially 10, later 5, years.[2] The Constitution clearly gives Congress the power to enforce such a moratorium through the “Commerce Clause”[3]
However, a nearly unanimous Senate decided that it did not want to use its commerce powers to regulate state AI laws, voting 99-1 to remove the entire moratorium from the bill.[4] Senator Cantwell, who with Sentator Blackburn introduced the amendment removing the provision, spoke powerfully about the importance of state regulation in the AI space: “The Senate came together tonight to say that we can’t just run over good state protection laws.”[5] As Blackburn notes, in the absence of federal AI regulations, the states are “the ones that are protecting children in the virtual space. They’re the ones that are out there protecting our entertainers — name, image, likeness — broadcasters, podcasters, authors.”[6]
The states have passed a panopaly of different AI related legislation.[7] For example, in New York, the RAISE Act, currently pending before the Governor, seeks to regulate the training of AI models.[8] Meanwhile, in March, 2024, Tennessee Governor Bill Lee signed into law the “ELVIS” Act, which not only expanded individuals’ “Right of Publicity”, but sought to impose liability against the providers of AI systems and tools that are sued to create the deepfakes.[9]
But, in an ironic twist of fate, the Commerce Clause itself may come back in, prompted not by Congress but by its standalone power, to preempt those very state laws that Congress determined to protect. The court has long understood the Commerce Clause to contain within itself a “dormant” (or “negative”) element: “the centralization of commercial regulatory authority in Congress impli[es] judicially enforceable restraints on the states regulation of interstate commerce”.[10] Currently, no courts have been asked to rule on the constitutionality of these pieces of legislation under the Dormant Commerce Clause (DCC), but a few scholars have begun to raise questions.[11] While a thorough analysis is beyond the scope of this blog, a quick overview of current DCC analysis suffices to illustrate the potential problems.
DCC review can be broken down into two constitutent parts: “First, state regulations may not discriminate against interstate commerce; and second, States may not impose undue burdens on interstate commerce.”[12] None of the significant state AI laws in question provide “differential treatment of in-state and out-of-state economic interests”, and so, are not discriminatory.[13] This leaves open possible challenges under the “undue burden” standard.
The court has broken this down to two parts: the “Pike Balancing Test” and the “Extraterritorial Application” test, both of which provide possible problems for the AI laws of today.
Under Pike, a state law that “regulates even-handedly to effectuate a legitiamate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the purative local interests”.[14] Though state AI regulations likely have “legitimate local publc intersts”, such as protecting the likeness rights of Tennessean celebrities or protecting the copyright rights of New York newspapers, taken together they risk creating a messy enough regulatory-patchwork that, in practice, AI development grinds to a halt.[15] Such a burden would almost certainly be deemed “clearly excessive” for even the most compelling state interest.
Similarly, under Healy’s extraterritorial principle, “the Commerce Clause . . . precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether or not the commerce has effects within the state.”[16] Indeed, “the Commerce Clause protects against inconsistent legislation arising from the projection of one state’s regulatory scheme into the jurisdiction of another state”.[17] In the context of AI regulations, there are tricky jurisdictional questions about where the regulated commerce occurs, and whether it could be said to be wholly outside of New York or Tennesse. Either way, the risk of needing to match-up inconsistent regulatory schemes in order to avoid liability in markets that are either too large to avoid economically or impossible to geo-block creates many of issues that the Healy court sought to avoid.
There is a credible risk, therefore, that the “several states” may find their AI laws preempted by Congress’s power despite Congressional blessing. Perhaps this provides us the opportunity to ponder again Justice Thomas’ retort: “The negative Commerce Clause has no basis in the text of the Constitution, makes little sense, and has proved virtually unworkable in application.”[18]
Thomas Farlow is a second-year student at Vanderbilt Law school and the Thomas R. McCoy Scholar in Constitutional Law. He graduated from the University of Oxford with a degree in Theology & Religion and plans to work in D.C. in administrative and constitutional litigation after graduation.
[1] One Big Beautiful Bill Act of 2025, Pub. L. No. 119-21, 139 Stat. 72-401.
[2] See Shannon Yavorsky, Nicholas Farnsworth, & Bianca Ponziani, What Happened to the Big Beautiful Bill’s AI Regulation Enforcement Pause?, ORRICK INSIGHTS (July 1, 2025), https://www.orrick.com/en/Insights/2025/07/What-Happened-to-the-Big-Beautiful-Bills-AI-Regulation-Enforcement-Pause.
[3] U.S. CONST. art. I, § 8, cl. 3.; see Kristian Scout, Federal Preemption and AI Regulation: A Law and Economics Case for Strategic Forbearance, WASHINGTON LEGAL FOUND. LEGAL PULSE (May 30, 2025), https://www.wlf.org/2025/05/30/wlf-legal-pulse/federal-preemption-and-ai-regulation-a-law-and-economics-case-for-strategic-forbearance/ (“The constitutional basis for federal preemption of state AI laws rests primarily on the Commerce Clause, which grants Congress broad authority to regulate interstate commerce. The inherently interstate nature of AI development and deployment provides a strong foundation for federal regulatory authority.”); see generally, Gonzales v. Raich, 545 U.S. 1, 16-17 (2005).
[4] Matt Brown & Matt O’Brien, Senate Pulls Regulatory Ban From GOP Bill After Complaints From States, PBS NEWS (July 1, 2025 2:49PM EDT), https://www.pbs.org/newshour/politics/senate-pulls-ai-regulatory-ban-from-gop-bill-after-complaints-from-states.
[5] Senate Strikes AI Moratorium from Budget Reconcilliation Bill in Overwhelming 99-1 Vote, U.S. SENATE COMM. ON COM., SCI., & TRANSP.: PRESS RELEASES (July 01, 2025). https://www.commerce.senate.gov/2025/7/senate-strikes-ai-moratorium-from-budget-reconciliation-bill-in-overwhelming-99-1-vote/8415a728-fd1d-4269-98ac-101d1d0c71e0.
[6] Matt Brown & Matt O’Brien, Senate Pulls Regulatory Ban From GOP Bill After Complaints From States, PBS NEWS (July 1, 2025 2:49PM EDT), https://www.pbs.org/newshour/politics/senate-pulls-ai-regulatory-ban-from-gop-bill-after-complaints-from-states.
[7] See Kevin T. Fraizer, Extraterritorial Limits on States as Laboratories of AI Policy, THE REGULATORY REVIEW (Aug 25, 2025), https://www.theregreview.org/2025/08/25/frazier-extraterritorial-limits-on-states-as-laboratories-of-ai-policy/.
[8] Assembly Bill A6453A, THE NEW YORK STATE SENATE (Last Accessed Nov. 10, 9:56PM), https://www.nysenate.gov/legislation/bills/2025/A6453/amendment/A.
[9] TENN. CODE. ANN. § 47-25-1105; H.B. 2091 § 6, https://www.capitol.tn.gov/Bills/113/Bill/HB2091.pdf (“(3) A person is liable to a civil action if the person distributes, transmits, or otherwise makes available an algorithm, software, tool, or other technology, service, or device, the primary purpose or function of which is the production of an individual’s photograph, voice, or likeness without authorization from the individual or, in the case of a minor, the minor’s parent or legal guardian, or in the case of a deceased individual, the executor or administrator, heirs, or devisees of such deceased individual.”)
[10] Brannon P. Denning, Reconstructing the Dormant Commerce Clause Doctrine, 50 WM. & MARY L. REV. 417, 421 (2008).
[11] See Governance Studies Media Office, Constitutional Restraints on Regulating Artificial Intelligence, BROOKINGS RSCH (July 13, 2024) (“However, Congress has also used the Dormant Commerce Clause to restrict states from passing state-specific regulations that may have the effect of burdening out of state commerce. Thus, even if states pass AI-specific regulations, they may be struck down under the Dormant Commerce Clause.”), https://www.brookings.edu/articles/constitutional-constraints-on-regulating-artificial-intelligence/; see Scout, supra note 3 (“These characteristics mean that state-level AI regulation often has extraterritorial effects, regulating conduct that occurs in other states or imposing compliance costs on interstate commerce. From a constitutional law perspective, such regulations are vulnerable to dormant Commerce Clause challenges. From an economic perspective, they represent precisely the type of regulatory balkanization that the Commerce Clause was designed to prevent.”).
[12] South Dakota v. Wayfair, 585 U.S. 162, 173 (2018).
[13] Or. Waste Sys., Inc. v. Dept. of Env’t Quality of Or., 511 U.S. 93, 99 (1994); see United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007).
[14] Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
[15] See, e.g., Governance Studies Media Office, supra note 11 (“Others have focused on how such a patchwork could hinder national security by slowing AI advances. A different set of actors worry that discordant state laws may interfere with economic growth.”).
[16] Healy v. Beer Institute, 491 U.S. 324, 336 (1989) (citing Edgar v. MITE Corp., 457 U.S. 624, 642-43 (1982)).
[17] Id. at 336 (“[T]he practical effect of the statute must be evaluated not only by considering the statute itself, but also by considering how the challenged statute may interact with the legitimate regulator regimes of other states and effect would arise if not one but many or every state adopted similar legislation.”).
[18] United States v. Morrison, 529 U.S. 598, 627 (2000) (Thomas, J., concurring); see James M. McGoldrick, Jr., Why Does Justice Thomas Hate the Commerce Clause? 65 LOY. L. REV. 329, 330 (2019).