Chapter 1: Relation of Proprietary Rights in
Software to Intellectual Property Law (Continued)
D. Case Studies in Patents As Property Rights
Whether patents are property and whether patent infringement or other harsh treatment of patent rights, particularly by or at the instance of a government agency, violates property rights has figured prominently in several kinds of litigation. It has at times been argued that governmental patent infringement or judicial decrees for compulsory licensing amounted to a taking of private property for a public purpose without just compensation or without due process of law. (As will appear, those are two separate matters.) Although most of the litigation has involved patents and patent infringement, copyrights and copyright infringement raise parallel issues.
Another context in which a property takings issue might arise is a change in the patent statutes cutting back on patent rights. For example, Congress might eliminate software-related patents or gene patents. It might abolish the doctrine of equivalents. It could eliminate increased damages for willful infringement. Congress has eliminated damages recovery for some medical procedures, see 35 U.S.C. § 287(c), but only prospectively (the change in law did not apply to already issued patents although it applied to pending applications). Any of these possible changes in law might be challenged as a taking of property without just compensation.
This subchapter and chapter 1 end with the Supreme Court's decisions in two companion cases involving whether infringement by a state violates property rights in such a manner or to such an extent that Congress may subject the offending state to suit in federal court despite state sovereign immunity. The cases started out as controversies over whether the state was taking a property right without just compensation, but in the end they were decided on the basis of whether the state had deprived the plaintiff of property without due process of law.
The case materials in this subchapter may give you a flavor of the talismanic power that the word property still exercises in court, including in the context of violation of proprietary rights in software.
As you read these materials, keep in mind the following hypothetical case. Imagine that a company, call it Nanosoft Corp., has been asserting its rights under the copyright laws in a way that seriously injures competition in the software industry. Suppose these hypothetical facts:
The question to ask yourself is whether the following would be an unconstitutional taking of private property without just compensation, or a deprivation of private property without due process of law. Suppose, at the behest of the U.S. Department of Justice or a state attorney general, a court decides to require Nanosoft to disclose the APIs and not change them without giving substantial prior notice to rivals. Suppose also that the court orders that Nanosoft not assert any right under the copyright laws to prevent rivals from reproducing parts of the operating system software to test out how applications interact with the APIs. Assume that Nanosoft protests this interference with its property rights.
- Nanosoft is the proprietor of a copyrighted, and almost universally used, operating system (computer software).
- For an application program (for example, a spreadsheet) to work, it must interact with the operating system via an application interface (API) of the operating system.
- Nanosoft's copyrighted operating system contains millions of bytes of code, somewhere within which are the APIs. Nanosoft does not choose to disclose to the world what all the APIs are.
- From time to time programmers discover previously secret APIs and publish them on the Internet. But Nanosoft keeps changing the operating system, and thus also the APIs.
- Nanosoft has been expanding into applications for years. In doing so, its applications programmers take advantage of their knowledge of the APIs to make Nanosoft's applications run faster than the applications of rivals who don't know about the APIs.
- Also, Nanosoft modifies the operating system and APIs from time to time in a way that makes rivals' application programs incompatible with the operating system.
- The result of this purely hypothetical conduct has been to extend Nanosoft's dominance over operating system software successively to different applications and also to prevent entry of rival technology that might supplant Nanosoft's operating system.
Weigh the merits of the parties' contentions against the background of the material in this chapter concerning what is property, what is a taking of property, and what due process requires.
Hartford Empire Co. v. United States
United States Supreme Court
323 U.S. 386 (1945)
Mr. Justice Roberts.
These are appeals from a decree awarding an injunction against violations of §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act.
The Antitrust Violations
The gravamen of the case is that the defendants have cooperated in obtaining and licensing patents covering glass-making machinery, have limited and restricted the use of the patented machinery by a network of patent–pooling agreements, and have maintained prices for unpatented glassware. In granting licenses under the pooled patents defendant Hartford always reserved the rights within defendant Corning's field. Further, it not only limited its licensees to certain portions of the container field but, in many instances, limited the amount of glassware which might be produced by the licensee and, in numerous instances, as a result of conferences with defendants Owens, Hazel, Thatcher and Ball, refused licenses to prevent overstocking the glassware market and to “stabilize” the prices at which such ware was sold. Without going into detail, it is sufficient to say that, by purchases of patents and manufacturing plants, and by an agreement with Hartford's principal competitor, Lynch, the field was divided between Hartford and Lynch under restrictions which gave Hartford control.
In summary, the situation brought about in the glass industry, and existing in 1938, was this: Hartford, with the technical and financial aid of others in the conspiracy, had acquired, by issue to it or assignment from the owners, more than 600 patents. These, with over 100 Corning patents, over 60 Owens patents, over 70 Hazel patents, and some 12 Lynch patents, had been, by cross-licensing agreements, merged into a pool which effectually controlled the industry. This control was exercised to allot production in Corning's field to Corning, and that in restricted classes within the general container field to Owens, Hazel, Thatcher, Ball, and such other smaller manufacturers as the group agreed should be licensed. The result was that 94% of the glass containers manufactured in this country on feeders and formers were made on machinery licensed under the pooled patents.
The district court found that invention of glass making machinery had been discouraged, that competition in the manufacture and sale or licensing of such machinery had been suppressed, and that the system of restricted licensing had been employed to suppress competition in the manufacture of unpatented glassware and to maintain prices of the manufactured product. The findings are full and adequate and are supported by evidence, much of it contemporary writings of corporate defendants or their officers and agents. We affirm the district court's findings and conclusions that the corporate appellants combined in violation of the Sherman Act, and that Hartford and Lynch contracted in violation of the Clayton Act.
It is clear that, by cooperative arrangements and binding agreements, the appellant corporations, over a period of years, regulated and suppressed competition in the use of glass making machinery and employed their joint patent position to allocate fields of manufacture and to maintain prices of unpatented glassware.
All of the corporate defendants are required by paragraphs 21–23 of the district court's decree, if they engage in the business of distributing glass-making machinery, to file a writing with the court agreeing to offer to sell any machinery used in the manufacture of glassware to any applicant at reasonable and equal prices and upon reasonable and equal terms and conditions. All of the appellants attack these provisions. A common ground is that this Court has held that the lease of a patented machine is a lawful method of exercising the exclusive patent right of practicing or using the invention, and that effective relief may be afforded without destroying the appellants' property rights in the patents they own.
Paragraph 24 of the decree enjoins each of the corporate and individual appellants from engaging in the distribution of machinery used in glass manufacture or in the distribution of glassware in interstate commerce unless each files with the court an agreement:
(a) to license, without royalty or charge of any kind, and for the life of all patents, any applicant to make, to have made for it, and to use any number of machines and methods embodied in inventions covered by any patent or patent application now owned or controlled by such defendant;
(b) to license, at a reasonable royalty (to be fixed by the court, in case of dispute) any applicant to make, have made for it, and to use machines and methods in the manufacture of glassware embodying inventions covered by patents hereafter applied for or owned or controlled by any defendant;
(c) to make available to any licensee, under (a) and (b), at cost, plus a reasonable profit, all drawings and patterns relating to the machinery or methods used in the manufacture of glassware embodied in the licensed inventions (with immaterial exceptions).
Since the provisions of paragraphs 21 to 24 inclusive, in effect confiscate considerable portions of the appellants' property, we think they go beyond what is required to dissolve the combination and prevent future combinations of like character. It is to be borne in mind that the Government has not, in this litigation, attacked the validity of any patent nor has it attacked, as excessive or unreasonable, the standard royalties heretofore exacted by Hartford. Hartford has reduced all of its royalties to a uniform scale and has waived and abolished and agreed to waive and abolish all restrictions and limitations in its outstanding leases so that every licensee shall be at liberty to use the machinery for the manufacture of any kind or quantity of glassware comprehended within the decree. Moreover, if licenses or assignments by any one of the corporate defendants to any other still contain any offensive provision, such provision can, by appropriate injunction, be cancelled, so that the owner of each patent will have unrestricted freedom to use and to license, and every licensee equally with every other will be free of restriction as to the use of the leased or licensed machinery, method or process, or the articles manufactured thereon or thereunder.
If, as we must assume on this record, a defendant owns valid patents, it is difficult to say that, however much in the past such defendant has abused the rights thereby conferred, it must now dedicate them to the public. Under paragraph 24(b) a defendant hereafter acquiring a patent cannot set the price for its use by others, elect to use it himself and refuse to license it, or to retain it and neither use nor license it. These are options patent owners have always enjoyed.
That a patent is property, protected against appropriation both by individuals and by government, has long been settled. (James v. Campbell, 104 U.S. 356; Hollister v. Benedict & Burnham Mfg. Co., 113 U.S. 59; Wm. Cramp & Sons Ship & Engine Bldg. Co. v. International Curtis Marine Turbine Co., 246 U.S. 28; United States v. Dubilier Condenser Corp., 289 U.S. 178, 189.) In recognition of this quality of a patent the courts, in enjoining violations of the Sherman Act arising from the use of patent license, agreements, and leases have abstained from action which amounted to a forfeiture of the patents.
The Government urges that such forfeiture is justified by our recent misuse decisions in Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, and B.B. Chemical Co. v. Ellis, 314 U.S. 495. But those cases merely apply the doctrine that, so long as the patent owner is using his patent in violation of the antitrust laws, he cannot restrain infringement of it by others. We were not there concerned with the problem whether, when a violation of the antitrust laws was to be restrained and discontinued, the court could, as part of the relief, forfeit the patents of those who had been guilty of the violation. Lower federal courts have rightly refused to extend the doctrine of those cases to antitrust decrees by inserting forfeiture provisions.
The Government suggests that certain earlier decisions under the Sherman Act, by analogy, support these portions of the decree. The cases cited, however, do not sustain the suggestion. In all of them the court refrained from ordering compulsory dealing with the assets of the defendant without compensation and, in most of them, the decrees merely called for rearrangement of ownership, not for its destruction.
Legislative history is also enlightening upon this point. Repeatedly since 1908 legislation has been proposed in Congress to give the courts power to cancel a patent which has been used as an instrument to violate antitrust laws. Congress has not adopted such legislation.
Congress was asked as early as 1877, and frequently since, to adopt a system of compulsory licensing of patents. It has failed to enact these proposals into law. It has also rejected the proposal that a patentee found guilty of violation of the antitrust laws should be compelled, as a penalty, to license all his future inventions at reasonable royalties. Paragraph 24 of the decree should be modified to permit the reservation of reasonable royalties.
Mr. Justice Black, dissenting in part.
I agree with the Court's judgment insofar as it sustains the decree of the district judge.
I cannot, however, agree to many of the modifications of that decree. These appellants have violated the antitrust laws. The District Court's decree, taken as a whole, is an effective remedy, admirably suited to neutralize the consequences of such violations, to guard against repetition of similar illegal activities, and to dissipate the unlawful aggregate of economic power which arose out of, and fed upon, monopolization and restraints. Many of this Court's modifications seriously impair the decree and frustrate its purposes.
The district court found that these defendants started out in 1916 to acquire a monopoly on a large segment of the glass industry. Their efforts were rewarded by complete success. They have become absolute masters of that domain of our public economy. They achieved this result largely through the manipulation of patents and licensing agreements. They obtained patents for the express purpose of furthering their monopoly. They utilized various types of restrictions in connection with leasing those patents so as to retain their dominance in that industry. The history of this country has perhaps never witnessed a more completely successful economic tyranny over any field of industry than that accomplished by these appellants. They planned their monopolistic program on the basis of getting and keeping and using patents, which they dedicated to the destruction of free competition in the glass container industry. Their declared object was, in their words:
To block the development of machines which might be constructed by others and to secure patents on possible improvements of competing machines, so as to fence in those and prevent their reaching an improved state.
These patents were the major weapons in the campaign to subjugate the industry; they were also the fruits of appellant's victory. The restoration of competition in the glass container industry demands that appellants be deprived of these weapons. The most effective way to accomplish this end is to require, as the district court did, that these patents be licensed royalty free.
Mr. Justice Rutledge, with whom Justice Black joins, dissenting in part.
I concur in the Court's judgment to the extent that it sustains the district court's findings and decree. But I dissent from the more important revisions made in the decree.
In antitrust injunction suits the court's function is twofold, to determine liability and to fashion the remedy to fit the fault. Perhaps in some cases the two things may be treated substantially independently. More often they are so interwoven that separation becomes impossible, if other than warped justice is done. This case is of the latter sort. But the Court's modifications largely disregard this fact.
The story involves a quarter of a century of Sherman Act violation. Necessarily it has been sketched here only in outline. The bare bones of the history show, as rarely has been done, the combination's expanding scope, the corresponding growth of design, the varied, but often devious and ruthless methods, as well as the ultimate total success of this long adventure in monopoly and unlawful restraint of trade.
One may start, with the Court, upon the basic idea that, in such a proceeding, the decree's function is not to impose sheer punishment for past misconduct, but is rather to devise effective measures to prevent its repetition and dissipate its consequences. This does not mean however that there is any clear, sharp line which can be drawn on the crux of past and future between punishment and prevention or dissipation; or that this difference should be translated into the implicit assumptions which seem to underlie the Court's extensive revisions of the decree and thereby strip it in great part of effectiveness. The assumptions relate to the respective functions of trial and appellate courts in framing the decree as well as to the criteria by which are to be gauged the quantity and quality of relief needed to be effective. Where the trial court, with obvious care and judgment, has devised measures it deems essential to protect the public interest our watering them down should stop with directions to eliminate provisions contrary to law or those we can say amount to an abuse of discretion.
The power, and much of the property, now aggregated in the combination's hands and those of its principal participants, was gathered by unlawful methods, at the expense of the public and competitors. Presumably neither the power nor the property could have been accumulated by lawful means. Nor can they now together be transferred legally to another. The loosened restrictions of this Court's revision may be sufficient to prevent, for the future, further acts of the character and having the effects of the past violations. But the pool has acquired more than 800 patents, which control the industry, of which Hartford alone holds more than 600. Its members, including Hartford, are not compelled to disgorge any of these, or prohibited to acquire others. Many of the patents, and certainly the cherished patent position, were secured only by virtue of the illegal conduct. Whatever benefits may flow from these patents and the patent position thus created are inevitably the consequences of that conduct. Merely to throw off the illegal practices, such as restricted and discriminatory licensing, cannot reach those consequences. Every dollar hereafter, as well as heretofore, secured from licenses on the patents illegally aggregated in the combination's hands is money to which the participants are not entitled by virtue of the patent laws or others. It is the immediate product of the conspiracy. To permit these patents to remain in the guilty hands, as sources of continuing lucrative revenue, not only does not deprive their owners of the fruit of their misconduct. Rather it secures to them its continued benefits. The pool may no longer utilize illegal methods. It, and the constituent members, will continue to enjoy the preferred competitive position which their conduct has given them and to use both that position and the ill-gotten patents, together with the patent position, to derive trade advantage over rivals and gain from the public which the patent laws of themselves never contemplated and the antitrust laws, in my opinion, forbid.
The district court required the licensing, royalty free, of existing patents upon glass-making machinery. In my opinion the measure was fully justified by the findings and the evidence. The requirement of licensing of existing patents, royalty free, would present greater difficulty if the violation had not been so gross and so long continued. But because it was both, and because the evidence shows a long course of using patents and patent position illegally to acquire other patents and consolidate still stronger positions, it is impossible now to determine what patents members of the combination may have acquired illegally. The certainty is however that many were so acquired. Since the pool and its members are not required to dispose of the patents, any revenues now received by them from the existing patents are the result, and inevitably will continue to be the result, of the owners' violation of the law. To permit the continued collection of royalties would be to perpetuate, for the lives of the patents, the illegal consequences of the violations. That the court is bound, in equity, and by the statute, not to do.
This Court's revisions of the decree load upon the industry and the consuming public continuing charges in favor of those who have violated both the antitrust statutes and the patent laws, a burden which will not end until the last of the illegally aggregated patents has expired, if then. They both foreclose dissolution and forbid the only other remedies equally adequate. So to perpetuate the unlawful consequences of violation will not discourage, it can only encourage setting the law at naught.
The case presents again the fundamental problem of accommodating the provisions of the patent laws to those of the antitrust statutes. Basically these are opposed in policy, the one granting rights of monopoly, the other forbidding monopolistic activities. The patent legislation presents a special case, the antitrust legislation the nation's general policy. Whether the one or the other is wise is not for us to determine. But their accommodation is one we must make, within the limits allowed to the judicial function, when the issue is presented.
The general policy has been to restrict the right of the patent-holder rigidly within the terms of his grant and, when he overreaches its boundary, to deny him the usual protections of the holder of property. That this ordinarily has been done in infringement suits where there was misuse or in suits for cancellation does not qualify the fact or the policy. On the other hand, the antitrust statutes have received a broad construction and corresponding enforcement, where violation has been clearly shown. When the patent-holder so far overreaches his privilege as to intrude upon the rights of others and the public protected by the antitrust legislation, and does this in such a way that he cannot further exercise the privilege without also trespassing upon the rights thus protected, either his right or the other person's, and the public right, must give way. It is wholly incongruous in such circumstances to say that the privilege of the trespasser shall be preserved and the rights of all others which he has transgressed shall continue to give way to the consequences of his wrongdoing.
1. The Court sustained reasonable-royalty compulsory licensing but not royalty–free compulsory licensing. It said:
Since the provisions of paragraphs 21 to 24 inclusive, in effect confiscate considerable portions of the appellants' property, we think they go beyond what is required to dissolve the combination and prevent future combinations of like character.
Also, it called the district court's relief a “forfeiture” and said:
That a patent is property, protected against appropriation both by individuals and by government, has long been settled. [Citations omitted.] In recognition of this quality of a patent the courts, in enjoining violations of the Sherman Act arising from the use of patent license, agreements, and leases have abstained from action which amounted to a forfeiture of the patents.
a. Is that a holding that the decree below would violate the 5th Amendment's Takings Clause?
b. Explain why compulsory licensing at a reasonable royalty is not a taking of the patent (at least to the same extent that royalty–free compulsory licensing is), given Kaiser Aetna's and Monsanto's assertions that exclusivity (i.e., the right to exclude) is the premier stick in the bundle of rights constituting property. Certainly, the yield to the patentee from compulsory licensing at a reasonable royalty is not as valuable to the patentee as the right to exclude. (Why else would it be necessary to order the patentee to license at a reasonable royalty?)
Is the argument valid that a “just” compensation set at a reasonable royalty is “just” because the patentee is an evildoer who violated the antitrust laws by abusing her patent rights? (So that she is getting her “just” deserts?) Does the 5th Amendment's Takings Clause validate such just-desert takings?
2. In United States v. National Lead Co., 332 U.S. 319, 338 (1947)(4–3), the Court indicated that whether courts could order royalty-free licensing was an open question but considered it unnecessary to resolve the issue, given the facts. In dissent, Justice Douglas argued that Hartford Empire was a 4–2 decision and that “impairment of property rights is no barrier to the fashioning of a decree that will give effective [antitrust] relief.”
Subsequently, lower courts have split on whether royalty–free compulsory licensing or dedication of abused patents was a permissible kind of antitrust relief. Compare United States v. General Elec. Co., 115 F. Supp. 835, 843–44 (D.N.J. 1953)(ordering dedication of patents that GE abused) with United States v. Vehicular Parking, Ltd., 61 F. Supp. 656, 657 (D. Del. 1945)(holding that Hartford Empire holds that courts have no power to order royalty–free licensing in antitrust cases).
3. Many courts have ordered compulsory, reasonable-royalty licensing relief in antitrust cases. In United States v. Glaxo Group Ltd., 410 U.S. 52 (1973), the district court found that the defendants had placed in their patent licenses restrictions that violated § 1 of the Sherman Act. But it refused to order compulsory, reasonable-royalty licensing. On appeal, the Supreme Court reversed the relief judgment on the ground that, given the facts, the district court should have ordered compulsory licensing relief as well as compulsory sales of the patented drug product:
Mandatory selling on specified terms and compulsory licensing at reasonable charges are recognized antitrust remedies.
In so holding, the Court rejected the patentees' contention that the relief the government sought would “deny defendants an essential element of their rights under the patent system” and would be “a drastic forfeiture of their rights.”
In another ruling in the same case, the Supreme Court overruled earlier precedent that the United States lacked standing to challenge, or was estopped from challenging, the validity of patents that it had issued – when the basis of the claim of invalidity was PTO mistake (as contrasted, for example, with patentee fraud on the PTO). The Glaxo Court held that the government could mount a validity challenge against a patent, absent fraud, if a defendant patentee was using the patent to help effectuate an antitrust violation that the government was challenging. Since the patents gave the defendants “the economic leverage with which to insist upon and enforce the restrictions imposed on licensees,” in that noncomplying licensees could become liable as patent infringers, the Court held that the government's validity challenge was permissible. The Court therefore reversed the lower court's dismissal of that part of the government's case.
A declaration that a patent is invalid is functionally equivalent to ordering compulsory, royalty-free licensing of the patent. Is Glaxo inconsistent with Hartford Empire? How do you rationalize the Supreme Court's willingness in Glaxo to permit the Antitrust Division to destroy patent rights when the patentee has committed an antitrust violation but its refusal to allow a comparable roving commission absent an antitrust violation?
4. Does the Glaxo principle apply to allegations of copyright invalidity (or limitation of copyright scope), as in the case of an antitrust violator asserting rights in subject matter within 17 U.S.C. § 102(b)? In the consent decree in United States v. Borland Int'l (see ch. 5 in this textbook), the Government required Borland to agree not to assert against competitors any copyright in the dBase command language. Borland, for its own reasons, was very willing so to agree, however, so that no property rights controversy really existed.
In United States v. Thomson Corp., D.D.C., Civ. 96–1415, the Government challenged Thomson's acquisition of West Publishing, under § 7 of the Clayton Act. The complaint alleged pervasively that West's assertion of copyright in the pagination of West's reporters (“jump” or “pinpoint” cites) was anticompetitive. However, the proposed consent decree provided only that Thomson/West would henceforth license star pagination. The district court declined to enter the decree because mere mandatory licensing was an insufficient remedy for the alleged antitrust violations and thus not in the public interest. Instead, the court said, it would be prepared to approve a consent decree under which star pagination was licensed without royalty payments until such time as the copyright status of West's star pagination was finally resolved in the Supreme Court. See United States v. Thomson Corp., 949 F. Supp. 907 (D.D.C. 1996); id., No. 96-1415, 1997 WL 226233 (D.D.C. March 7, 1997), 1997–1 Trade Cases (CCH) ¶ 71,735; id., 1997–1 Trade Cases (CCH) ¶ 71,754 at p. 79,352 (deferring payment of royalty until such time, if any, as Supreme Court upholds West's copyright claim to star pagination).
Does this ruling effect a taking of West/Thomson's property without just compensation? No, West/Thomson consented, in order to settle an anti–merger suit. The Supreme Court never upheld West's copyright claim. See Matthew Bender & Co. v. West Pub. Co., 158 F.3d 693 (2d Cir. 1998), cert. denied, 119 S. Ct. 2039 (1999), in which the Second Circuit rejected the claim.
5. A fire is raging at 21st and G Streets, blown eastward by a strong wind. If the wind persists, the fire may leap across 20th Street and engulf many buildings still farther east. To prevent that from happening, the fire department (per order of its chief) demolishes the Burns Building located on the west side of 20th and G Streets. Absent a statute providing for compensation, must the owner of the Burns Building be compensated? See Bowditch v. City of Boston, 101 U.S. 16, 18 (1879).
Old Executive Office Building, 17th St. — Mark Twain said that this was the ugliest building in Washington, DC. Is it?
What if there is no fire? Suppose instead that the Washington Fine Arts Commission recommends to the Mayor, who ratifies the decision, that the Burns Building should be torn down because it is found to be an “eyesore,” an “architectural monstrosity,” and an “aesthetic nuisance.” See Hoeck v. City of Portland, 57 F.3d 781, 787–89 (9th Cir. 1995) (demolition of “ugly” and “visual blight” abandoned building held neither physical nor regulatory taking).
More generally, destruction of private property to effect a purpose within the police power is often not subject to a takings/just compensation analysis. Abatement of a public nuisance without compensation to the owner of property damaged or destroyed by the abatement typically illustrates the principle. See Miller v. Schoene, 276 U.S. 272, 280 (1928) (holding that state's destruction of privately owned cedar trees to protect apple trees in state is not subject to 14th amendment compensation); Sentell v. New Orleans & C.R. Co., 166 U.S. 698, 704–05 (1897) (collecting instances of not compensable property destruction permitted under police powers); Porter v. DiBlasio, 93 F.3d 301, 310 (7th Cir. 1996) (seizure and disposal of neglected animals); Hoeck, supra (ugliness).
Does Burns nose out OEOB or is it just second ugliest?
Is the abuse of patents by Hartford Empire akin to maintaining a public nuisance, a visual blight, or doing something otherwise within the reach of the police power? Do different property law considerations apply?
The next several decisions address whether infringement of a patent is a taking of the patentee's property, per Hartford-Empire, or is something else, such as a tort. The current patent law does not attempt to characterize patent infringement as any particular kind of wrong, but simply states that a patentee shall have remedy for patent infringement by a civil action. 35 U.S.C. § 281. From 1790 until the 1952 codification of Title 35, however, the patent statutes said that a patentee so wronged had an action for trespass on the case.
James v. Campbell
United States Supreme Court
104 U.S. 356 (1881)
Mr. Justice Bradley delivered the opinion of the Court
This case is founded on a bill in equity filed by Campbell against James, United States Postmaster in and for the City of New York, to enjoin him from using a certain implement for stamping letters, which the complainant claims to have been patented to one Norton. Campbell claims to be assignee of the patentee. The circuit court rendered a decree in favor of Campbell. The defendant James appealed. Supposing the court below to have had jurisdiction of the case, the first question to be considered will be the liability of James to respond for the use of the machine or implement in question.
That the government of the United States when it grants letters-patent for a new invention or discovery in the arts, confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation, any more than it can appropriate or use without compensation land which has been patented to a private purchaser, we have no doubt. The Constitution gives to Congress power “to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries,” which could not be effected if the government had a reserved right to publish such writings or to use such inventions without the consent of the owner. Many inventions relate to subjects which can only be properly used by the government, such as explosive shells, rams, and submarine batteries to be attached to armed vessels. If it could use such inventions without compensation, the inventors could get no return at all for their discoveries and experiments. It has been the general practice, when inventions have been made which are desirable for government use, either for the government to purchase them from the inventors, and use them as secrets of the proper department; or, if a patent is granted, to pay the patentee a fair compensation for their use.
But the mode of obtaining compensation from the United States for the use of an invention, where such use has not been by the consent of the patentee, has never been specifically provided for by any statute. The most proper forum for such a claim is the Court of Claims, if that court has the requisite jurisdiction. As its jurisdiction does not extend to torts, there might be some difficulty, as the law now stands, in prosecuting in that court a claim for the unauthorized use of a patented invention. The question of its jurisdiction has never been presented for the consideration of this Court, and it would be premature for us to determine it now. If the jurisdiction of the Court of Claims should not be finally sustained, the only remedy against the United States, until Congress enlarges the jurisdiction of that court, would be to apply to Congress itself. The course adopted in the present case, of instituting an action against a public officer, who acts only for and in behalf of the government, is open to serious objections. We doubt very much whether such an action can be sustained. It is substantially a suit against the United States itself, which cannot be maintained under the guise of a suit against its officers and agents except in the manner provided by law.
But as the conclusion which we have reached in this case does not render it necessary to decide this question, we reserve our judgment upon it for a more fitting occasion. The evidence does not show to our satisfaction that Norton was by any means the first inventor of a double post-office stamp, so constructed as to make the post-mark and cancel the postage stamp at one blow. There is no satisfactory proof that Norton ever produced, prior to 1862, or, at most, prior to 1861, any other double stamp than one which he patented in 1859.
Now, there is abundant evidence in the record to show that double stamps were conceived of and used before 1859, and that about that time they sprung up spontaneously and were patented. It was but recently that there had been any demand for their construction, since postage stamps had not been in general use in the country for any long period. The broad claims in the reissued patent, if construed according to the latitude in which they are expressed, are void by reason of embracing inventions which had been patented prior to the patentee's application for the original patent. No device used by the defendant infringed the complainant's patent, construed as we consider it must be in order to have any validity at all.
The decree of the circuit court will be reversed with directions to dismiss.
1. The Court states:
That the government of the United States when it grants letters-patent for a new invention or discovery in the arts, confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation, any more than it can appropriate or use without compensation land which has been patented to a private purchaser, we have no doubt. [Emphasis supplied.]
Is that the holding in this case?
The Court allows that “we have no doubt” about the applicability of the Takings Clause of the Fifth Amendment. How does the Court support its having no doubt?
The James case is one of several cases that have frequently been cited as holding that patents are property rights and that interference with them, such as uncompensated infringement by the government or compulsory licensing, is therefore a taking of private property in violation of the Constitution. Most recently, in the College Savings Bank case at the end of this chapter, Chief Justice Rehnquist observed without demurrer from any other Justice:
Patents, however, have long been considered a species of property. . . . As such, they are surely included within the “property” of which no person may be deprived by a State without due process of law. And if the Due Process Clause protects patents, we know of no reason why Congress might not legislate against their deprivation without due process under § 5 of the Fourteenth Amendment.
Having long been considered a species of property, however, is not quite the same things as ever having been held to be property or a species of it. (By the way, what does it mean for a patent to be a species of property, as distinguished from being property?) Two of the other Supreme Court decisions most cited for holding patents to be property are collected in supplemental case note material for this case,Has the Supreme Court Held that Patents Are Property?. Decide for yourself what has been held and what is obiter dictum.
2. If patent rights are a product of positive law rather than a natural right (or something else higher than ordinary positive law), can Congress enact laws defining patent rights that skirt around (gerrymander out) acts of the United States? (E.g., “Patent infringement is hereby defined as the use of an invention by a private person without the consent of the patentee.”)
Assume that once patent laws are enacted patents must be granted as a matter of right to qualifying applicants, not as a matter of grace or favor. Does that keep Congress from passing laws affecting the nature of patent grants in terms of applicability as against some classes of person? Can Congress define infringement in a way that effectively immunized particular classes of potential defendants, such as the United States or state governments? Might Congress lawfully exclude from infringement liability surgeons, farmers, teachers, researchers, philosophically curious persons, prior users of the invention? Has it done so? Is that consistent with property rights? Does it make any difference whether the legislation is prospective only — retrospective? See 35 U.S.C. § 287(c)(4).
3. Compare the property analysis of James v. Campbell with that of Willow River.
4. In 1881, the Court of Claims (now the United States Court of Federal Claims) did not have the patent infringement and copyright infringement jurisdiction now conferred by 28 U.S.C. § 1498. As the Court states in the James opinion, “[T]he mode of obtaining compensation from the United States for the use of an invention, where such use has not been by the consent of the patentee, has never been specifically provided for by any statute.”
How would you describe a property right that courts cannot enforce because they lack any jurisdiction to do so? Compare the ether, phlogiston, the sound of one hand clapping. See The Western Maid, 257 U.S. 419, 433 (1922). How much money do you suppose that a speculator would pay you to buy such a right from you? Or that a bank would lend you on it?
Schillinger v. United States
United States Supreme Court
155 U.S. 163 (1894)
Mr. Justice Brewer
A patent was issued to John J. Schillinger for an improvement in concrete pavement. Thereafter the Architect of the Capitol invited proposals for a concrete pavement in the capitol grounds, and entered into a contract with G. W. Cook for the laying of such pavement according to plans and specifications prepared by F.L. Olmsted. It does not appear that in the proposals, specifications, or contract there was in terms any reference to or description of the Schillinger patent.
Subsequently these claimants filed their petition in the Court of Claims, asserting full ownership of the Schillinger patent, and seeking to recover from the United States damages for the wrongful use thereof in the construction of this pavement. The court held that there was no contract, either expressed or implied, on the part of the government for the use of such patent, and on that ground dismissed the petition as outside of the jurisdiction of the court.
The United States cannot be sued in their courts without their consent, and in granting such consent Congress has an absolute discretion to specify the cases and contingencies in which the liability of the government is submitted to the courts for judicial determination. Beyond the letter of such consent the courts may not go, no matter how beneficial they may deem, or in fact might be, their possession of a larger jurisdiction over the liabilities of the government.
Until the organization of the Court of Claims by the Act of February 24, 1855, the only recourse of claimants was in an appeal to Congress. That Act defines the claims which could be submitted to the court of claims for adjudication as follows:
The said court shall hear and determine all claims founded upon any law of Congress, or upon any regulation of an executive department, or upon any contract, express or implied, with the Government of the United States, which may be suggested to it by a petition filed therein....
On March 3, 1887, a new Act was passed in reference to the jurisdiction of the court, its language being: The Court of Claims shall have jurisdiction to hear and determine all claims founded upon the Constitution of the United States or any law of Congress, except for pensions, or upon any regulation of an executive department, or upon any contract, expressed or implied, with the Government of the United States, or for damages, liquidated or unliquidated, in cases not sounding in tort, in respect of which claims the party would be entitled to redress against the United States either in a court of law, equity, or admiralty if the United States were suable. The court of claims has no jurisdiction of claims against the government for mere torts. Some element of contractual liability must lie at the foundation of every action. In Gibbons v. United States, 8 Wall. 269, it was said: The language of the statutes which confer jurisdiction upon the Court of Claims excludes by the strongest implication demands against the government founded on torts. The general principle which we have already stated as applicable to all governments forbids, on a policy imposed by necessity, that they should hold themselves liable for unauthorized wrongs inflicted by their officers on the citizen, though occurring while engaged in the discharge of official duties. The rule thus laid down has been consistently followed by this Court in many cases. If there was any error in this interpretation, first announced in 1868, of the scope of the Act, and if it was the intent of Congress to grant to the court jurisdiction over actions against the government for torts, an amending statute of but a few words would have corrected the error and removed all doubt. While the language of the Act of 1887 is broader than that of 1855, it is equally clear in withholding such jurisdiction. It added, “all claims founded upon the Constitution of the United States,” but that does not include claims founded upon torts, any more than does “all claims founded upon any law of Congress,” found in the prior Act. The identity of the descriptive words precludes the thought of any change.
It is said that the Constitution forbids the taking of private property for public uses without just compensation; that, therefore, every appropriation of private property by any official to the uses of the government, no matter however wrongfully made, creates a claim founded upon the Constitution of the United States, and within the letter of the grant in the Act of 1887 of the jurisdiction to the Court of Claims. If that argument be good, it is equally good applied to every other provision of the Constitution as well as to every law of Congress. This prohibition of the taking of private property for public use without compensation is no more sacred than that other constitutional provision that no person shall be deprived of life, liberty, or property without due process of law. Can it be that Congress intended that every wrongful arrest and detention of an individual, or seizure of his property by an officer of the government, should expose it to an action for damages in the Court of Claims? If any such breadth of jurisdiction was contemplated, language which had already been given a restrictive meaning would have been carefully avoided.
That this action is one sounding in tort is clear. It is in form one to recover damages. The petition charges a wrongful appropriation by the government, against the protest of the claimants, and prays to recover the damages done by such wrong. The successive allegations place the parties in continued antagonism to each other, and there is no statement tending to show a coming together of minds in respect to anything. It is plainly and solely an action for an infringement, and in this connection reference may be made to the statutory provision of an action on the case as the legal remedy for the recovery of damages for the infringement of a patent.
But we do not care to rest our decision upon the mere form of action. The transaction, as stated in the petition and as disclosed by the findings of the court, was a tort pure and simple. The case was, within the language of the statute, one “sounding in tort.”
So, not only does the petition count upon a tort, but also the findings show a tort. That is the essential fact underlying the transaction, and upon which rests every pretense of a right to recover. There was no suggestion of a waiver of the tort, or a pretense of any implied contract, until after the decision of the Court of Claims that it had no jurisdiction over an action to recover for the tort.
Do the facts, as stated in the petition or as found by the court, show anything more than a wrong done, and can this be adjudged other than a case “sounding in tort”? We think not, and therefore the judgment of the Court of Claims is affirmed.
Mr. Justice Harlan, dissenting.
The United States granted to Schillinger a patent for an alleged new and useful improvement in concrete pavements. The present suit against the United States proceeds upon the ground that in a pavement constructed in the Capitol grounds, under the supervision of the Architect of the Capitol, the United States knowingly obtained, and still enjoys, the benefit of the improvement covered by the Schillinger patent.
Can a suit be maintained against the United States in the Court of Claims, as upon contract, for the reasonable value of such use of the patentee's improvement?
I am of opinion that when the government, by its agent, knowingly uses or permits to be used for its benefit a valid patented invention, it is liable to suit in the Court of Claims for the value of such use, and that its liability arises out of contract based upon the constitutional requirement that private property shall not be taken for public use without just compensation.
1. For more on constructive promises (promises implied in law) and suits against the United States, see the decisions in Hercules, Inc. v. United States, 516 U.S. 417 (1996) (no U.S. promise is imputed to perform legal duty), and United States v. Minnesota Mut. Inv. Co., 271 U.S. 212, 217 (1926)(contract must be implied in fact, not implied in law by equity).
2. Does the majority hold that there is no taking or no taking of property? If it holds that there is no taking of property, can that be on the basis of any theory other than that patents are not property? Can one draw a sensible line between those claims founded on the Constitution that Congress sought to make subject to suits in the Court of Claims and those that it did not, based on any sensible principle? Is it all or nothing? All being improper government deprivations of life, liberty, or property? What about wrongful arrests? Defamation?
3. Why the focus on tort? Cannot something be both a tort and a taking of property? Suppose I cut down and remove timber from your land. Is that a tort and a taking? Cf. Imperial Film Exchange v. General Fim Co., 244 F. 985, 987 (S.D.N.Y. 1915) (“actions for a tort occasioning injury to property, of which perhaps the most ancient and familiar illustrations are trespass q.c.f. and trespass d.b.a.”). What about detinue? Cf. Maggio v. Zeitz, 333 U.S. 56, 63 (1948) (“the common law actions to recover possession — detinue for unlawful detention of chattels and replevin for their unlawful taking — as distinguished from actions in trespass . . . to recover damages for the withholding or for the value of the taking”).
4. Is it significant that until 1952 the patent law described and action for infringement as being in the nature of an action for trespass on the case? Would trover lie for patent infringement? Can you replevin an infringed patent? Does patent infringement fit well within any property-related tort? Is patent infringement like unfair competition? A substantial body of precedent calls patent infringement a tort without explaining what tort it is. See, e.g., Hoechst Celanese Corp. v. BP Chems. Ltd., 78 F.3d 1575, 1583 (Fed. Cir. 1996) (“Willful infringement is ... a measure of reasonable commercial behavior in the context of the tort of patent infringement. The extent to which the infringer disregarded the property rights of the patentee, the deliberateness of the tortious acts, or other manifestations of unethical or injurious commercial conduct, may provide grounds for a finding of willful infringement and the enhancement of damages.”).
International Postal Supply Co. of New York v. Bruce
United States Supreme Court
194 U.S. 601 (1904)
[Optional reading; not for discussion in class]
Mr. Justice Holmes.
This case is governed by Belknap v. Schild, 161 U.S. 10. There an injunction was sought against the Commandant of the United States Navy Yard at Mare Island, California, and some of his subordinates, to prevent the use of a caisson gate in the dry dock at that place, contrary to the rights of the plaintiff, as patentee. The case was heard on pleas setting up that the caisson gate was made and used by the United States for public purposes, and, as they were construed, that it was the property of the United States. It was held that an injunction could not be granted, and the bill was dismissed, without prejudice to an action at law.
The turning point of the case was that the court could not interfere with an object of property unless it had before it the person entitled to the thing, and this proposition was held to extend to an injunction against the use of the thing as well as to a destruction of it or to a removal of the part which infringed. It was pointed out that the defendants had no personal interest in the continuance of the use, and that, so far as the injunction was concerned, the suit really was against the United States. Of course, if those defendants were enjoined, other persons attempting to use the caisson gate would be, and thus the injunction practically would work a prohibition against its use by the United States.
The title of the United States to the caisson gate was admitted, and therefore the United States was a necessary party to a suit which was intended to deprive it of the incident of title — the right to use the gate. As the United States could not be made a party, the suit failed. In the case at bar the United States is not the owner of the machines, it is true, but it is a lessee in possession, for a term which has not expired. It has a property, a right in rem, in the machines, which, though less extensive than absolute ownership, has the same incident of a right to use them while it lasts. This right cannot be interfered with behind its back, by suing the postal official, Bruce. As the United States cannot be made a party, this suit, like that of Belknap, must fail.
Mr. Justice Harlan, dissenting.
It is to be assumed upon this record that the plaintiff, the International Postal Supply Company, is the owner of letters patent granted by the United States for new and useful improvements in stamp canceling and postmarking machines; and that the defendant postal official, Bruce, against the will of the patentee and without paying any royalty to him, is using, and unless enjoined will continue to use, machines that infringe the plaintiff's patent.
Can the defendant be prevented from thus violating rights of the plaintiff in respect of his patent, the validity of which is not here disputed? I cannot agree that the present decision is in harmony with the principles announced in the prior cases. The United States is not here sued, although it may be incidentally affected by the result. No decree is asked against it. The suit is against Bruce, who is proceeding in violation of the plaintiff's right of property, and denies the power of any court to interfere with him, solely upon the ground that what he is doing is under the order and sanction of the Postoffice Department. He is, so to speak, in the possession of, and wrongfully using, the plaintiff's patented invention, and denies the right of any court, by its mandatory order, to prevent him from continuing in his lawless invasion of a right granted by the Constitution and laws of the United States. But, as shown by the cases, not even the United States, much less the head of a department, has a right to use the patent of the plaintiff without its license and without compensation. Although the Constitution and statutes of the United States give to the plaintiff the right to the exclusive use of the invention, nevertheless, according to the present decision, that use may be rendered utterly valueless by the device of an order from the head of an executive department to a subordinate, to proceed in disregard of the rights of the patentee. Thus every patented right to an invention which can be profitably or conveniently used in the business of the government may be destroyed by the arbitrary action of the head of a department, and the patentee deprived of any compensation whatever for his invention, except such as Congress may, in its discretion, choose to allow.
If Congress, by statute, and in the exercise of its power of eminent domain, had chosen to take the plaintiff's patent right for public use, at the same time opening the way, by some appropriate proceeding, through which the patentee could secure compensation from the government for his property so taken, different considerations would arise. But no such action has been taken by Congress. The case before us is one in which it is held that the court cannot, by any direct process against the defendant, stop him from doing that which, confessedly, he has no legal right to do, namely, to use an invention against the will of the patentee. It was supposed that this Court announced an incontrovertible proposition when, in United States v. Lee, it said that “no man in this country is so high that he is above the law,” and that “all the officers of the government, from the highest to the lowest, are creatures of the law, and are bound to obey it.” But it seems that some officers are above the law, and may trample upon the rights of private property; heads of departments, who may, upon their own motion, seize the property of a patentee, and use it in the public business, and then close the doors of the courts with such effect that a subordinate officer, acting under departmental orders, may not be stopped in his wrongful violation of the rights of the patentee. Such arbitrary destruction of the property rights of the citizen might be expected to occur under a despotic government, but it ought not to be tolerated under a government whose fundamental law forbids all deprivation of property without due process of law, or the taking of private property for public use without compensation. Both the Constitution and the acts of Congress recognize the patentee's right to the exclusive use of his invention. But, for every practical purpose, the present decision not only places it in the power of an executive department to destroy the rights of the patentee, but recognizes the helplessness of the judiciary in the presence of such a wrong.
Suppose Congress should, by statute, expressly direct the Postmaster General to use a particular patented invention, paying nothing for such use, and at the same time withhold from the courts jurisdiction of any suit against the government by the patentee to obtain compensation for his property, so taken for public use. Ought it to be doubted that such an act would be declared unconstitutional and void, and that the courts would, at the suit of the patentee, although the government was not and could not be made a party defendant of record, prevent the person holding the office of Postmaster General from proceeding under the Act? Such a suit would not be regarded as a suit against the United States in its governmental capacity,
Let me give another illustration. Suppose Congress should, by statute, in a time of peace, direct the Secretary of War to take possession of the private residence of a citizen and use it for a quartermaster's office, and at the same time exclude from the jurisdiction of any court a suit against the United States to recover compensation for the property so taken for public use. Would the court refuse to stay the hands of the Secretary of War in executing the provisions of such a statute, simply because the United States could not be made a party of record to the suit? Surely not.
It is admitted that the head of an executive department cannot legally authorize a postmaster to use such invention against the will of the patentee. It is admitted that no postmaster can legally justify his invasion of the patentee's right by any order given by the Postmaster General which was made or issued in derogation of the rights of the patentee. And yet it is now adjudged that, although a postmaster may be confessedly proceeding in direct violation of the legal rights of the patentee, the court cannot, by any direct process, stop him in his destruction of the patentee's right of property. Under the present decision, the Postoffice Department not only may use, without compensation, the particular postmarking machines in question here, but it can lease others, and continue its violation of the patentee's rights at its discretion, thereby making the exclusive use granted by the patent of no value whatever.
I submit that the immunity of the United States from direct suit is an all-sufficient reason why the court shall lay its hands upon the defendant, who happens to be a local postmaster, and prevent him, by injunction, from disregarding the admittedly legal rights of the plaintiff. No other remedy is adequate. If that relief cannot be granted, then the rights of all patentees whose inventions can be used in the prosecution of the business of the government are subject to be destroyed by the arbitrary action of heads of departments and their subordinate officers.
I am of opinion that every officer of the government, however high his position, may be prevented by injunction, operating directly upon him, from illegally injuring or destroying the property rights of the citizen; and this relief should more readily be given when the government itself cannot be made a party of record.
The courts may, by mandamus, compel a public officer to perform a plain, ministerial duty prescribed by law; and that may be done, although the government itself cannot be made a party of record. Can it be possible that the court is without authority to enjoin the same officer from doing a direct, affirmative wrong to the property rights of the citizen, upon the ground that the government whom he represents, and in whose interest he is acting, is not and cannot be made a party of record? The present decision — erroneously, I take leave to say — answers this question favorably to the defendant. But that answer cannot, I submit, be made consistently with the declaration which this Court has often repeated, that no officer of the law, however high his position, can set that law at defiance with impunity; that the government, as well as the citizen, is subject to the Constitution, and therefore cannot legally appropriate or use a patented invention without just compensation any more than it can appropriate or use, without compensation, land that it had patented to a private purchaser. Instead of a patentee having the exclusive use or control of his invention—which is the mandate of both the Constitution and the statute—heads of department, it seems, are not bound to respect the rights of inventors, but can enjoy the exclusive privilege of appropriating to the use of the government, without compensation to the patentee, any patented invention that may be beneficial in the prosecution of the public business. In my judgment it is not possible to conceive of any case, arising under our system of constitutional government, in which the courts may not, in some effective mode, and properly, protect the rights of the citizen against illegal aggression, and to that end, if need be, stay the hands of the aggressor, even if he be a public officer, who acts in the interest, or by the direction, of the government.
Zoltek Corp. v. United States
United States Court of Appeals for the Federal Circuit
442 F.3d 1345 (Fed. Cir. 2006), cert. denied, 127 S. Ct. 2936 (2007)
Before Gajarsa, Circuit Judge, Plager, Senior Circuit Judge, and Dyk, Circuit Judge.
PER CURIAM. Concurring opinion filed by Circuit Judge Gajarsa. Separate concurring opinion filed by Circuit Judge Dyk. Dissenting opinion filed by Senior Circuit Judge Plager.
The United States appeals the order of the Court of Federal Claims holding that it could assert jurisdiction over Zoltek Corporation’s patent infringement allegations by treating the action as a Fifth Amendment taking under the Tucker Act. Zoltek cross-appeals the trial court’s ruling that 28 U.S.C. § 1498(c) bars this action as arising in a foreign country. The Court of Federal Claims certified the rulings under 28 U.S.C. § 1292(d)(2), and this court accepted jurisdiction. We conclude that under § 1498, the United States is liable for the use of a method patent only when it practices every step of the claimed method in the United States. The court therefore affirms the trial court’s conclusion that § 1498 bars Zoltek’s claims. However, we reverse the trial court’s determination that it had jurisdiction under the Tucker Act based on a violation of the Fifth Amendment.
Zoltek brought suit in the Court of Federal Claims under § 1498(a), alleging that the United States and Lockheed used the methods claimed in the patent when Lockheed’s subcontractors made the two silicide fiber products used in the F-22. Zoltek alleges that the mats and sheets were made, for the United States, using the claimed methods. The government moved for partial summary judgment that Zoltek's § 1498(a) claims were barred by § 1498(c) because they arose in Japan. The trial court denied the motion. Although it agreed that § 1498(c) barred Zoltek's claims under § 1498(a), the trial court directed Zoltek to amend its complaint to allege a taking under the Fifth Amendment. The trial court concluded that Zoltek could assert the infringement claims under 28 U.S.C. § 1491(a)(1) as a taking in violation of the Fifth Amendment. The trial court certified its § 1498 analysis and its holding that Zoltek’s patent infringement claims sounded in the Fifth Amendment. Both parties timely sought permission to appeal. This court accepted the interlocutory appeals and has jurisdiction.
The issues before the court are purely questions of law. This court reviews the trial court’s statutory and constitutional analysis without deference.
The federal government is immune from any legal action by its sovereign immunity. The waiver of immunity can be limited and conditioned by the Congress. A patentee’s judicial recourse against the federal government, or its contractors, for patent infringement, is set forth and limited by the terms of 28 U.S.C. § 1498. See James v. Campbell, 104 U.S. 356, 359 (1881). This court has held that “direct infringement under section 271(a) is a necessary predicate for government liability under section 1498.” NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1316 (Fed. Cir. 2005) (citing Motorola, Inc. v. United States, 729 F.2d 765, 768 n.3 (Fed. Cir. 1984)). We have further held that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps is performed within this country.” Id. at 1318. Consequently, where, as here, not all steps of a patented process have been performed in the United States, government liability does not exist pursuant to section 1498(a). We affirm the trial court's conclusion that § 1498(a) bars Zoltek’s claims.
We turn to the trial court's takings analysis. The Court of Federal Claims held that Zoltek could bring its action against the government under the Tucker Act, by alleging that the infringement was a taking of private property for public use under the Fifth Amendment. We reverse.
In Schillinger v. United States, 155 U.S. 163, 169 (1894), the Supreme Court rejected an argument that a patentee could sue the government for patent infringement as a Fifth Amendment taking under the Tucker Act. Schillinger remains the law. The trial court determined that the Supreme Court “effectively overruled Schillinger sub silentio” in subsequent decisions. We disagree. The Court of Federal Claims, like this court, is bound by Schillinger, and the trial court rulings to the contrary are not viable.
Patent rights are a creature of federal law. In response to Schillinger, Congress provided a specific sovereign immunity waiver for a patentee to recover for infringement by the government. Had Congress intended to clarify the dimensions of the patent rights as property interests under the Fifth Amendment, there would have been no need for the new and limited sovereign immunity waiver. The manner in which Congress responded to Schillinger is significant.
The dissent argues that we are wrong to conclude that Schillinger remains good law. Both inverse condemnation claims and regulatory takings claims, it asserts, are currently viewed as claims founded upon the Fifth Amendment of the Constitution for purposes of the Tucker Act, and these claims are not barred for having arisen in tort. If, as the dissent argues, a patent is a type of property that comes within the ambit of Fifth Amendment Takings Clause protection, why should we not likewise permit claims for patent infringement to arise under the Tucker Act?
The answer is simple. Unlike regulatory takings and the inverse condemnation of real property, the “taking” of a license to use a patent creates a cause of action under § 1498. The dissent fails to appreciate that this destroys whatever force its argument by analogy may otherwise have had. Indeed, if we were to interpret § 1491 as the dissent would have us, it would render superfluous § 1498 – the remedy that Congress fashioned specifically to compensate patentees for the use of their patents by the federal government. Moreover, even if we shared the dissent’s belief that the Supreme Court would overrule Schillinger, we are nevertheless bound by its holding. It is not our place to overrule sub silentio the Supreme Court. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484 (1989) (“If a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.”). In sum, the trial court erred in finding that Zoltek could allege patent infringement as a Fifth Amendment taking under the Tucker Act, and we reverse.
For the reasons set forth herein, we affirm the trial court’s conclusion that the infringement allegations at bar are precluded by § 1498(a). We reverse the trial court’s ruling that Zoltek can allege patent infringement as a Fifth Amendment taking under the Tucker Act. We remand for further proceedings consistent with this opinion.
Gajarsa, J., concurring
The dissent argues that I must be careful to construe § 1498 in a manner that does not somehow run afoul of the Fifth Amendment. Its concern is fundamentally misguided, however, even if one assumes, for sake of argument, that a patent is a type of property to which Fifth Amendment protections apply. Section 1498 is a waiver of sovereign immunity, the scope of which is completely within the discretion of Congress.13 In fact, there is no Fifth Amendment requirement that § 1498 exist at all; it is the responsibility of Congress, and of Congress alone to decide whether, and to what extent, it will permit the courts to help it fulfill its Constitutional obligations under the Takings Clause. A court need not concern itself with whether § 1498, construed narrowly in recognition of Congress’ sole power to waive sovereign immunity, provides a compensation scheme that is compliant with the requirements of the Takings Clause. It is not our place to interpret sovereign immunity waivers with an eye toward their Takings Clause sufficiency vel non, because the Constitution does not require Congress to create remedies in the courts at all. If Congress did not create a statutory scheme for compensation as provided under § 1498, it would follow that without such a provision, compensation would need to be obtained through legislative action.
Plager, Senior Circuit Judge, dissenting.
There are two separate though related issues in this case, both matters of first impression. One is of major significance to our understanding of the constitutional obligations of the United States; both relate as well to important rights of patent owners. The first issue is, may an owner of a United States patent bring a cause of action under the Fifth Amendment to the Constitution against the United States for a ‘taking’ as all other owners of property rights may; or is a patent right somehow less of a property interest, not worthy of such constitutional protection? Until this case, this issue has never been addressed directly by this or any other court.
The second issue, dealing with a cause of action for infringement of a United States patent, is raised in the context of a method or process patent claim involving multiple steps. When an owner of such a patent sues the United States for infringement under the provisions of 28 U.S.C. § 1498, the statute that authorizes such suits against the Government, does the fact that some or all of the steps are performed in a foreign country preclude recovery?
regarding the takings issue, the per curiam opinion does provide somewhat more analysis, but the analysis is on the wrong subject. According to the per curiam opinion, the takings issue in this case turns on the meaning of an 1894 Supreme Court case, Schillinger v. United States, 155 U.S. 163 (1894). The meaning of Schillinger is then stated in the opinion in one summary sentence, without reference to the facts of the case or the Supreme Court’s actual holding. The remainder of the per curiam takings discussion goes off into a lengthy discourse about why other cases decided some years later did not sub silentio overrule Schillinger. Interesting, but irrelevant. The key is Schillinger. As I shall explain next, Schillinger does not stand for what the per curiam opinion tells us it does, and thus the majority’s conclusion based on their reading of it is wrong.
The Fifth Amendment to the Constitution provides a series of protections for the individual against governmental abuses, and concludes: “nor shall private property be taken for public use, without just compensation.” This provision has a long and noble history of protecting and preserving property rights against unfettered Governmental seizure, and in so doing of protecting individual freedom and personal integrity from undue government authority.
It is well understood that this constitutional provision does not preclude the Government from taking private property for public use. Rather, the Constitution guarantees that the citizen will be fully compensated for such a taking. By requiring just compensation the Constitution makes the property owner whole, and it also places a constraint on government action by imposing the cost of such action on the Government’s fisc, thus subjecting administrative action to the discipline of public decision-making and legislative authorization. In recent years the Supreme Court has extended the salutary protection of the Fifth Amendment to excessive governmental regulation – the ‘regulatory taking’ issue – in addition to the traditional takings area in which the government actually acquires private property interests for its own use – the ‘physical taking’ issue.
In the case before us, the matter falls into the traditional acquisition area. Plaintiff alleges that the Government took its property – its government-granted patent right – when the Government’s subcontractors used the patented method in the production of certain products employed in the F-22 production. On its face, the claim seems straightforward. Property rights are created by law. In the ordinary course, the law is state law. In the case of patents, the law is federal, and the patent statute Consol. Fruit-Jar expressly declares that the rights in an issued patent are property. 35 U.S.C. § 261 (“[P]atents shall have the attributes of personal property.”); see also Co. v. Wright, 94 U.S. 92, 96 (1876) (“A patent for an invention is as much property as a patent for land.”).
One of the property attributes of a patent grant is the right to exclude all others, including the Government, from “making, using, offering for sale, or selling” the patented invention without the patentee’s consent. 35 U.S.C. § 154(a)(1); see Carl Schenck, A.G. v. Nortron Corp., 713 F.2d 782, 786 n.3 (Fed. Cir. 1983) (“The patent right is but the right to exclude others, the very definition of ‘property.&lsquo’”). When a private party uses without authority an invention subject to patent rights, the wrongful use is the tort of infringement. The patentee’s judicial remedy is a suit for infringement in accordance with Title 35, United States Code. See 35 U.S.C. §§ 271, 281. However, when the wrongful use is committed by the United States Government (or its agents), such suit is not brought under Title 35 but under Title 28, section 1498.
Nevertheless, when the Government chooses to acquire a patent right without prior permission of the owner, there is a way, unrelated to infringement law and unique to the Government, through which a patentee’s right to exclude others may be obtained. The Government can exercise its power of eminent domain and simply seize or, as we say, ‘take’ the property it needs for a public use. In effect, the Government forcibly acquires a license to use the invention. However, because of the Constitution, the Government may do this only if it pays the just compensation demanded by the Fifth Amendment. The trial court examined the question of whether there could be such a taking independent of the terms of § 1498. The court concluded, correctly, that the answer is yes, and that the Court of Federal Claims has jurisdiction under the Tucker Act to entertain that claim. The Government’s challenge to that conclusion is the first question certified to this court.
On appeal, the panel majority in its per curiam opinion disagrees with the trial court. The opinion relies on its understanding of the Schillinger case, in which, according to the per curiam opinion, “the Supreme Court rejected an argument that a patentee could sue the government for patent infringement as a Fifth Amendment taking under the Tucker Act,” and, we are told, Schillinger remains good law. That statement is essentially the entire explanation offered for the opinion’s slavish reliance on Schillinger.
The problem with the majority’s statement of Schillinger is that it misconstrues the holding in Schillinger, and equates the taking claim with an infringement action, when as a matter of law these are two separate legal claims founded on separate legal bases. The tort of patent infringement is statutorily based and defined, and exists at the discretion of Congress; the right to just compensation for a taking is constitutional, it is not a tort, and it requires no legislative blessing. Furthermore, Schillinger, on which the majority bases its result, was not a taking case at all.
Schillinger filed a petition in the Court of Claims for damages for alleged unauthorized use of his patent by the Government. At the time (1894), it was understood that the jurisdiction of the Court of Claims for suits against the United States lay in contract, but not in tort. The Court of Claims held that since Schillinger’s suit did not involve a contract, either expressed or implied, on the part of the Government for the use of the patent, the petition was outside of the jurisdiction of that court. The Supreme Court agreed.
The Supreme Court said “[t]hat this action is one sounding in tort is clear.” 155 U.S. at 169. The Court opined that the Court of Claims has no jurisdiction of claims against the Government for mere torts. “Some element of contractual liability must lie at the foundation of every action.” Id. at 167. The Court restated “the frequent ruling of this court that cases sounding in tort are not cognizable in the court of claims.” Id. at 169. Since the cause of action was for tort, and not contract, the Court affirmed the trial court’s dismissal of the suit.
The per curiam opinion simply repeats its confusion over statutory remedy and constitutional right. The answer to the takings issue, we are told, "is simple. Unlike regulatory takings and the inverse condemnation of real property, the ‘taking’ of a license to use a patent creates a cause of action under § 1498." Consequently, since in the majority’s view there is no remedy on these facts under § 1498, there is no constitutional right either. The notion that the constitutional right to just compensation is defined by the terms of a statute – § 1498 in this case – is elaborated in Judge Gajarsa’s concurring opinion, in which he opines that "it is the responsibility of Congress, and of Congress alone to decide whether, and to what extent, it will permit the courts to help it fulfill its Constitutional obligations under the Takings Clause."
This is a remarkable view of the Constitution. Can it be that Congress, by a stroke of the legislative pen, may withhold the remedies and revoke the protections given to the citizenry by the Fifth Amendment, not to mention the other Articles of the Bill of Rights to the Constitution? Fortunately no authority exists for such a radical doctrine of legislative preemption over constitutional right. Wisely, Congress has never attempted to establish one, and in fact Congress in the Tucker Act expressly provides for the courts’ jurisdiction over these takings claims. To argue that Congress in enacting § 1498 successfully cabined the Constitution is the reverse of the understanding that the Constitution trumps legislation; it hardly seems appropriate for this court to be the first to announce such a contrary view of constitutional doctrine.
In my view, the existence of a proper takings claim is an issue wholly independent of whether under § 1498 there is a valid claim that triggers a remedy under that statute. The latter is a question of statutory right granted by Congress under its legislative authority pursuant to the Constitution; the former is a matter of constitutional principle the vindication of which Congress has properly provided for by remedy in the Court of Federal Claims pursuant to the provisions of the Tucker Act. The mixing and merging of these two separate legal concepts in the manner the majority has done is incorrect as a matter of law, and leads them to an erroneous conclusion.
1. Assuming, arguendo, that a patent is the kind of property to which the 5th amendment applies, is infringement of the patent a “taking” of that property in the 5th amendment sense. If I step on your real estate or toss a dead cow onto it, have I taken your real estate? What does Schillinger suggest?
2. What does it mean to say that I “take” a license of your patent? Do I take it in the same sense that I might take your car? Take your temperature? Take a walk on your front lawn?
3. When I take a license, do I take a property right? Is a license a property right? What is a license as a legal thing? See U.S. Philips Corp. v. International Trade Commission, 424 F.3d 1179, - n.3 (Fed. Cir. 2005) (covenant not to sue); Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1381 (Fed. Cir. 2004) (same); Spindelfabrik Suessen-Schurr Stahlecker & Grill GmbH v. Schubert & Salzer Maschinenfabrik Aktiengesellschaft, 829 F.3d 1075, 1081 (Fed. Cir. 1987) (a bare license agreement “is in essence nothing more than a promise by the licensor not to sue the licensee”).
4. What is a licensee, as distinguished from an invitee or trespasser? Is a licensee someone who has a license? Does a licensee have a property right in the licensed property? Does an invitee?
Carl Schenck, A.G. v. Nortron Corp.
United States Court of Appeals for the Federal Circuit
713 F.2d 782 (Fed. Cir. 1983)
Markey, Chief Judge.
. . . Nortron asserts as that there is a file wrapper estoppel, ignored by Judge Nixon, under which the claims cannot cover a balancer like its model 7402 that permits vibrations in an axial direction.* There is simply no basis in the record for the argument based on counsel’s claim interpretation and counsel’s description of model 7402’s operation. The testimony of Schenck’s expert witness and Nortron’s designer at trial fully supports Judge Nixon’s interpretation of the claims.
* Nortron begins its file wrapper estoppel argument with “Patents are an exception to the general rule against monopolies.” A patent, under the statute, is property. 35 U.S.C. § 261. Nowhere in any statute is a patent described as a monopoly. The patent right is but the right to exclude others, the very definition of “property.” That the property right represented by a patent, like other property rights, may be used in a scheme violative of antitrust laws creates no “conflict” between laws establishing any of those property rights and the antitrust laws. The antitrust laws, enacted long after the original patent laws, deal with appropriation of what should belong to others. A valid patent gives the public what it did not earlier have. Patents are valid or invalid under the statute. It is but an obfuscation to refer to a patent as “the patent monopoly” or to describe a patent as an “exception to the general rule against monopolies.” That description, moreover, is irrelevant when considering patent questions, including the question of prosecution history estoppel.
This case fragment is included here only because of Judge Markey’s footnote denouncing appellant’s counsel for calling patents “monopolies” instead of “property.” What do you suppose caused Judge Markey to become so lengthily exercised over language he termed “irrelevant”? Is this decision citable as a precedent holding patents to be property?
Sears, Roebuck & Co. v. Stiffel Co.
United States Supreme Court
376 U.S. 225 (1964)
Mr. Justice Black
. . . The grant of a patent is the grant of a statutory monopoly;5 indeed, the grant of patents in England was an explicit exception to the statute of James I prohibiting monopolies.6 Patents are not given as favors, as was the case of monopolies given by the Tudor monarchs, see The Case of Monopolies (Darcy v. Allein), 11 Co. Rep. 84 b, 77 Eng. Rep. 1260 (K.B. 1602), but are meant to encourage invention by rewarding the inventor with the right, limited to a term of years fixed by the patent, to exclude others from the use of his invention. During that period of time no one may make use, or sell the patented product without the patentee’s authority.
5. Patent rights exist only by virtue of statute. Wheaton v. Peters, 8 Pet. 591, 658 (1834).
6. The Statute of Monopolies, 21 Jac. I, c. 3 (1623), declared all monopolies “contrary to the Laws of this Realm” and “utterly void and of none Effect.” Section VI, however, excepted patents of 14 years to “the true and first Inventor and Inventors” of “new Manufactures” so long as they were “not contrary to the Law, nor mischievous to the State, by raising Prices of Commodities at home, or Hurt of Trade, or generally inconvenient.” Much American patent law derives from English patent law. See Pennock v. Dialogue, 2 Pet. 1, 18 (1829).
But in rewarding useful invention, the “rights and welfare of the community must be fairly dealt with and effectually guarded.” Kendall v. Winsor, 21 How. 322, 328 (1859). To that end the prerequisites to obtaining a patent are strictly observed, and when the patent has issued the limitations on its exercise are equally strictly enforced. To begin with, a genuine “invention” or “discovery” must be demonstrated “lest in the constant demand for new appliances the heavy hand of tribute be laid on each slight technological advance in an art.” Once the patent issues, it is strictly construed; it cannot be used to secure any monopoly beyond that contained in the patent, Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 492 (1942); the patentee’s control over the product when it leaves his hands is sharply limited, see United States v. Univis Lens Co., 316 U.S. 241, 250-252 (1942), and the patent monopoly may not be used in disregard of the antitrust laws. Finally, and especially relevant here, when the patent expires the monopoly created by it expires, too, and the right to make the article — including the right to make it in precisely the shape it carried when patented — passes to the public. Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 120-122 (1938).
Because of the federal patent laws a State may not, when the article is unpatented and uncopyrighted, prohibit the copying of the article itself or award damages for such copying. The judgment below did both and in so doing gave Stiffel the equivalent of a patent monopoly on its unpatented lamp. That was error, and Sears is entitled to a judgment in its favor.
1. The semantic feud between proponents of patent property rights and advocates of an antitrust challenge to patent monopolies continues unabated. The former continue to decry calling patents “monopolies” instead of “property rights.” The latter continue to sprinkle briefs with passing references to patent monopolies. Rare in legal rhetoric is the forthright defender of patents as statutory monopolies to which their owners are by law entitled.
2. A recent contribution to the property rhetoric is found in U.S. Dept. of Justice and FTC, Antitrust Guidelines for the Licensing and Acquisition of Intellectual Property § 2.1 (Apr. 6, 1995), reprinted in Trade Reg. Rep. (CCH) ¶ 13,132 (available at http://www.usdoj.gov/atr/public/guidelines/0558.htm):
The Agencies [DOJ and FTC] apply the same general antitrust principles to conduct involving intellectual property that they apply to conduct involving any other form of tangible or intangible property. That is not to say that intellectual property is in all respects the same as any other form of property. Intellectual property has important characteristics, such as ease of misappropriation, that distinguish it from many other forms of property. These characteristics can be taken into account by standard antitrust analysis, however, and do not require the application of fundamentally different principles.
Intellectual property law bestows on the owners of intellectual property certain rights to exclude others. These rights help the owners to profit from the use of their property. An intellectual property owner’s rights to exclude are similar to the rights enjoyed by owners of other forms of private property. As with other forms of private property, certain types of conduct with respect to intellectual property may have anticompetitive effects against which the antitrust laws can and do protect. Intellectual property is thus neither particularly free from scrutiny under the antitrust laws, nor particularly suspect under them.
Penn Central Transportation Co. v. City of New York
United States Supreme Court
438 U.S. 104 (1978)
Mr. Justice BRENNAN delivered the opinion of the Court.
The question presented is whether a city may, as part of a comprehensive program to preserve historic landmarks and historic districts, place restrictions on the development of individual historic landmarks – in addition to those imposed by applicable zoning ordinances – without effecting a “taking” requiring the payment of “just compensation.” Specifically, we must decide whether the application of New York City’s Landmarks Preservation Law to the parcel of land occupied by Grand Central Terminal has “taken” its owners’ property in violation of the Fifth and Fourteenth Amendments.
Over the past 50 years, all 50 States and over 500 municipalities have enacted laws to encourage or require the preservation of buildings and areas with historic or aesthetic importance. These nationwide legislative efforts have been] precipitated by two concerns. The first is recognition that, in recent years, large numbers of historic structures, landmarks, and areas have been destroyed without adequate consideration of either the values represented therein or the possibility of preserving the destroyed properties for use in economically productive ways. The second is a widely shared belief that structures with special historic, cultural, or architectural significance enhance the quality of life for all. Not only do these buildings and their workmanship represent the lessons of the past and embody precious features of our heritage, they serve as examples of quality for today. “[H]istoric conservation is but one aspect of the much larger problem, basically an environmental one, of enhancing – or perhaps developing for the first time – the quality of life for people.”
New York City, responding to similar concerns and acting pursuant to a New York State enabling Act, adopted its Landmarks Preservation Law in 1965. The city acted from the conviction that “the standing of [New York City] as a world-wide tourist center and world capital of business, culture and government” would be threatened if legislation were not enacted to protect historic landmarks and neighborhoods from precipitate decisions to destroy or fundamentally alter their character. The city believed that comprehensive measures to safeguard desirable features of the existing urban fabric would benefit its citizens in a variety of ways: e. g., fostering “civic pride in the beauty and noble accomplishments of the past”; protecting and enhancing “the city’s attractions to tourists and visitors”; “support[ing] and stimul[ating] business and industry”; “strengthen[ing] the economy of the city”; and promoting “the use of historic districts, landmarks, interior landmarks and scenic landmarks for the education, pleasure and welfare of the people of the city.”
The operation of the law can be briefly summarized. The primary responsibility for administering the law is vested in the Landmarks Preservation Commission (Commission), a broad based agency assisted by a technical staff. The Commission first performs the function, critical to any landmark preservation effort, of identifying properties and areas that have “a special character or special historical or aesthetic interest or value as part of the development, heritage or cultural characteristics of the city, state or nation.” If the Commission determines, after giving all interested parties an opportunity to be heard, that a building or area satisfies the ordinance’s criteria, it will designate a building to be a “landmark.”The owner may seek judicial review of the final designation decision.
Final designation as a landmark results in restrictions upon the property owner’s options concerning use of the landmark site. First, the law imposes a duty upon the owner to keep the exterior features of the building “in good repair” to assure that the law’s objectives not be defeated by the landmark’s falling into a state of irremediable disrepair. Second, the Commission must approve in advance any proposal to alter the exterior architectural features of the landmark or to construct any exterior improvement on the landmark site, thus ensuring that decisions concerning construction on the landmark site are made with due consideration of both the public interest in the maintenance of the structure and the landowner’s interest in use of the property.
In the event an owner wishes to alter a landmark site, three separate procedures are available through which administrative approval may be obtained. First, the owner may apply to the Commission for a “certificate of no effect on protected architectural features”: that is, for an order approving the improvement or alteration on the ground that it will not change or affect any architectural feature of the landmark and will be in harmony therewith. Denial of the certificate is subject to judicial review.
Second, the owner may apply to the Commission for a certificate of “appropriateness.” Such certificates will be granted if the Commission concludes – focusing upon aesthetic, historical, and architectural values – that the proposed construction on the landmark site would not unduly hinder the protection, enhancement, perpetuation, and use of the landmark. Again, denial of the certificate is subject to judicial review. Moreover, the owner who is denied either a certificate of no exterior effect or a certificate of appropriateness may submit an alternative or modified plan for approval.
The final procedure – seeking a certificate of appropriateness on the ground of “insufficient return” – provides special mechanisms to ensure that designation does not cause economic hardship.
Although the designation of a landmark and landmark site restricts the owner’s control over the parcel, designation also enhances the economic position of the landmark owner in one significant respect. Under New York City’s zoning laws, owners of real property who have not developed their property to the full extent permitted by the applicable zoning laws are allowed to transfer development rights to contiguous parcels on the same city block. A 1968 ordinance gave the owners of landmark sites additional opportunities to transfer development rights to other parcels across the street or across a street intersection.
This case involves the application of New York City’s Landmarks Preservation Law to Grand Central Terminal (Terminal). The Terminal, which is owned by the Penn Central Transportation Co. and its affiliates (Penn Central), is one of New York City’s most famous buildings. Opened in 1913, it is regarded not only as providing an ingenious engineering solution to the problems presented by urban railroad stations, but also as a magnificent example of the French beaux-arts style.
The Terminal is located in midtown Manhattan. Its south facade faces 42d Street and that street’s intersection with Park Avenue. At street level, the Terminal is bounded on the west by Vanderbilt Avenue, on the east by the Commodore Hotel, and on the north by the Pan-American Building. Although a 20-story office tower, to have been located above the Terminal, was part of the original design, the planned tower was never constructed. The Terminal itself is an eight-story structure which Penn Central uses as a railroad station and in which it rents space not needed for railroad purposes to a variety of commercial interests. The Terminal is one of a number of properties owned by appellant Penn Central in this area of midtown Manhattan. The others include the Barclay, Biltmore, Commodore, Roosevelt, and Waldorf-Astoria Hotels, the Pan-American Building and other office buildings along Park Avenue, and the Yale Club. At least eight of these are eligible to be transferee recipients of development rights afforded the Terminal by virtue of landmark designation.
On August 2, 1967, following a public hearing, the Commission designated the Terminal a “landmark” and designated the “city tax block” it occupies a “landmark site.” The Board of Estimate confirmed this action on September 21, 1967. Although appellant Penn Central had opposed the designation before the Commission, it did not seek judicial review of the final designation decision.
On January 22, 1968, appellant Penn Central, to increase its income, entered into a renewable 50-year lease and sublease agreement with appellant UGP Properties, Inc. (UGP). Under the terms of the agreement, UGP was to construct a multistory office building above the Terminal. UGP promised to pay Penn Central $1 million annually during construction and at least $3 million annually thereafter. The rentals would be offset in part by a loss of some $700,000 to $1 million in net rentals presently received from concessionaires displaced by the new building.
Appellants UGP and Penn Central then applied to the Commission for permission to construct an office building atop the Terminal. Two separate plans, both designed by architect Marcel Breuer and both apparently satisfying the terms of the applicable zoning ordinance, were submitted to the Commission for approval. The first, Breuer I, provided for the construction of a 55-story office building, to be cantilevered above the existing facade and to rest on the roof of the Terminal.
The second, Breuer II Revised, called for tearing down a portion of the Terminal that included the 42d Street facade, stripping off some of the remaining features of the Terminal’s facade, and constructing a 53-story office building. The Commission denied a certificate of no exterior effect on September 20, 1968. Appellants then applied for a certificate of “appropriateness” as to both proposals. After four days of hearings at which over 80 witnesses testified, the Commission denied this application as to both proposals.
Grand Central - Facade
The Commission’s reasons for rejecting certificates respecting Breuer II Revised are summarized in the following statement:
To protect a Landmark, one does not tear it down. To perpetuate its architectural features, one does not strip them off.
Breuer I, which would have preserved the existing vertical facades of the present structure, received more sympathetic consideration. The Commission first focused on the effect that the proposed tower would have on one desirable feature created by the present structure and its surroundings: the dramatic view of the Terminal from Park Avenue South. Although appellants had contended that the Pan-American Building had already destroyed the silhouette of the south facade and that one additional tower could do no further damage and might even provide a better background for the facade, the Commission disagreed, stating that it found the majestic approach from the south to be still unique in the city and that a 55-story tower atop the Terminal would be far more detrimental to its south facade than the Pan-American Building 375 feet away. Moreover, the Commission found that from closer vantage points the Pan Am Building and the other towers were largely cut off from view, which would not be the case of the mass on top of the Terminal planned under Breuer I. In conclusion, the Commission stated:
[We have] no fixed rule against making additions to designated buildings – it all depends on how they are done . . . . But to balance a 55-story office tower above a flamboyant Beaux-Arts facade seems nothing more than an aesthetic joke. Quite simply, the tower would overwhelm the Terminal by its sheer mass. The “addition” would be four times as high as the existing structure and would reduce the Landmark itself to the status of a curiosity.
Park Avenue views of Grand Central Station, from higher and lower vantage points, respectively
Landmarks cannot be divorced from their settings – particularly when the setting is a dramatic and integral part of the original concept. The Terminal, in its setting, is a great example of urban design. Such examples are not so plentiful in New York City that we can afford to lose any of the few we have. And we must preserve them in a meaningful way – with alterations and additions of such character, scale, materials and mass as will protect, enhance and perpetuate the original design rather than overwhelm it.
Appellants did not seek judicial review of the denial of either certificate. Because the Terminal site enjoyed a tax exemption, remained suitable for its present and future uses, and was not the subject of a contract of sale, there were no further administrative remedies available to appellants as to the Breuer I and Breuer II Revised plans. Further, appellants did not avail themselves of the opportunity to develop and submit other plans for the Commission’s consideration and approval. Instead, appellants filed suit in New York Supreme Court, Trial Term, claiming, inter alia, that the application of the Landmarks Preservation Law had “taken” their property without just compensation in violation of the Fifth and Fourteenth Amendments and arbitrarily deprived them of their property without due process of law in violation of the Fourteenth Amendment. Appellants sought a declaratory judgment, injunctive relief barring the city from using the Landmarks Law to impede the construction of any structure that might otherwise lawfully be constructed on the Terminal site, and damages for the “temporary taking” that occurred between August 2, 1967, the designation date, and the date when the restrictions arising from the Landmarks Law would be lifted.
The New York Supreme Court, Appellate Division, rejected the claim that the Terminal was operating at a loss, for in the court’s view, appellants had improperly attributed some railroad operating expenses and taxes to their real estate operations and compounded that error by failing to impute any rental value to the vast space in the Terminal devoted to railroad purposes. Further, the Appellate Division concluded that appellants had failed to establish either that they were unable to increase the Terminal’s commercial income by transforming vacant or underutilized space to revenue-producing use, or that the unused development rights over the Terminal could not have been profitably transferred to one or more nearby sites. The Appellate Division concluded that all appellants had succeeded in showing was that they had been deprived of the property’s most profitable use, and that this showing did not establish that appellants had been unconstitutionally deprived of their property.
The New York Court of Appeals affirmed. That court summarily rejected any claim that the Landmarks Law had “taken” property without “just compensation,” indicating that there could be no “taking” since the law had not transferred control of the property to the city, but only restricted appellants’ exploitation of it. In that circumstance, the Court of Appeals held that appellants’ attack on the law could prevail only if the law deprived appellants of their property in violation of the Due Process Clause of the Fourteenth Amendment. Whether or not there was a denial of due process turned on whether the restrictions deprived Penn Central of a “reasonable return” on the “privately created and privately managed ingredient” of the Terminal. The Court of Appeals concluded that the Landmarks Law had not effected a denial of due process because: (1) the landmark regulation permitted the same use as had been made of the Terminal for more than half a century; (2) the appellants had failed to show that they could not earn a reasonable return on their investment in the Terminal itself; and (3) the development rights above the Terminal, which had been made transferable to numerous sites in the vicinity of the Terminal, one or two of which were suitable for the construction of office buildings, were valuable to appellants and provided “significant, perhaps ‘fair,’ compensation for the loss of rights above the terminal itself.” Observing that its affirmance was “[o]n the present record,” and that its analysis had not been fully developed by counsel at any level of the New York judicial system, the Court of Appeals directed that counsel “should be entitled to present . . . any additional submissions which, in the light of [the court’s] opinion, may usefully develop further the factors discussed.” Appellants chose not to avail themselves of this opportunity and filed a notice of appeal in this Court.
The issue presented by appellants is whether the restrictions imposed by New York City’s law upon appellants’ exploitation of the Terminal site effect a “taking” of appellants’ property for a public use within the meaning of the Fifth Amendment, which of course is made applicable to the States through the Fourteenth Amendment.
Before considering appellants’ specific contentions, it will be useful to review the factors that have shaped the jurisprudence of the Fifth Amendment injunction “nor shall private property be taken for public use, without just compensation.” The question of what constitutes a “taking” for purposes of the Fifth Amendment has proved to be a problem of considerable difficulty. While this Court has recognized that the “Fifth Amendment’s guarantee . . . [is] designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,” this Court, quite simply, has been unable to develop any “set formula” for determining when “justice and fairness” require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons. Indeed, we have frequently observed that whether a particular restriction will be rendered invalid by the government’s failure to pay for any losses proximately caused by it depends largely “upon the particular circumstances [in that] case.”
In engaging in these essentially ad hoc, factual inquiries, the Court’s decisions have identified several factors that have particular significance. The economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations are, of course, relevant considerations. So, too, is the character of the governmental action. A “taking” may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.
“Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law,” and this Court has accordingly recognized, in a wide variety of contexts, that government may execute laws or programs that adversely affect recognized economic values. Exercises of the taxing power are one obvious example. A second are the decisions in which this Court has dismissed “taking” challenges on the ground that, while the challenged government action caused economic harm, it did not interfere with interests that were sufficiently bound up with the reasonable expectations of the claimant to constitute “property” for Fifth Amendment purposes. See, e. g., United States v. Willow River Power Co. (interest in high-water level of river for runoff for tailwaters to maintain power head is not property). See also Sax, Takings and the Police Power, 74 Yale L.J. 36, 61-62 (1964).
More importantly for the present case, in instances in which a state tribunal reasonably concluded that “the health, safety, morals, or general welfare” would be promoted by prohibiting particular contemplated uses of land, this Court has upheld land-use regulations that destroyed or adversely affected recognized real property interests. Zoning laws are, of course, the classic example, see Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (prohibition of industrial use); Gorieb v. Fox, 274 U.S. 603, 608 (1927) (requirement that portions of parcels be left unbuilt); Welch v. Swasey, 214 U.S. 91 (1909) (height restriction), which have been viewed as permissible governmental action even when prohibiting the most beneficial use of the property.
Zoning laws generally do not affect existing uses of real property, but “taking” challenges have also been held to be without merit in a wide variety of situations when the challenged governmental actions prohibited a beneficial use to which individual parcels had previously been devoted and thus caused substantial individualized harm. Miller v. Schoene, 276 U.S. 272 (1928), is illustrative. In Miller, a state entomologist, acting pursuant to a state statute, ordered the claimants to cut down a large number of ornamental red cedar trees because they produced cedar rust fatal to apple trees cultivated nearby. Although the statute provided for recovery of any expense incurred in removing the cedars, and permitted claimants to use the felled trees, it did not provide compensation for the value of the standing trees or for the resulting decrease in market value of the properties as a whole. A unanimous Court held that this latter omission did not render the statute invalid. The Court held that the State might properly make “a choice between the preservation of one class of property and that of the other” and since the apple industry was important in the State involved, concluded that the State had not exceeded “its constitutional powers by deciding upon the destruction of one class of property [without compensation] in order to save another which, in the judgment of the legislature, is of greater value to the public.” It is, of course, implicit that a use restriction on real property may constitute a “taking” if not reasonably necessary to the effectuation of a substantial public purpose or perhaps if it has an unduly harsh impact upon the owner’s use of the property.
However, a state statute that substantially furthers important public policies may so frustrate distinct investment-backed expectations as to amount to a “taking.” See Hudson Water Co. v. McCarter, 209 U.S. 349, 355 (1908) (if height restriction makes property wholly useless “the rights of property . . . prevail over the other public interest” and compensation is required); Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of “Just Compensation” Law, 80 Harv. L. Rev. 1165, 1229-1234 (1967).
In contending that the New York City law has “taken” their property in violation of the Fifth and Fourteenth Amendments, appellants make a series of arguments, which, while tailored to the facts of this case, essentially urge that any substantial restriction imposed pursuant to a landmark law must be accompanied by just compensation if it is to be constitutional. Before considering these, we emphasize what is not in dispute. Because this Court has recognized, in a number of settings, that States and cities may enact land-use restrictions or controls to enhance the quality of life by preserving the character and desirable aesthetic features of a city, appellants do not contest that New York City’s objective of preserving structures and areas with special historic, architectural, or cultural significance is an entirely permissible governmental goal. They also do not dispute that the restrictions imposed on its parcel are appropriate means of securing the purposes of the New York City law. Finally, appellants do not challenge any of the specific factual premises of the decision below. They accept for present purposes both that the parcel of land occupied by Grand Central Terminal must, in its present state, be regarded as capable of earning a reasonable return, and that the transferable development rights afforded appellants by virtue of the Terminal’s designation as a landmark are valuable, even if not as valuable as the rights to construct above the Terminal. In appellants’ view none of these factors derogate from their claim that New York City’s law has effected a “taking.”
They first observe that the airspace above the Terminal is a valuable property interest. They urge that the Landmarks Law has deprived them of any gainful use of their “air rights” above the Terminal and that, irrespective of the value of the remainder of their parcel, the city has “taken” their right to this superadjacent airspace, thus entitling them to “just compensation” measured by the fair market value of these air rights.
Apart from our own disagreement with appellants’ characterization of the effect of the New York City law, the submission that appellants may establish a “taking” simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development is quite simply untenable. Were this the rule, this Court would have erred not only in upholding laws restricting the development of air rights, but also in approving those prohibiting both the subjacent and the lateral.“Taking” jurisprudence does not divide a single parcel into discrete segments and attempt to determine whether rights in a particular segment have been entirely abrogated. In deciding whether a particular governmental action has effected a taking, this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole – here, the city tax block designated as the “landmark site.”
Second, appellants, focusing on the character and impact of the New York City law, argue that it effects a “taking” because its operation has significantly diminished the value of the Terminal site. Appellants concede that the decisions sustaining other land-use regulations, which, like the New York City law, are reasonably related to the promotion of the general welfare, uniformly reject the proposition that diminution in property value, standing alone, can establish a “taking,” see Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (75% diminution in value caused by zoning law), and that the “taking” issue in these contexts is resolved by focusing on the uses the regulations permit. Appellants, moreover, also do not dispute that a showing of diminution in property value would not establish a taking if the restriction had been imposed as a result of historic-district legislation, but appellants argue that New York City’s regulation of individual landmarks is fundamentally different from zoning or from historic-district legislation because the controls imposed by New York City’s law apply only to individuals who own selected properties.
Stated baldly, appellants’ position appears to be that the only means of ensuring that selected owners are not singled out to endure financial hardship for no reason is to hold that any restriction imposed on individual landmarks pursuant to the New York City scheme is a “taking” requiring the payment of “just compensation.” Agreement with this argument would, of course, invalidate not just New York City’s law, but all comparable landmark legislation in the Nation. We find no merit in it.
It is true, as appellants emphasize, that both historic-district legislation and zoning laws regulate all properties within given physical communities whereas landmark laws apply only to selected parcels. But, contrary to appellants’ suggestions, landmark laws are not like discriminatory, or “reverse spot,” zoning: that is, a land-use decision which arbitrarily singles out a particular parcel for different, less favorable treatment than the neighboring ones. In contrast to discriminatory zoning, which is the antithesis of land-use control as part of some comprehensive plan, the New York City law embodies a comprehensive plan to preserve structures of historic or aesthetic interest wherever they might be found in the city, and over 400 landmarks and 31 historic districts have been designated pursuant to this plan.
Equally without merit is the related argument that the decision to designate a structure as a landmark “is inevitably arbitrary or at least subjective, because it is basically a matter of taste,” thus unavoidably singling out individual landowners for disparate and unfair treatment. The argument has a particularly hollow ring in this case. For appellants not only did not seek judicial review of either the designation or of the denials of the certificates of appropriateness and of no exterior effect, but do not even now suggest that the Commission’s decisions concerning the Terminal were in any sense arbitrary or unprincipled. But, in any event, a landmark owner has a right to judicial review of any Commission decision, and, quite simply, there is no basis whatsoever for a conclusion that courts will have any greater difficulty identifying arbitrary or discriminatory action in the context of landmark regulation than in the context of classic zoning or indeed in any other context.
Next, appellants observe that New York City’s law differs from zoning laws and historic-district ordinances in that the Landmarks Law does not impose identical or similar restrictions on all structures located in particular physical communities. It follows, they argue, that New York City’s law is inherently incapable of producing the fair and equitable distribution of benefits and burdens of governmental action which is characteristic of zoning laws and historic-district legislation and which they maintain is a constitutional requirement if “just compensation” is not to be afforded. It is, of course, true that the Landmarks Law has a more severe impact on some landowners than on others, but that in itself does not mean that the law effects a “taking.” Legislation designed to promote the general welfare commonly burdens some more than others. The owners of the cedar trees in Miller v. Schoene were uniquely burdened by the legislation sustained in those cases. Similarly, zoning laws often affect some property owners more severely than others but have not been held to be invalid on that account. For example, the property owner in Euclid who wished to use its property for industrial purposes was affected far more severely by the ordinance than its neighbors who wished to use their land for residences.
In any event, appellants’ repeated suggestions that they are solely burdened and unbenefited is factually inaccurate. This contention overlooks the fact that the New York City law applies to vast numbers of structures in the city in addition to the Terminal – all the structures contained in the 31 historic districts and over 400 individual landmarks, many of which are close to the Terminal. Unless we are to reject the judgment of the New York City Council that the preservation of landmarks benefits all New York citizens and all structures, both economically and by improving the quality of life in the city as a whole – which we are unwilling to do – we cannot conclude that the owners of the Terminal have in no sense been benefited by the Landmarks Law. Doubtless appellants believe they are more burdened than benefited by the law, but that must have been true, too, of the property owners in Miller, Euclid, and similar cases.
Appellants’ final broad-based attack would have us treat the law as an instance in which government, acting in an enterprise capacity, has appropriated part of their property for some strictly governmental purpose. This New York City law has in nowise impaired the present use of the Terminal, the Landmarks Law neither exploits appellants’ parcel for city purposes nor facilitates nor arises from any entrepreneurial operations of the city. The Landmarks Law’s effect is simply to prohibit appellants or anyone else from occupying portions of the airspace above the Terminal, while permitting appellants to use the remainder of the parcel in a gainful fashion. This is no more an appropriation of property by government for its own uses than is a zoning law prohibiting, for “aesthetic” reasons, two or more adult theaters within a specified area, see Young v. American Mini Theatres, Inc., 427 U.S. 50 (1976), or a safety regulation prohibiting excavations below a certain level.
Rejection of appellants’ broad arguments is not, however, the end of our inquiry, for all we thus far have established is that the New York City law is not rendered invalid by its failure to provide “just compensation” whenever a landmark owner is restricted in the exploitation of property interests, such as air rights, to a greater extent than provided for under applicable zoning laws. We now must consider whether the interference with appellants’ property is of such a magnitude that “there must be an exercise of eminent domain and compensation to sustain [it].” That inquiry may be narrowed to the question of the severity of the impact of the law on appellants’ parcel, and its resolution in turn requires a careful assessment of the impact of the regulation on the Terminal site.
Unlike the governmental acts in other cases such as Miller, the New York City law does not interfere in any way with the present uses of the Terminal. Its designation as a landmark not only permits but contemplates that appellants may continue to use the property precisely as it has been used for the past 65 years: as a railroad terminal containing office space and concessions. So the law does not interfere with what must be regarded as Penn Central’s primary expectation concerning the use of the parcel. More importantly, on this record, we must regard the New York City law as permitting Penn Central not only to profit from the Terminal but also to obtain a “reasonable return” on its investment.
On this record, we conclude that the application of New York City’s Landmarks Law has not effected a “taking” of appellants’ property. The restrictions imposed are substantially related to the promotion of the general welfare and not only permit reasonable beneficial use of the landmark site but also afford appellants opportunities further to enhance not only the Terminal site proper but also other properties.
Mr. Justice REHNQUIST, with whom THE CHIEF JUSTICE and Mr. Justice STEVENS join, dissenting.
Of the over one million buildings and structures in the city of New York, appellees have singled out 400 for designation as official landmarks. The owner of a building might initially be pleased that his property has been chosen by a distinguished committee of architects, historians, and city planners for such a singular distinction. But he may well discover, as appellant Penn Central Transportation Co. did here, that the landmark designation imposes upon him a substantial cost, with little or no offsetting benefit except for the honor of the designation. The question in this case is whether the cost associated with the city of New York’s desire to preserve a limited number of “landmarks” within its borders must be borne by all of its taxpayers or whether it can instead be imposed entirely on the owners of the individual properties.
Only in the most superficial sense of the word can this case be said to involve “zoning.” All property owners in a designated area are placed under the same restrictions, not only for the benefit of the municipality as a whole but also for the common benefit of one another. In the words of Mr. Justice Holmes, there is “an average reciprocity of advantage.”
Where a relatively few individual buildings, all separated from one another, are singled out and treated differently from surrounding buildings, no such reciprocity exists. The cost to the property owner which results from the imposition of restrictions applicable only to his property and not that of his neighbors may be substantial – in this case, several million dollars--with no comparable reciprocal benefits. And the cost associated with landmark legislation is likely to be of a completely different order of magnitude than that which results from the imposition of normal zoning restrictions. To suggest that because traditional zoning results in some limitation of use of the property zoned, the New York City landmark preservation scheme should likewise be upheld, represents the ultimate in treating as alike things which are different. The rubric of “zoning” has not yet sufficed to avoid the well-established proposition that the Fifth Amendment bars the “Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”
The Fifth Amendment provides in part: “nor shall private property be taken for public use, without just compensation.” In a very literal sense, the actions of appellees violated this constitutional prohibition. Before the city of New York declared Grand Central Terminal to be a landmark, Penn Central could have used its “air rights” over the Terminal to build a multistory office building, at an apparent value of several million dollars per year. Today, the Terminal cannot be modified in any form, including the erection of additional stories, without the permission of the Landmark Preservation Commission, a permission which appellants, despite good-faith attempts, have so far been unable to obtain. Because the Taking Clause of the Fifth Amendment has not always been read literally, however, the constitutionality of appellees’ actions requires a closer scrutiny of this Court’s interpretation of the three key words in the Taking Clause – “property,” “taken,” and “just compensation.”
Appellees do not dispute that valuable property rights have been destroyed. The property has been thus subjected to a nonconsensual servitude not borne by any neighboring or similar properties.
Appellees have thus destroyed – in a literal sense, “taken”– substantial property rights of Penn Central. While the term “taken” might have been narrowly interpreted to include only physical seizures of property rights, “the construction of the phrase has not been so narrow. The courts have held that the deprivation of the former owner rather than the accretion of a right or interest to the sovereign constitutes the taking.” Because “not every destruction or injury to property by governmental action has been held to be a ‘taking’ in the constitutional sense,” however, this does not end our inquiry. But an examination of the two exceptions where the destruction of property does not constitute a taking demonstrates that a compensable taking has occurred here.
As early as 1887, the Court recognized that the government can prevent a property owner from using his property to injure others without having to compensate the owner for the value of the forbidden use.
A prohibition simply upon the use of property for purposes that are declared, by valid legislation, to be injurious to the health, morals, or safety of the community, cannot, in any just sense, be deemed a taking or an appropriation of property for the public benefit. Such legislation does not disturb the owner in the control or use of his property for lawful purposes, nor restrict his right to dispose of it, but is only a declaration by the State that its use by any one, for certain forbidden purposes, is prejudicial to the public interests. . . . The power which the States have of prohibiting such use by individuals of their property as will be prejudicial to the health, the morals, or the safety of the public, is not – and, consistently with the existence and safety of organized society, cannot be – burdened with the condition that the State must compensate such individual owners for pecuniary losses they may sustain, by reason of their not being permitted, by a noxious use of their property, to inflict injury upon the community.”
Mugler v. Kansas, 123 U.S. 623, 668-669 (1888).
The “nuisance exception” to the taking guarantee is not coterminous with the police power itself. The question is whether the forbidden use is dangerous to the safety, health, or welfare of others. Thus, in Curtin v. Benson, 222 U.S. 78 (1911), the Court held that the Government, in prohibiting the owner of property within the boundaries of Yosemite National Park from grazing cattle on his property, had taken the owner’s property. The Court assumed that the Government could constitutionally require the owner to fence his land or take other action to prevent his cattle from straying onto others’ land without compensating him.
“Such laws might be considered as strictly regulations of the use of property, of so using it that no injury could result to others. They would have the effect of making the owner of land herd his cattle on his own land and of making him responsible for a neglect of it.” Id., at 86, 32 S.Ct., at 33.
The prohibition in question, however, was “not a prevention of a misuse or illegal use but the prevention of a legal and essential use, an attribute of its ownership.” Appellees are not prohibiting a nuisance. The record is clear that the proposed addition to the Grand Central Terminal would be in full compliance with zoning, height limitations, and other health and safety requirements. Instead, appellees are seeking to preserve what they believe to be an outstanding example of beaux-arts architecture. Penn Central is prevented from further developing its property basically because too good a job was done in designing and building it. The city of New York, because of its unadorned admiration for the design, has decided that the owners of the building must preserve it unchanged for the benefit of sightseeing New Yorkers and tourists.
Appellants are not free to use their property as they see fit within broad outer boundaries but must strictly adhere to their past use except where appellees conclude that alternative uses would not detract from the landmark. While Penn Central may continue to use the Terminal as it is presently designed, appellees otherwise “exercise complete dominion and control over the surface of the land.” Here, a multimillion dollar loss has been imposed on appellants; it is uniquely felt and is not offset by any benefits flowing from the preservation of some 400 other “landmarks” in New York City. Appellees have imposed a substantial cost on less than one one-tenth of one percent of the buildings in New York City for the general benefit of all its people. It is exactly this imposition of general costs on a few individuals at which the “taking” protection is directed. The Fifth Amendment “prevents the public from loading upon one individual more than his just share of the burdens of government.”
The benefits that appellees believe will flow from preservation of the Grand Central Terminal will accrue to all the citizens of New York City. There is no reason to believe that appellants will enjoy a substantially greater share of these benefits. If the cost of preserving Grand Central Terminal were spread evenly across the entire population of the city of New York, the burden per person would be in cents per year – a minor cost appellees would surely concede for the benefit accrued. Instead, however, appellees would impose the entire cost of several million dollars per year on Penn Central. But it is precisely this sort of discrimination that the Fifth Amendment prohibits.
Keystone Bituminous Coal Ass’n v. DeBenedictis
United States Supreme Court
480 U.S. 470 (1987)
Justice Stevens, delivered the opinion of the Court.
In Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), the Court reviewed the constitutionality of a Pennsylvania statute that admittedly destroyed “previously existing rights of property and contract.” Writing for the Court, Justice Holmes explained:
Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law. As long recognized, some values are enjoyed under an implied limitation and must yield to the police power. But obviously the implied limitation must have its limits, or the contract and due process clauses are gone. One fact for consideration in determining such limits is the extent of the diminution. When it reaches a certain magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to sustain the act. So the question depends upon the particular facts.
In that case the “particular facts” led the Court to hold that the Pennsylvania Legislature had gone beyond its constitutional powers when it enacted a statute prohibiting the mining of anthracite coal in a manner that would cause the subsidence of land on which certain structures were located.
Now, 65 years later, we address a different set of “particular facts,” involving the Pennsylvania Legislature’s 1966 conclusion that Pennsylvania’s existing mine subsidence legislation had failed to protect the public interest in safety, land conservation, preservation of affected municipalities’ tax bases, and land development in the Commonwealth. Based on detailed findings, the legislature enacted the Bituminous Mine Subsidence and Land Conservation Act. Petitioners contend, relying heavily on our decision in Pennsylvania Coal, that §§ 4 and 6 of the Subsidence Act and certain implementing regulations violate the Takings Clause.
Coal mine subsidence is the lowering of strata overlying a coal mine, including the land surface, caused by the extraction of underground coal. This lowering of the strata can have devastating effects. It often causes substantial to foundations, walls, other structural members, and the integrity of houses and buildings. Subsidence frequently causes sinkholes or troughs in land which make the land difficult or impossible to develop. Its effect on farming has been well documented — many subsided areas cannot be plowed or properly prepared. Subsidence can also cause the loss of groundwater and surface ponds. In short, it presents the type of environmental concern that has been the focus of much federal, state, and local regulation in recent decades.
Pennsylvania’s Subsidence Act authorizes the Pennsylvania Department of Environmental Resources (DER) to implement and enforce a comprehensive program to prevent or minimize subsidence and to regulate its consequences. The DER has a formula that generally requires 50% of the coal beneath structures protected by § 4 (such as dwellings) to be kept in place as a means of providing surface support.
Petitioners filed a civil rights action to enjoin officials of the DER from enforcing the Subsidence Act and its implementing regulations. Petitioners are an association of coal mine operators, and four corporations that are engaged, either directly or through affiliates, in underground mining of bituminous coal in western Pennsylvania. The members of the association and the corporate petitioners own, lease, or otherwise control substantial coal reserves beneath the surface of property affected by the Subsidence Act.
The complaint alleges that Pennsylvania recognizes three separate estates in land: the mineral estate, the surface estate, and the “support estate.” Beginning well over 100 years ago, landowners began severing title to underground coal and the right of surface support while retaining or conveying away ownership of the surface estate. When acquiring or retaining the mineral estate, petitioners or their predecessors typically acquired or retained certain additional rights that would enable them to extract and remove the coal. They typically acquired a waiver of any claims for damages that might result from the removal of the coal.
In the portions of the complaint that are relevant to us, petitioners alleged that the Act and the 50% rule constitute a taking of their private property without compensation in violation of the 5th and 14th Amendments. The parties entered into a stipulation of facts and filed cross-motions for summary judgment on the facial challenge. The district court and Third Circuit ruled for respondents.
Petitioners assert that disposition of their takings claim calls for no more than a straightforward application of the Court’s decision in Pennsylvania Coal Co. v. Mahon. Although there are some obvious similarities between the cases, the similarities are far less significant than the differences, and that Pennsylvania Coal does not control this case.
The holdings and assumptions of the Court in Pennsylvania Coal provide obvious and necessary reasons for distinguishing Pennsylvania Coal from the case before us today. The two factors that the Court considered relevant have become integral parts of our takings analysis. We have held that land use regulation can effect a taking if it does not substantially advance legitimate state interests or denies an owner economically viable use of his land.” See Penn Central Transp. Co. v. New York City. Application of these tests to petitioners’ challenge demonstrates that they have not satisfied their burden of showing that the Act constitutes a taking. First, the character of the governmental action involved here leans heavily against finding a taking; Pennsylvania has acted to arrest what it perceives to be a significant threat to the common welfare. Second, there is no record in this case to support a finding, similar to the one the Court made in Pennsylvania Coal, that the Act makes it impossible for petitioners to profitably engage in their business, or that there has been undue interference with their investment-backed expectations.
The Public Purpose
Unlike the Kohler Act, which was passed upon in Pennsylvania Coal, the Subsidence Act does not merely involve a balancing of the private economic interests of coal companies against the private interests of the surface owners. The Pennsylvania Legislature specifically found that important public interests are served by enforcing a policy that is designed to minimize subsidence in certain areas. None of the indicia of a statute enacted solely for the benefit of private parties identified in Justice Holmes’ opinion are present here. Moreover, the Court was forced to reject Pennsylvania’s safety justification for the Kohler Act because it found that Pennsylvania’s interest in safety could as easily have been accomplished through a notice requirement to landowners. The Subsidence Act, by contrast, is designed to accomplish a number of widely varying interests, with reference to which petitioners have not suggested alternative methods through which Pennsylvania could proceed.
Thus, the Subsidence Act differs from the Kohler Act in critical and dispositive respects. With regard to the Kohler Act, the Court believed that Pennsylvania had acted only to ensure against damage to some private landowners’ homes. Justice Holmes stated that if the private individuals needed support for their structures, they should not have taken the risk of acquiring only surface rights. Here, by contrast, Pennsylvania is acting to protect the public interest in health, the environment, and the fiscal integrity of the area. That private individuals erred in taking a risk cannot estop Pennsylvania from exercising its police power to abate activity akin to a public nuisance.
In Pennsylvania Coal the Court recognized that the nature of the State’s interest in the regulation is a critical factor in determining whether a taking has occurred, and thus whether compensation is required. Many cases before and since Pennsylvania Coal have recognized that the nature of the State’s action is critical in takings analysis. Under our system of government, one of the State’s primary ways of preserving the public weal is restricting the uses individuals can make of their property. While each of us is burdened somewhat by such restrictions, we, in turn, benefit greatly from the restrictions that are placed on others. These restrictions are properly treated as part of the burden of common citizenship. We have explained that the “determination that governmental action constitutes a taking, is, in essence, a determination that the public at large, rather than a single owner, must bear the burden of an exercise of state power in the public interest,” and we recognized that this question “necessarily requires a weighing of private and public interests.” The public interest in preventing activities similar to public nuisances is a substantial one, which in many instances has not required compensation. The Subsidence Act, unlike the Kohler Act, plainly seeks to further such an interest. Nonetheless, we need not rest our decision on this factor alone, because petitioners have also failed to make a showing of diminution of value sufficient to satisfy the test set forth in Pennsylvania Coal and our other regulatory takings cases.
Diminution of Value and Investment-Backed Expectations
The second factor that distinguishes this case from Pennsylvania Coal is the finding in that case that the Kohler Act made mining of “certain coal” commercially impracticable. In this case, by contrast, petitioners have not shown any deprivation significant enough to satisfy the heavy burden placed upon one alleging a regulatory taking. For this reason, their takings claim must fail.
In addressing petitioners’ claim we must not disregard the posture in which this case comes before us. The parties explained that an assessment of the actual impact that the Act has on petitioners’ operations “will involve complex and voluminous proofs,” which neither party was currently in a position to present. The posture of the case is critical because we have recognized an important distinction between a claim that the mere enactment of a statute constitutes a taking and a claim that the particular impact of government action on a specific piece of property requires the payment of just compensation.
Petitioners have not claimed that the Act makes it commercially impracticable for them to continue mining their bituminous coal interests in western Pennsylvania. Indeed, petitioners have not even pointed to a single mine that can no longer be mined for profit. The only evidence available on the effect that the Act has had on petitioners’ mining operations comes from petitioners’ answers to respondents’ interrogatories. Petitioners described the effect that the Subsidence Act had from 1966-1982 on 13 mines that the various companies operate, and claimed that they have been required to leave a bit less than 27 million tons of coal in place to support § 4 areas. The total coal in those 13 mines amounts to over 1.46 billion tons. Thus § 4 requires them to leave less than 2% of their coal in place. There is no information in the record as to how much coal is actually left in the ground solely because of § 4. We do know, however, that petitioners have never claimed that their mining operations, or even any specific mines, have been unprofitable since the Act was passed. Nor is there evidence that mining in any specific location affected by the 50% rule has been unprofitable.
Instead, petitioners have sought to narrowly define certain segments of their property and assert that, when so defined, the Act denies them economically viable use. They advance two alternative ways of carving their property in order to reach this conclusion. First, they focus on the specific tons of coal that they must leave in the ground under the Act, and argue that Pennsylvania has effectively appropriated this coal since it has no other useful purpose if not mined. Second, they contend that Pennsylvania has taken their separate legal interest in property — the “support estate.”
Because our test for regulatory taking requires us to compare the value that has been taken from the property with the value that remains in the property, one of the critical questions is determining how to define the unit of property whose value is to furnish the denominator of the fraction. Thus, in Andrus v. Allard, 444 U.S. 51 (1979) (upholding statute prohibiting sale of avian artifacts), we held that “where an owner possesses a full ‘bundle’ of property rights, the destruction of one `strand’ of the bundle [right to sell] is not a taking because the aggregate must be viewed in its entirety.” Although these verbal formulations do not solve all of the definitional issues that may arise in defining the relevant mass of property, they do provide sufficient guidance to compel us to reject petitioners’ arguments.
As for the coal in place, the 27 million tons of coal do not constitute a separate segment of property for takings law purposes. Many zoning ordinances place limits on the property owner’s right to make profitable use of some segments of his property. A requirement that a building occupy no more than a specified percentage of the lot on which it is located could be characterized as a taking of the vacant area as readily as the requirement that coal pillars be left in place. Similarly, under petitioners’ theory one could always argue that a setback ordinance requiring that no structure be built within a certain distance from the property line constitutes a taking because the footage represents a distinct segment of property for takings law purposes. There is no basis for treating the less than 2% of petitioners’ coal as a separate parcel of property. When the coal that must remain beneath the ground is viewed in the context of any reasonable unit of petitioners’ coal mining operations and financially-backed expectations, it is plain that petitioners have not come close to satisfying their burden of proving that they have been denied the economically viable use of that property. There is no showing that petitioners’ reasonable “investment-backed expectations” have been materially affected by the additional duty to retain the small percentage that must be used to support the structures protected by § 4.
Pennsylvania property law is apparently unique in regarding the “support estate” as a separate interest in land that can be conveyed apart from either the mineral estate or the surface estate. Petitioners therefore argue that the Act entirely destroys the value of their unique support estate. It is clear, however, that our takings jurisprudence forecloses reliance on such legalistic distinctions within a bundle of property rights. For example, in Penn Central, the Court rejected the argument that the “air rights” above the terminal constituted a separate segment of property for Takings Clause purposes. Moreover, in practical terms, the support estate has value only insofar as it protects or enhances the value of the surface or subsurface estate with which it is associated. Its value is merely a part of the entire bundle of rights possessed by the owner of either the coal or the surface. Because petitioners retain the right to mine virtually all of the coal in their mineral estates, the burden the Act places on the support estate does not constitute a taking. Petitioners may continue to mine coal profitably even if they may not destroy or damage surface structures at will in the process.
Chief Justice Rehnquist, with whom Justices Powell, O’Connor, and Scalia join, dissenting.
I would hold that Pennsylvania’s Act effects a taking of petitioners’ property without providing just compensation. Specifically, the Act works to extinguish petitioners’ interest in at least 27 million tons of coal by requiring that coal to be left in the ground, and destroys their purchased support estates by returning to them financial liability for subsidence.
1. Consider whether compulsory royalty-free patent licensing relief and unredressed governmental infringement of patents – or corresponding offenses against copyright – are takings of property without just compensation, under the doctrine of the Keystone case. How would you make a Keystone analysis of those issues? Are patents and copyrights fully parallel?
2. Does this case turn on the definition of the relevant market? (See United States v. E.I. duPont Co., 351 U.S. 377 (1956).) What is the difference between the Stevens and Rehnquist relevant market definitions? What follows from each?
Which came first – the case result or the definition of the relevant market? Do you suppose that the answer to that question is different in antitrust cases?
College Savings Bank v. Florida Prepaid
Postsecondary Education Expense Board
United States Supreme Court
527 U.S. 666 (1999)
The Trademark Remedy Clarification Act (TRCA) subjects the States to suits brought under § 43(a) of the Trademark Act of 1946 (Lanham Act) for false and misleading advertising. The question presented in this case is whether that provision is effective to permit suit against a State for its alleged misrepresentation of its own product—either because the TRCA effects a constitutionally permissible abrogation of state sovereign immunity, or because the TRCA operates as an invitation to waiver of such immunity which is automatically accepted by a State’s engaging in the activities regulated by the Lanham Act.
In Chisholm v. Georgia, 2 Dall. 419 (1793), we asserted jurisdiction over an action in assumpsit brought by a South Carolina citizen against the State of Georgia. In so doing, we reasoned that Georgia’s sovereign immunity was qualified by the general jurisdictional provisions of Article III, and, most specifically, by the provision extending the federal judicial power to controversies “between a State and Citizens of another State.” U.S. Const., Art. III, § 2, cl. 1. The “shock of surprise” created by this decision prompted the immediate adoption of the Eleventh Amendment, which provides:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
Though its precise terms bar only federal jurisdiction over suits brought against one State by citizens of another State or foreign state, we have long recognized that the Eleventh Amendment accomplished much more: It repudiated the central premise of Chisholm that the jurisdictional heads of Article III superseded the sovereign immunity that the States possessed before entering the Union.
While this immunity from suit is not absolute, we have recognized only two circumstances in which an individual may sue a State. First, Congress may authorize such a suit in the exercise of its power to enforce the Fourteenth Amendment — an Amendment enacted after the Eleventh Amendment and specifically designed to alter the federal-state balance. Second, a State may waive its sovereign immunity by [expressly] consenting to suit. This case turns on whether either of these two circumstances is present.
Section 43(a) of the Lanham Act, enacted in 1946, created a private right of action against “[a]ny person” who uses false descriptions or makes false representations in commerce. The TRCA amends § 43(a) by defining “any person” to include “any State, instrumentality of a State or employee of a State or instrumentality of a State acting in his or her official capacity.” The TRCA further amends the Lanham Act to provide that such state entities “shall not be immune, under the eleventh amendment of the Constitution of the United States or under any other doctrine of sovereign immunity, from suit in Federal court by any person, including any governmental or nongovernmental entity for any violation under this Act,” and that remedies shall be available against such state entities “to the same extent as such remedies are available...in a suit against” a nonstate entity.
Petitioner College Savings Bank is a New Jersey chartered bank located in Princeton, New Jersey. Since 1987, it has marketed and sold CollegeSure certificates of deposit designed to finance the costs of college education. College Savings holds a patent upon the methodology of administering its CollegeSure certificates. Respondent Florida Prepaid Postsecondary Education Expense Board (Florida Prepaid) is an arm of the State of Florida. Since 1988, it has administered a tuition prepayment program designed to provide individuals with sufficient funds to cover future college expenses. College Savings brought a patent infringement action against Florida Prepaid in United States District Court in New Jersey. That action is the subject of today’s decision in Florida Prepaid Postsecondary Ed. Expense Bd. v. College Savings Bank, 119 S.Ct. 2199 (1999). In addition, and in the same court, College Savings filed the instant action alleging that Florida Prepaid violated § 43(a) of the Lanham Act by making misstatements about its own tuition savings plans in its brochures and annual reports.
Florida Prepaid moved to dismiss this action on the ground that it was barred by sovereign immunity. It argued that Congress had not abrogated sovereign immunity in this case because the TRCA was enacted pursuant to Congress’s powers under Article I of the Constitution and, under our decisions Congress can abrogate state sovereign immunity only when it legislates to enforce the Fourteenth Amendment. The United States intervened to defend the constitutionality of the TRCA. Both it and College Savings argued that, under the doctrine of constructive waiver Florida Prepaid had waived its immunity from Lanham Act suits by engaging in the interstate marketing and administration of its program after the TRCA made clear that such activity would subject Florida Prepaid to suit. College Savings also argued that Congress’s purported abrogation of Florida Prepaid’s sovereign immunity in the TRCA was effective, since it was enacted not merely pursuant to Article I but also to enforce the Due Process Clause of the Fourteenth Amendment. The District Court rejected both of these arguments and granted Florida Prepaid’s motion to dismiss. The Court of Appeals affirmed.
We turn first to the contention that Florida’s sovereign immunity was validly abrogated. As authority for the abrogation in the present case, petitioner relies upon § 5 of the Fourteenth Amendment, which we have held could be used for that purpose.
Section 1 of the Fourteenth Amendment provides that no State shall “deprive any person of ... property ... without due process of law.” Section 5 provides that “[t]he Congress shall have power to enforce, by appropriate legislation, the provisions of this article.” The term “enforce” is to be taken seriously – the object of valid § 5 legislation must be the carefully delimited remediation or prevention of constitutional violations. Petitioner claims that, with respect to § 43(a) of the Lanham Act, Congress enacted the TRCA to remedy and prevent state deprivations without due process of two species of “property” rights: (1) a right to be free from a business competitor’s false advertising about its own product, and (2) a more generalized right to be secure in one’s business interests. Neither of these qualifies as a property right protected by the Due Process Clause.
As to the first: The hallmark of a protected property interest is the right to exclude others. That is “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” Kaiser Aetna v. United States, 444 U.S. 164, 176 (1979). That is why the right that we all possess to use the public lands is not the “property” right of anyone – hence the sardonic maxim, explaining what economists call the “tragedy of the commons,” res publica, res nullius. The Lanham Act may well contain provisions that protect constitutionally cognizable property interests – notably, its provisions dealing with infringement of trademarks, which are the “property” of the owner because he can exclude others from using them. The Lanham Act’s false-advertising provisions, however, bear no relationship to any right to exclude; and Florida Prepaid’s alleged misrepresentations concerning its own products intruded upon no interest over which petitioner had exclusive dominion.
Unsurprisingly, petitioner points to no decision of this Court (or of any other court, for that matter) recognizing a property right in freedom from a competitor’s false advertising about its own products. The closest petitioner comes is dicta in International News Service v. Associated Press, 248 U.S. 215, 236 (1918), where the Court found equity jurisdiction over an unfair-competition claim because “[t]he rule that a court of equity concerns itself only in the protection of property rights treats any civil right of a pecuniary nature as a property right.” But to say that a court of equity “treats any civil right of a pecuniary nature as a property right” is not to say that all civil rights of a pecuniary nature are property rights. In fact, when one reads the full passage from which this statement is taken it is clear that the Court was saying just the opposite, namely, that equity will treat civil rights of a pecuniary nature as property rights even though they are properly not such:
In order to sustain the jurisdiction of equity over the controversy, we need not affirm any general and absolute property in the news as such. The rule that a court of equity concerns itself only in the protection of property rights treats any civil right of a pecuniary nature as a property right ...; and the right to acquire property by honest labor or the conduct of a lawful business is as much entitled to protection as the right to guard property already acquired.... It is this right that furnishes the basis of the jurisdiction in the ordinary case of unfair competition.
We may also note that the unfair competition at issue in International News Service amounted to nothing short of theft of proprietary information, something in which a power to “exclude others” could be said to exist.
Petitioner argues that the common-law tort of unfair competition “by definition” protects property interests, and thus the TRCA “by definition” is designed to remedy and prevent deprivations of such interests in the false-advertising context. Even as a logical matter, that does not follow, since not everything which protects property interests is designed to remedy or prevent deprivations of those property interests. A municipal ordinance prohibiting billboards in residential areas protects the property interests of homeowners, although erecting billboards would ordinarily not deprive them of property. To sweep within the Fourteenth Amendment the elusive property interests that are “by definition” protected by unfair-competition law would violate our frequent admonition that the Due Process Clause is not merely a “font of tort law.”
Petitioner's second assertion of a property interest rests upon an argument similar to the one just discussed, and suffers from the same flaw. Petitioner argues that businesses are “property” within the meaning of the Due Process Clause, and that Congress legislates under § 5 when it passes a law that prevents state interference with business (which false advertising does). The assets of a business (including its good will) unquestionably are property, and any state taking of those assets is unquestionably a “deprivation” under the Fourteenth Amendment. But business in the sense of the activity of doing business, or the activity of making a profit is not property in the ordinary sense – and it is only that, and not any business asset, which is impinged upon by a competitors' false advertising.
There is no suggestion here that respondent Florida Prepaid expressly consented to being sued in federal court. Rather, petitioner College Savings and the United States both maintain that Florida Prepaid has “impliedly” or “constructively” waived its immunity from Lanham Act suit. They do so on the authority of Parden v. Terminal R. of Ala. Docks Dept., 377 U.S. 184 (1964) – an elliptical opinion that stands at the nadir of our waiver (and, for that matter, sovereign immunity) jurisprudence. In Parden, we permitted employees of a railroad owned and operated by Alabama to bring an action under the Federal Employers' Liability Act (FELA) against their employer. Despite the absence of any provision in the statute specifically referring to the States, we held that the Act authorized suits against the States by virtue of its general provision subjecting to suit “[e]very common carrier by railroad ... engaging in commerce between ... the several States.” We further held that Alabama had waived its immunity from FELA suit even though Alabama law expressly disavowed any such waiver.
We think that the constructive-waiver experiment of Parden was ill conceived, and see no merit in attempting to salvage any remnant of it. Parden broke sharply with prior cases, and is fundamentally incompatible with later ones. We have never applied the holding of Parden to another statute, and in fact have narrowed the case in every subsequent opinion in which it has been under consideration. In short, Parden stands as an anomaly in the jurisprudence of sovereign immunity, and indeed in the jurisprudence of constitutional law. Today, we drop the other shoe: Whatever may remain of our decision in Parden is expressly overruled.
Concluding, for the foregoing reasons, that the sovereign immunity of the State of Florida was neither validly abrogated by the Trademark Remedy Clarification Act, nor voluntarily waived by the State's activities in interstate commerce, we hold that the federal courts are without jurisdiction to entertain this suit against an arm of the State of Florida. The judgment of the Third Circuit dismissing the action is affirmed.
It is so ordered.
Justice Stevens, dissenting.
The majority assumes that petitioner's complaint has alleged a violation of the Lanham Act, but not one that is sufficiently serious to amount to a “deprivation” of its property. Section 5 of the Fourteenth Amendment authorizes Congress to enact appropriate legislation to prevent deprivations of property without due process. Unlike the majority, I am persuaded that the Trademark Remedy Clarification Act was a valid exercise of that power, even if Florida Prepaid's allegedly false advertising in this case did not violate the Constitution.
In my opinion “the activity of doing business, or the activity of making a profit” is a form of property. The asset that often appears on a company's balance sheet as “good will” is the substantial equivalent of that “activity.” It is the same kind of “property” that Congress described in § 7 of the Sherman Act and in § 4 of the Clayton Act. A State's deliberate destruction of a going business is surely a deprivation of property within the meaning of the Due Process Clause.
Florida Prepaid Postsecondary Education
Expense Board v. College Savings Bank
United States Supreme Court
527 U.S. 627 (1999)
In 1992, Congress amended the patent laws and expressly abrogated the States' sovereign immunity from claims of patent infringement. Respondent College Savings then sued the State of Florida for patent infringement, and the Court of Appeals [for the Federal Circuit] held that Congress had validly abrogated the State's sovereign immunity from infringement suits pursuant to its authority under § 5 of the Fourteenth Amendment. We hold that the statute cannot be sustained as legislation enacted to enforce the guarantees of the Fourteenth Amendment's Due Process Clause, and accordingly reverse the decision of the Court of Appeals.
Since 1987, respondent College Savings Bank, a New Jersey chartered savings bank located in Princeton, New Jersey, has marketed and sold certificates of deposit known as the CollegeSure CD, which are essentially annuity contracts for financing future college expenses. College Savings obtained a patent for its financing methodology [as embodied in a computer program], designed to guarantee investors sufficient funds to cover the costs of tuition for colleges. Petitioner Florida Prepaid Postsecondary Education Expenses Board (Florida Prepaid) is an entity created by the State of Florida that administers similar tuition prepayment contracts available to Florida residents and their children. Savings claims that, in the course of administering its tuition prepayment program, Florida Prepaid directly and indirectly infringed College Savings' patent.
College Savings brought an infringement action against Florida Prepaid in the United States District Court for the District of New Jersey. Congress enacted the Patent Remedy Act to “clarify that States, instrumentalities of States, and officers and employees of States acting in their official capacity, are subject to suit in Federal court by any person for infringement of patents and plant variety protections.” Section 271(h) now states: “As used in this section, the term `whoever' includes any State, any instrumentality of a State, and any officer or employee of a State or instrumentality of a State acting in his official capacity.” Section 296(a) addresses the sovereign immunity issue even more specifically:
Any State, any instrumentality of a State, and any officer or employee of a State or instrumentality of a State acting in his official capacity, shall not be immune, under the eleventh amendment of the Constitution of the United States or under any other doctrine of sovereign immunity, from suit in Federal court by any person...for infringement of a patent under section 271, or for any other violation under this title.
Relying on these provisions, College Savings alleged that Florida Prepaid had willfully infringed its patent under § 271, as well as contributed to and induced infringement. College Savings sought declaratory and injunctive relief as well as damages, attorney's fees, and costs.
Florida Prepaid moved to dismiss the action on the grounds of sovereign immunity. Florida Prepaid argued that the Patent Remedy Act was an unconstitutional attempt by Congress to use its Article I powers to abrogate state sovereign immunity. College Savings responded that Congress had properly exercised its power pursuant to § 5 of the Fourteenth Amendment to enforce the guarantees of the Due Process Clause in § 1 of the Amendment. The United States intervened to defend the constitutionality of the statute. Agreeing with College Savings, the District Court denied Florida Prepaid's motion to dismiss, College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 948 F.Supp. 400 (N.J.1996), and the Federal Circuit affirmed, 148 F.3d 1343 (1998).
The Federal Circuit held that Congress had clearly expressed its intent to abrogate the States' immunity from suit in federal court for patent infringement, and that Congress had the power under § 5 of the Fourteenth Amendment to do so. The court reasoned that patents are property subject to the protections of the Due Process Clause and that Congress' objective in enacting the Patent Remedy Act was permissible because it sought to prevent States from depriving patent owners of this property without due process. The court rejected Florida Prepaid's argument that it and other States had not deprived patent owners of their property without due process, and refused to “deny Congress the authority to subject all states to suit for patent infringement in the federal courts, regardless of the extent of procedural due process that may exist at any particular time.” Finally, the court held that the Patent Remedy Act was a proportionate response to state infringement and an appropriate measure to protect patent owners' property. The court concluded that significant harm results from state infringement of patents, and “[t]here is no sound reason to hold that Congress cannot subject a state to the same civil consequences that face a private party infringer.”
For over a century we have reaffirmed that federal jurisdiction over suits against unconsenting States “was not contemplated by the Constitution when establishing the judicial power of the United States.”
Here, College Savings sued the State of Florida in federal court and it is undisputed that Florida has not expressly consented to suit. College Savings and the United States argue that Florida has impliedly waived its immunity. That argument, however, is foreclosed by our decision in the companion case overruling the constructive waiver theory announced in Parden.
College Savings and the United States nonetheless contend that Congress' enactment of the Patent Remedy Act validly abrogated the States' sovereign immunity. To determine the merits of this proposition, we must answer two questions: “first, whether Congress has ‘unequivocally expresse[d] its intent to abrogate the immunity,’ ... and second, whether Congress has acted ‘pursuant to a valid exercise of power.’” We agree with the parties and the Federal Circuit that in enacting the Patent Remedy Act, Congress has made its intention to abrogate the States’ immunity “unmistakably clear in the language of the statute.” Indeed, Congress’ intent to abrogate could not have been any clearer.
Whether Congress had the power to compel States to surrender their sovereign immunity for these purposes, however, is another matter. Congress justified the Patent Remedy Act under three sources of constitutional authority: the Patent Clause, Art. I, § 8, cl. 8; the Interstate Commerce Clause, Art. I, § 8, cl. 3; and § 5 of the Fourteenth Amendment. It is now clear that Congress may not abrogate state sovereign immunity pursuant to its Article I powers; hence the Patent Remedy Act cannot be sustained under either the Commerce Clause or the Patent Clause.
College Savings and the United States argue that the Federal Circuit properly concluded that Congress enacted the Patent Remedy Act to secure the Fourteenth Amendment's protections against deprivations of property without due process of law. The Fourteenth Amendment provides in relevant part:
Section 1.... No State shall...deprive any person of life, liberty, or property, without due process of law.
Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
While reaffirming the view that state sovereign immunity does not yield to Congress' Article I powers, this Court has affirmed that Congress retains the authority to abrogate state sovereign immunity pursuant to the Fourteenth Amendment. Through the Fourteenth Amendment, federal power extended to intrude upon the province of the Eleventh Amendment and therefore § 5 of the Fourteenth Amendment allowed Congress to abrogate the immunity from suit guaranteed by that Amendment.
College Savings and the United States are correct in suggesting that “appropriate” legislation pursuant to the Enforcement Clause of the Fourteenth Amendment could abrogate state sovereignty. Congress itself apparently thought the Patent Remedy Act could be so justified:
[T]he bill is justified as an acceptable method of enforcing the provisions of the fourteenth amendment. The Court in Lemelson v. Ampex Corp. [372 F.Supp. 708 (N.D.Ill.1974)] recognized that a patent is a form of property, holding that a right to compensation exists for patent infringement. Additionally, because courts have continually recognized patent rights as property, the fourteenth amendment prohibits a State from depriving a person of property without due process of law.”
But the legislation must nonetheless be “appropriate” under § 5 of the Fourteenth Amendment. As broad as the congressional enforcement power is, it is not unlimited. Congress does not enforce a constitutional right by changing what the right is. It has been given the power to enforce, not the power to determine what constitutes a constitutional violation. Canvassing the history of the Fourteenth Amendment and case law examining the propriety of Congress' various voting rights measures, the Court has explained:
While the line between measures that remedy or prevent unconstitutional actions and measures that make a substantive change in the governing law is not easy to discern, and Congress must have wide latitude in determining where it lies, the distinction exists and must be observed. There must be a congruence and proportionality between the injury to be prevented or remedied and the means adopted to that end. Lacking such a connection, legislation may become substantive in operation and effect.
We thus held that for Congress to invoke § 5, it must identify conduct transgressing the Fourteenth Amendment's substantive provisions, and must tailor its legislative scheme to remedying or preventing such conduct.
Can the Patent Remedy Act be viewed as remedial or preventive legislation aimed at securing the protections of the Fourteenth Amendment for patent owners? We must first identify the Fourteenth Amendment “evil” or “wrong” that Congress intended to remedy, guided by the principle that the propriety of any § 5 legislation “must be judged with reference to the historical experience ... it reflects.” The underlying conduct at issue here is state infringement of patents and the use of sovereign immunity to deny patent owners compensation for the invasion of their patent rights. It is this conduct – unremedied patent infringement by the States – that must give rise to the Fourteenth Amendment violation that Congress sought to redress in the Patent Remedy Act.
In enacting the Patent Remedy Act, however, Congress identified no pattern of patent infringement by the States, let alone a pattern of constitutional violations. Unlike the undisputed record of racial discrimination confronting Congress in the voting rights cases, Congress came up with little evidence of infringing conduct on the part of the States. The House Report acknowledged that “many states comply with patent law” and could provide only two examples of patent infringement suits against the States. The Federal Circuit in its opinion identified only eight patent-infringement suits prosecuted against the States in the 110 years between 1880 and 1990.
College Savings argues that by infringing a patent and then pleading immunity to an infringement suit, a State not only infringes the patent, but deprives the patentee of property without due process of law and “takes” the property in the patent without paying the just compensation required by the Fifth Amendment. The United States declines to defend the Act as based on the Just Compensation Clause, but joins in College Savings’ defense of the Act as designed to prevent a State from depriving a patentee of property without due process of law. College Savings contends that Congress may not invoke § 5 to protect property interests that it has created in the first place under Article 1. Patents, however, have long been considered a species of property. See Brown v. Duchesne, 19 How. 183, 197, 15 L.Ed. 595 (1856) (“For, by the laws of the United States, the rights of a party under a patent are his private property”); cf. Consolidated Fruit-Jar Co. v. Wright, 94 U.S. 92 (1876) (“A patent for an invention is as much property as a patent for land”). As such, they are surely included within the “property” of which no person may be deprived by a State without due process of law. And if the Due Process Clause protects patents, we know of no reason why Congress might not legislate against their deprivation without due process under § 5 of the Fourteenth Amendment.
Though patents may be considered “property” for purposes of our analysis, the legislative record still provides little support for the proposition that Congress sought to remedy a Fourteenth Amendment violation in enacting the Patent Remedy Act. The Due Process Clause provides, “nor shall any State deprive any person of life, liberty, or property, without due process of law.” This Court has accordingly held that “[i]n procedural due process claims, the deprivation by state action of a constitutionally protected interest...is not in itself unconstitutional; what is unconstitutional is the deprivation of such an interest without due process of law.”
Thus, under the plain terms of the Clause and the clear import of our precedent, a State's infringement of a patent, though interfering with a patent owner's right to exclude others, does not by itself violate the Constitution. Instead, only where the State provides no remedy, or only inadequate remedies, to injured patent owners for its infringement of their patent could a deprivation of property without due process result.
Congress, however, barely considered the availability of state remedies for patent infringement and hence whether the States' conduct might have amounted to a constitutional violation under the Fourteenth Amendment. It did hear a limited amount of testimony to the effect that the remedies available in some States were uncertain.
The need for uniformity in the construction of patent law is undoubtedly important, but that is a factor which belongs to the Article I patent-power calculus, rather than to any determination of whether a state plea of sovereign immunity deprives a patentee of property without due process of law.
We have also said that a state actor's negligent act that causes unintended injury to a person's property does not “deprive” that person of property within the meaning of the Due Process Clause. Actions predicated on direct patent infringement, however, do not require any showing of intent to infringe; instead, knowledge and intent are considered only with respect to damages. Congress did not focus on instances of intentional or reckless infringement on the part of the States. Indeed, the evidence before Congress suggested that most state infringement was innocent or at worst negligent. Such negligent conduct, however, does not violate the Due Process Clause of the Fourteenth Amendment.
The legislative record thus suggests that the Patent Remedy Act does not respond to a history of “widespread and persisting deprivation of constitutional rights” of the sort Congress has faced in enacting proper prophylactic § 5 legislation. Instead, Congress appears to have enacted this legislation in response to a handful of instances of state patent infringement that do not necessarily violate the Constitution. Though the lack of support in the legislative record is not determinative, identifying the targeted constitutional wrong or evil is still a critical part of our § 5 calculus because “[s]trong measures appropriate to address one harm may be an unwarranted response to another, lesser one.” Here, the record at best offers scant support for Congress' conclusion that States were depriving patent owners of property without due process of law by pleading sovereign immunity in federal-court patent actions.
Because of this lack, the provisions of the Patent Remedy Act are “so out of proportion to a supposed remedial or preventive object that [they] cannot be understood as responsive to, or designed to prevent, unconstitutional behavior.” An unlimited range of state conduct would expose a State to claims of direct, induced, or contributory patent infringement. Despite subjecting States to this expansive liability, Congress did nothing to limit the coverage of the Act to cases involving arguable constitutional violations, such as where a State refuses to offer any state-court remedy for patent owners whose patents it had infringed. Nor did it make any attempt to confine the reach of the Act by limiting the remedy to certain types of infringement, such as non-negligent infringement or infringement authorized pursuant to state policy; or providing for suits only against States with questionable remedies or a high incidence of infringement.
Instead, Congress made all States immediately amenable to suit in federal court for all kinds of possible patent infringement and for an indefinite duration. Congress' means must be proportionate to ends legitimate under § 5. The Patent Remedy Act's indiscriminate scope offends this principle, and is particularly incongruous in light of the scant support for the predicate unconstitutional conduct that Congress intended to remedy. In sum, it simply cannot be said that “many of [the acts of infringement] affected by the congressional enactment have a significant likelihood of being unconstitutional.”
The historical record and the scope of coverage therefore make it clear that the Patent Remedy Act cannot be sustained under § 5 of the Fourteenth Amendment. The examples of States avoiding liability for patent infringement by pleading sovereign immunity in a federal-court patent action are scarce enough, but any plausible argument that such action on the part of the State deprived patentees of property and left them without a remedy under state law is scarcer still. The statute's apparent and more basic aims were to provide a uniform remedy for patent infringement and to place States on the same footing as private parties under that regime. These are proper Article I concerns, but that Article does not give Congress the power to enact such legislation as to States.
The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.
1. Why did the mode of analysis shift from “taking” to “deprivation without due process”? What difference does it make?
2. Under a Takings Clause analysis, what issues would the Court need to address that went unaddressed here?
3. After Keystone and the College Savings Bank cases, where is Hartford Empire left in terms of precedential vitality? What are the material issues besides whether (or after assuming that) the right in question is a property right?
4. Would it violate the Takings Clause for the court, in the hypothetical case presented at the beginning of subchapter 1-D, to impose on Nanosoft the proposed relief, in regard to Nanosoft's property interests in its computer software? Would it be a deprivation of property without due process?
What about the star pagination relief? Does your answer depend on the strength of the substantive right under copyright law? Why?
5. Apart from the antitrust-relief and sovereign-immunity interfaces of intellectual property law, where the policies and interests advanced by intellectual property law impinge on (or are impinged upon by) those of other bodies of law, how useful as an analytic tool is the property concept? Is judicial fascination with the property construct proportionate or disproportionate to the concept's analytic utility?
6. Does the property right construct help us to determine whether a court should enjoin A from providing to Internet users a software package that, when installed on the users' systems, causes A's customer GM's popup window advertising to appear on the users' screens when they view B's Web page which contains advertisements of B's customer Ford? See the material at this URL:
Has A invaded a property right of B? A legally protected interest of B? Any difference?
7. In a related development that has attracted virtually no attention, the interplay between sovereign immunity and intellectual property rights has been held to extend beyond the state vs. citizen arena to the tribe vs. IP owner arena. In Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343 (2d Cir. 2000), the court held that tribal sovereign immunity prevented a copyright owner from maintaining an action for copyright infringement against the Pequot Indian tribe of Connecticut. The court’s reasoning applies with equal force to patents. The difference between Bassett and College Savings Bank, however, is that Congress does have power to abrogate tribal sovereign immunity if it chooses to do so explicitly. See Kiowa Tribe v. Manufacturing Techs. Inc., 523 U.S. 751, 754 (1998).
Link to chapter 2 (copyright materials -- even years)
Link to chapter 7 (patent materials -- odd years)
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