FALL 2008

Trade Secrets


Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Ruckleshaus v. Monsanto Co.

1.  Chrysler v. Brown addressed the question whether a submitter of trade-secret data to the government may prevent the government's disclosure of the data before it happens on statutory grounds.  This case addresses whether the data submitter has a constitutional remedy to prevent the disclosure or any claim for compensation after the disclosure has occurred.  Monsanto's claim for a remedy is based upon the Fifth Amendment to the United States Constitution.

The Fifth Amendment includes the following language: "nor shall private property be taken for public use, without just compensation."  This clause is known as the "Just Compensation Clause."  It is the basis for the numerous so-called "condemnation" proceedings that take place in every state every year.  In those proceedings, courts determine the precise amount of money that the government must pay for condemning private property for public use.  Monsanto is an unusual case in that it involves intangible property, for the vast majority of Fifth-Amendment and condemnation cases involve real or tangible property.

2.  Applying the Just-Compensation Clause generally involves three issues: (1) whether the interest asserted is "property." (2) whether there has been "taking" by the government, and (3) whether the taking was for public use.  (If the taking is for private use, it is unlawful, for the government cannot take from one private party to enrich another.)

How does the Supreme Court determine whether a trade secret—an intangible right in intangible information—is "property" that can be "taken" within the meaning of the Just Compensation Clause?  What aspects of a trade secret does the Court assess in order to answer this question?  Do you agree that all those aspects are relevant to the "property" issue?

What law determines whether a trade secret is property?  Is it state or federal law?  Does the answer make sense in terms of the origin of property rights in our scheme of constitutional government?  Does it make sense in terms of national uniformity?

3.  The majority devotes the bulk of its opinion in Monsanto to the "taking" issue.  There are two subsidiary issues.  The first is what level of government action amounts to a "taking" of private property sufficient to trigger application of the Just Compensation Clause.  This is an ongoing, controversial issue, well beyond the scope of this course.  It can involve considerable difficulty.  For example, when the government regulates real property to reduce pollution or to protect the habitat of endangered species, when can the landowner claim that the regulations destroy the property's economic value and therefore constitute a "taking"?

Here Monsanto argues that the EPA's disclosure of its secret pesticide data to competitors or to the public constitutes a "taking."  Try to articulate, as precisely and forcefully as possible, Monsanto's argument, and the counterarguments, on each point—disclosure to competitors and the public.  Does the force of the argument depend upon whether the disclosure is to competitors or the public?  What matters more, the government's gain or the owner's loss?  Are the Court's answers to these questions satisfying?

4.  The second "taking" subissue is whether, under the circumstances, the deprivation of property rights was the result of the government's action or a knowing and voluntary relinquishment of rights by Monsanto in exchange for a government benefit—in this case registration of its pesticides and the privileges that registration confers.  Is the Court's analysis on this point satisfying?  Was Monsanto's submission of data "voluntary" if it was necessary to register the pesticides in order to sell them in the United States?  Does it matter that sales abroad did not require the same type of registration?  What if the statute prohibited Monsanto from manufacturing the pesticides in the United States without registration?  Would the registration and consequent relinquishment of property rights in trade secrets then be "voluntary" because Monsanto could manufacture the pesticides abroad?

A relinquishment of rights cannot be "voluntary" unless one knows what rights one is relinquishing. What standard does the Court use in determining whether or not the relinquishment was knowing and voluntary?  In applying that standard, the Court divides the history of FIFRA into the three different eras.  Do you agree with the Court's conclusion as to whether Monsanto's relinquishment of rights in its trade secrets was "voluntary" for each of the three eras?  Why did Justice O'Connor dissent from the Court's conclusion as to the first era?  Do you agree with her analysis?

5.  The final issue arising under the Just Compensation Clause was whether the "taking" was for "public use."  Who or what determines, in the first instance, whether a taking is for public use?  By what standard does the Court review that determination?  Is the standard a strict one or a lenient one?

The case of Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 104 S.Ct. 2321, 81 L.Ed.2d 186 (1984), on which the Court relies, illustrates the analysis.  Land ownership in Hawaii was greatly concentrated.  On the Island of Oahu, for example, 22 private owners held 72% of the land.  These private parties leased their land to others for private dwellings.  See id., 467 U.S. at 232.  The fact that most land ownership was not in fee simple, but was subject to these owners' leases (with potentially ever-increasing ground rents) tended to raise prices and impair the market in real property in the state.  See id. At 241-242. The State adopted a statutory procedure by which the Hawaii Housing Authority could condemn the land under private homes and sell it to the owners of the leasehold interests in those homes.  See id. At 233-235.  At first glance, the scheme looked like a government plan to take land from some private parties (the land owners) and give it to others (the individual leasehold owners).  The Supreme Court, however, found the taking to be for public use, since the Hawaii legislature rationally could conclude (and did conclude) that it benefited the public by curing the maldistribution of land in the state and promoting a more robust real-property market.  See id. At 239-243. Is the Court's conclusion that any "taking" of Monsanto's data was for a public use consistent with the standard enunciated in Monsanto?  With the facts of Midkiff?  If the taking in Midkiff was for a public use, then is that in Monsanto for a public use a fortiori?

6.  Once the Just Compensation Clause applies, the next issue is how one claims "just compensation."  Where the federal government is the "taker," the usual procedure is a suit under the Tucker Act.  Here, however, Monsanto asked for an injunction against the taking instead, arguing that FIFRA impliedly precluded a Tucker Act suit.  Is the Court's rationale for rejecting this argument satisfactory? After this lawsuit, what is Monsanto's next step?  What can/should it do to claim compensation at least for disclosure of data submitted during the brief period when the data were protected?  When and in what order should it take those steps?

7.  Monsanto provides a cautionary tale for persons submitting data to the federal government.  Suppose you represent a firm that must submit trade-secret data to the federal government in connection with an application for a license or permit.  Your client asks you what recourse it would have if someone in the government spills the beans.  How would you answer that question, and what legal or other research would you want to do before answering it?

8.  Now recall the Chrysler v. Brown dilemma.  If your client wants to stop the disclosure before it occurs, it must be sure that the agency to which the data are submitted provides for advance notification of disclosure.  It also must identify its data as containing trade secrets at the time of submission.  Suppose the agency has such a policy and that the firm so designates its trade secrets.  Does the firm then have a "reasonable investment-backed expectation" that the agency will keep the data secret for purposes of just compensation?  Suppose the governing substantive statute, like FIFRA in Monsanto (for the last era) permits the agency to disclose the data to competitors and the public for some arguable public benefit.  Marshall the arguments pro and con just compensation and assess which side has the better argument.

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