Philip Morris, Inc. v. Reilly

SELYA, Circuit Judge

(Concurring in the judgment).

I agree with the ultimate conclusion reached by Judge Torruella in the lead opinion: the Disclosure Act (section 307B) works a regulatory taking of the tobacco companies’ trade secrets and, in the bargain, places an unconstitutional condition on their right to conduct business in the Commonwealth of Massachusetts. I write separately, however, because of my doubts about the analysis that the lead opinion uses to reach that result.

I.

Judge Torruella and I start on common ground: both of us acknowledge the primacy of the Supreme Court’s treatment of trade secret takings in Ruckelshaus v. Monsanto Co., 467 U.S. 986, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984). At that point, we part company. The lead opinion uses Monsanto primarily as a stepping stone for applying the regulatory takings analysis derived in Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978). With respect, I think that this approach unnecessarily complicates the matter.

Having articulated my complete position on the relevance of Monsanto to the resolution of this case in Philip Morris, Inc. v. Harshbarger, 159 F.3d 670 (1st Cir.1998) (Philip Morris II), no useful purpose would be served by rehearsing that position here. I do need to point out, however, that after discussing trade secret protection in Massachusetts and concluding (persuasively, in my view) not only that Massachusetts protects trade secrets but also that the Disclosure Act implicates the tobacco companies’ property interests in their trade secrets, the lead opinion misses the turn that the Monsanto Court took to shorten traditional regulatory takings analysis in the trade secret context. The Monsanto Court specifically found that investment-backed expectations ancillary to safeguarded trade secrets so “overwhelm[ed]” the other customarily considered factors as to “dispose[ ] of the taking question regarding those data.” 467 U.S. at 1005, 104 S.Ct. 2862. The Court then concluded, without addressing either the character of the governmental action or its economic impact, that the government’s use or disclosure of data in which a trade secret holder had a reasonable investment-backed expectation of continued confidentiality constituted a taking that would offend the Constitution absent adequate compensation. Id. at 1013-14, 104 S.Ct. 2862.

In light of this express guidance, I am at a loss as to why the lead opinion does not simply stop after concluding that “the tobacco companies have at least some reasonable investment-backed expectation that their trade secrets will remain secret.” Lead Op. at 46. Instead, that opinion proceeds to undertake a full Penn Central analysis, makes a series of unnecessary sub-holdings, and concludes (erroneously, in my view) that the tobacco companies’ reasonable investment-backed expectations, even when coupled with the likelihood of great economic impact, “may not be sufficient to raise this case to the level of an unconstitutional taking.” Id. Although the lead opinion then reaches the right result by finding the character of the governmental action to be determinative, id. at 46, I cannot reconcile this reasoning with Monsanto (which teaches that as long as a trade secret holder has a reasonable investment-backed expectation *49that its trade secrets will remain secret, the sovereign’s use or divulgement of that information constitutes a taking for which the Constitution requires just compensation).23

I might add that the lead opinion seems to assume that when Penn Central applies, stare decisis does not. Id. at 33-34 n. 5. I disagree. In general — the exceptions are inapposite here — that doctrine obliges us to follow the most current Supreme Court precedent. The lead opinion’s application of Penn Central ignores the manner in which the Monsanto Court treated those factors in a materially indistinguishable situation. Stare decisis does not allow such hopscotching.

To be sure, the lead opinion purports to distinguish Monsanto on the ground that the Disclosure Act offers no promise of long-term confidentiality whereas FI-FRA — the federal statutory scheme at issue in Monsanto — contained such a guarantee. The lead opinion then concludes that FIFRA’s explicit guarantee “established a reasonable investment-backed expectation that Monsanto’s trade secrets would remain protected.” Lead Op. at 38-39. This reads Monsanto out of context. Although the “explicit governmental guarantee formed the basis of a reasonable investment-backed expectation” anent “trade secrets [already] submitted under the statutory regime in force,” Monsanto, 467 U.S. at 1011, 104 S.Ct. 2862, state property law established those expectations with respect to trade secrets generally, see id. at 1001, 104 S.Ct. 2862. Thus, “to the extent that Monsanto ha[d] an interest in its health, safety, and environmental data cognizable as a trade-secret property right under Missouri law, that property right [wa]s protected by the Taking Clause of the Fifth Amendment.” Id. at 1003-04, 104 S.Ct. 2862 (emphasis supplied). The promise in Monsanto was dis-positive because it preserved the trade secret status, protected under state law, of data Monsanto had routinely submitted to the ’government throughout the relevant period. See id. at 1010-11, 104 S.Ct. 2862. In contrast, the tobacco companies have not submitted their protected trade secrets to the Commonwealth. Were they to do so without extracting a guarantee of confidentiality,24 they would have no trade secrets (and, thus, no takings claim).

Viewed from this perspective, it is plain that Monsanto’s trade secrets were its to lose, regardless of how the FIFRA was written. This is why the Court found no taking with respect to the periods during which “Monsanto [wa]s aware of the conditions under which the data [we]re submitted,” yet submitted the data anyway. Id. at 1007, 104 S.Ct. 2862. The question in Monsanto, therefore, was not simply “whether the government could disclose *50trade secrets it had previously agreed to keep secret.” Lead Op. at 39. More aptly phrased, the question was whether the data Monsanto turned over to the government were, in fact, still trade secrets in which Monsanto had a property interest protected by the Takings Clause. See Monsanto, 467 U.S. at 1000, 104 S.Ct. 2862. The Court answered this query affirmatively with respect to the data submitted during the 1972-78 regime.25 See id. at 1013-14, 104 S.Ct. 2862.

Reading this record in light of Monsanto, I conclude, without serious question, that the tobacco companies have a reasonable investment-backed expectation that their trade secrets will remain secret before submission to the Commonwealth. After all, a secret remains a secret when not divulged, and there is no law that forces the tobacco companies to reveal their trade secrets to the Commonwealth if they decide to withdraw from the Massachusetts market. In the end, the tobacco companies are left with a Hobson’s choice: either comply with the Disclosure Act and forfeit your valuable trade secrets or withdraw from the lucrative Massachusetts market. This constitutes an unconstitutional condition on the tobacco companies’ right to sell their products in the Commonwealth, see Philip Morris II, 159 F.3d at 678-79, and they challenge the Disclosure Act under that theory. The tobacco companies apparently understand that they will no longer have a reasonable investment-backed expectation of continued confidentiality once they knuckle under and submit to the statutory regime. For that reason, they seek a preliminary injunction under the theory that enforcement of the statute will constitute a taking.

It is possible, of course, that the lead opinion is asking whether the owner of any trade secret that raises public health and safety concerns has a reasonable investment-backed expectation of continued secrecy in the absence of regulatory or statutory notice. If so, the answer is “yes”— according to no less an authority than Monsanto. Unlike the lead opinion, Lead Op. at 44-45, the Monsanto Court did not weigh the character of the government action to determine if it was tailored to achieve a laudable goal. Instead, the Court, even after acknowledging the “mounting public concern about the safety” of the products at issue, 467 U.S. at 991,104 S.Ct. 2862, found that government revelation of a trade secret in which the owner had a reasonable investment-backed expectation of continued confidentiality would be a taking (absent just compensation), id. at 1013-14, 104 S.Ct. 2862. In the last analysis, Massachusetts is free to pursue its praiseworthy goals in any lawful manner — but if it chooses to enforce the Disclosure Act in its present form, it will have to compensate the tobacco companies for expropriating their trade secrets. See id.

II.

I have another doubt about the lead opinion’s approach. That opinion gives *51short shrift to the possibility that the Disclosure Act works a per se taking. See Lead Op. at 35-36. But per se takings analysis warrants very serious consideration in regard to the expropriation of trade secrets.

I need not wax longiloquent here, preferring instead, in the interest of brevity, to reiterate what I said in my dissent to the original panel opinion (now withdrawn). See Philip Morris, Inc. v. Reilly, 2001 WL 1215365, at **18-27 (1st Cir.2001) (Selya, J., dissenting). Simply put, I see no principled reason to refrain from extending per se takings analysis to alleged takings of trade secrets. Indeed, the Supreme Court hinted at this result when it observed that the term “property” in the Takings Clause is meant in its “more accurate sense to denote the group of rights inhering in the citizen’s relation to the physical thing” as opposed to its “vulgar and unteehnical sense of the physical thing” itself. Monsanto, 467 U.S. at 1003, 104 S.Ct. 2862 (quoting United States v. Gen. Motors Corp., 323 U.S. 373, 377-78, 65 S.Ct. 357, 89 L.Ed. 311 (1945)).

The Court further elucidated the conceptual nature of rights in physical property in Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U.S. 302, 122 S.Ct. 1465, 152 L.Ed.2d 517 (2002). There, the Court reasoned that an “interest in real property is defined by the metes and bounds that describe its geographic dimensions and the term of years that describes the temporal aspect of the owner’s interest.” Id. at 1484. Realistically, however, such “property” exists principally in the minds of legal theorists; to the archetypical landowner, such concepts are meaningless unless and until the integrity of her rights are challenged. In my view, this illustrates that property rights, in general, consist largely of legal fictions, and exist only to the extent that they are recognized and enforceable in court — and that verity holds true whether the subject matter they encompass is corporeal or conceptual.

This point is further supported by comparing the valuation of real and intellectual property. The basis of value for both is the owner’s right to exclude (relative to others’ demand for access). For example, it is obvious that, other things being equal, ten acres of undeveloped land in rural Maine is not as valuable as ten acres of undeveloped land in midtown Manhattan. If the physical thing itself were the basis of value, these tracts of equal size and topographical characteristics should be worth the same. The value differential results from the fact that people are willing to pay a higher price for access to Manhattan. Cf. The Executive’s Book of Quotations 168 (Oxford Univ. Press 1994) (citing the “[l]ong-standing real estate principle” of “[ljocation, location, location”). So too trade secrets: if I have a secret formula for, say, prune juice, people presumably will not be willing to pay as high a price for the secret as they would for a secret recipe for making Marlboro cigarettes.

In short, the value of trade secrets, like the value of land, is inextricably tied to both the demand of others for access and the legal enforceability of the owner’s right to exclude. In either case, if the right to exclude is diminished, the value decreases. And in either case, if the sovereign effectively deprives the owner of the right to exclude, the value is destroyed — and the Constitution requires just compensation. Limiting per se takings analysis to cases involving real property is a crude boundary with no compelling basis in the law. We should not be hesitant to take the next logical step when justice demands it.26

*52III.

I need go no further. Even the most laconic observer of the Supreme Court’s Takings Clause jurisprudence knows that the “question of what constitutes a ‘taking’ is one with which th[e] Court has wrestled on many occasions.” Monsanto, 467 U.S. at 1004, 104 S.Ct. 2862. Against that chiaroscuro backdrop, it should be no surprise if jurists who agree on a conclusion disagree on the best route to get there. Although our reasoning differs, I welcome Judge Torruella’s arrival at our common destination and gladly concur in the judgment.

. Contrary to the lead opinion’s assertion, Lead Op. at 33-34 n.5, this reading of Monsanto does not call into question the constitutionality of regulations such as 15 U.S.C. § 2613(a)(3). According to the Monsanto formulation, an entity subject to such a regulatory scheme would not have a reasonable investment-backed expectation that its trade secrets would remain secret if it submitted the information under circumstances meeting the statutory criteria for government divul-gence. Monsanto, 467 U.S. at 1006, 104 S.Ct. 2862. In such instances, the statute provides fair warning, and the trade secret holder can assess for itself the likelihood that the government will reveal submitted information. The tobacco companies, however, are not subject to a scheme of this type, nor does the Commonwealth argue that it presently publishes such statutory or regulatory notice.

. As a practical matter, the tobacco companies cannot extract a promise of confidentiality from the Massachusetts legislature. They can only challenge the constitutionality of the laws passed by that august body.

. Consistent with this holding, Monsanto was not entitled to compensation for the pre-1972 period. The data revealed during that time frame did not fit the definition of a trade secret under state law because "the owner of the secret [did not] protectf ] his interest from disclosure to others.” Monsanto, 467 U.S. at 1002, 104 S.Ct. 2862. As to the post-1978 period, the government’s use of submitted data "in a manner that was authorized by law at the time of the submission” was not unconstitutional because it was justly compensated; Monsanto was fully aware of the conditions attendant to submitting the data and nonetheless did so voluntarily "in exchange for the economic advantages of a registration.” Id. at 1007. Thus, it was Monsanto’s own actions, silhouetted against the backdrop of state property law, that determined whether it maintained a reasonable investment-backed expectation of continued trade secret confidentiality.

. The lead opinion reads Monsanto as confining its analysis to regulatory takings rather than extending per se rules to trade secrets. Lead Op. at 33-34. But actions speak louder than words. Once the Monsanto Court found that the trade secret holder possessed a reasonable investment-backed expectation in its trade secrets, the Court determined that such a taking, if not justly compensated, would be unconstitutional. Monsanto, 467 U.S. at 1013-14, 104 S.Ct. 2862. This treatment mirrors a per se takings analysis.