Tag: property rights

Why Hayek Would Have Hated Software Patents

In his famous essay “The Use of Knowledge in Society,” Friedrich Hayek argued that the socialists of his day falsely assumed that knowledge about economy could be taken as “given” to central planners. In reality, information about the economy—about what products are needed and where the necessary resources can be found—is dispersed among a society’s population. Economic policies that implicitly depend on omniscient decision-makers are doomed to failure, because the decision-makers won’t have the information they need to make good decisions.

In a new paper to be published by the NYU Annual Survey of American Law, Christina Mulligan (who drafted a recent amicus brief for Cato) and I argue that the contemporary patent debate suffers from a similar blind spot. A patent is a demand that the world refrain from using a particular machine or process. To comply with this demand, third parties need an efficient way to discover which patents they are in danger of infringing. Yet we show that for some industries, including software, the costs of discovering which patents one is in danger of infringing are astronomical. As a consequence, most software firms don’t even try to avoid infringing peoples’ patents.

Patents are often described as “intellectual property,” and patent law provides for harsh property-like remedies against patent infringers. But a property system that is so convoluted that ordinary firms can’t figure out who owns what isn’t a property system at all. Genuine property rights enhance economic efficiency by bringing predictability to the allocation of scarce resources and thereby promoting decentralized decision-making. Software patents retard economic efficiency by subjecting software firms to a constant and unavoidable threat of litigation for accidentally infringing the patent rights of others. Hayek would not have approved.

Our paper is available from SSRN.

EPA Actions Should Be Subject to Judicial Review

Michael and Chantelle Sackett bought some Idaho land and began placing gravel fill on the site to prepare for laying a foundation for their dream home. Then they got something from the EPA: a “Compliance Order,” declaring that they were in violation of the Clean Water Act, because their land had been deemed a “wetland” subject to federal jurisdiction.

By beginning construction without a federal permit, the Sacketts were breaking the law and exposing themselves to civil and possibly criminal penalties, according to the Order. The Order instructed them to stop their construction and restore the property to its “original state” – it even told them what type of shrubbery to plant on the site, and exactly where to plant it. If they failed to comply with the order, they were subject to $37,500 fines per day.

The Sacketts were, understandably, shocked: they had no reason to think their property was a wetland; their neighbors had been allowed to build homes, and there was no indication in their title documents that the land was subject to federal control. So they asked for a hearing – and that was when they learned that the Compliance Order process does not entitle them to a hearing. They must either comply with the Order immediately to avoid the fines, or play chicken with the EPA – waiting until the EPA decides to file an “enforcement action.” At that time, they would be allowed to present their arguments that the land is not actually a “wetland.” But of course, by that time, the fines would have accumulated to hundreds of thousands or millions of dollars.

Worse, these Compliance Orders are issued by a single EPA bureaucrat, on the basis of “any evidence.” That’s the language of the statute itself – and federal courts have interpreted “any evidence” to mean even an anonymous phone call or a newspaper story.

And a Compliance Order doesn’t just demand that you obey EPA’s orders or face fines – ignoring a Compliance Order is a separately punishable offense against federal law, aside from the liability for any environmental damage. In other words, you can face penalties for violating the Clean Water Act and also for ignoring a Compliance Order. Worse still, ignoring a Compliance Order can serve as the basis of a finding of “wilfulness,” and thus the basis of criminal charges.

Pacific Legal Foundation represents the Sacketts and argues that they should have their day in court – either under federal statutes like the Administrative Procedure Act or under the Due Process Clause – without having to face the possibility of devastating penalties.  PLF lawyer Damien Schiff argued the case today before the Supreme Court; while the justices were active in probing the weaknesses of both sides, the government’s lawyer didn’t do the EPA any favors.  So today may have ended being a very good day for the Sacketts, even if the New York Times editorial page took the alarmist stance that allowing them to seek pre-enforcement judicial review would be a ”big victory to corporations and developers who want to evade the requirements of the Clean Water Act.”

The case is Sackett v. EPA; read the argument transcript here and the briefs here.

This blogpost was coauthored by adjunct scholar Timothy Sandefur, who is a principal attorney at PLF and wrote about the case in Regulation magazine.

Obama’s Top 10 Constitutional Violations

That’s the topic of my latest op-ed, in the Daily Caller.  Here’s the list:

  1. The individual mandate
  2. Medicaid coercion
  3. The Independent Payment Advisory Board
  4. The Chrysler bailout
  5. Dodd-Frank
  6. The deep-water drilling ban
  7. Political-speech disclosure for federal contractors
  8. Taxing political contributions
  9. Graphic tobacco warnings
  10. Health care waivers

For descriptions of what makes these things so constitutionally bad, read the whole thing.

A Property Rights Victory in the Magnolia State

One of the unambiguously good results from last Tuesday’s off-year elections came in Mississippi, the state I called home the year before I moved to D.C.  By the impressive margin of 73% to 27%, voters in the Magnolia State took a stand against judicially sanctioned eminent domain abuse, specifically the government’s taking of private property in the name of so-called “economic development.”  

By passing Measure 31, which prohibits most transfers of condemned land to private parties for 10 years after condemnation, Mississippi joins 44 other states in enacting legislation that strengthens property rights in the wake of the Supreme Court’s horrific ruling in Kelo v. New London.  In Kelo (2005), you’ll recall, the Court held that state and local governments can condemn private property not for some sort of public project like a highway or military base nor because it is a “blight” that creates a health or safety risk, but simply to transfer to another private party who claims to put it to better economic use. 

We at Cato are all in favor of economic development, of course, but not if that development comes via raw government power that treads on constitutionally protected individual rights.  If a developer thinks he can put a given piece of land to a higher-value use, let him buy that property fair and square from the owner rather than effectively forcing a sale at below-market value.

Indeed, Kelo’s holding was flawed precisely because its rationale that transferring ownership of “economically blighted” property would promote economic development is bad economics. If a proposed project were actually a better use of a given property, the developer would be willing to pay a price sufficient to induce the current owners to leave.

Kelo also undermines property security, making owners less willing to invest in their property and use it productively, lest the government swoop in, declare it “blighted,” and sell it to someone else. And securing property rights is not just a good thing economically.  It also helps prevent powerful private interest groups from undercutting the property rights of minorities and other groups who may be vulnerable due to prejudice or political disadvantage.

And the American people agree: Kelo turned out to be a Pyrrhic victory for developers and their public-official cronies, such that most of the country is now better protected against eminent domain abuse than it was before Kelo.  Notably absent from the list of states where property rights are better off, however, is New York (see my comment on a recent instance of eminent domain abuse in the Empire State).

The judiciary’s abdication of its role as a protector of property rights is bad enough, but our elected officials haven’t done much better. Tellingly, the drivers of successful anti-Kelo legislation have tended not to be state legislators (with some exception) but rather citizen-activists.  While special-interest groups, such as big car companies in Mississippi, may pressure legislators to avoid anti-Kelo legislation, even as referenda show that popular opinion is on the side of the property rights activists.

Measure 31 is not perfect, but it is a step in the right direction. The Founders took care to protect private property rights in the Constitution, and it’s heartening to see citizens taking an active role to vindicate those protections even when the Supreme Court abdicates its duty to do so.

For more commentary on the Mississippi vote, see Ilya Somin’s recent op-ed.

Another Judicial Takings Case Reaches the Supreme Court

For over a century, Montana citizens have used non-navigable streambeds along their properties for various purposes without objection from the state government.  The hydroelectric energy company PPL Montana and thousands of other private parties exercised their rights over these non-navigable stretches that the state never claimed. 

Last year, however, the Montana Supreme Court overturned well-settled state property law by effectively converting the title in hundreds of miles of riverbeds to state ownership. The majority of the court ruled that the entirety of the Missouri, Clark Fork, and Madison rivers were navigable at the time of Montana’s statehood, producing a broad holding that eradicates the right to use rivers and riverbanks that Montanans had enjoyed for over a century.

PPL Montana thus asked the U.S. Supreme Court to review the state court’s decision; Cato filed an amicus brief supporting that request, which the Court granted.  Now that the case is before the Court, Cato has joined the Montana Farm Bureau Federation, American Farm Bureau Federation, and National Federation of Independent Business on a brief supporting the property owners.

We are chiefly concerned with two parts of the Montana Supreme Court’s ruling:  First, the court incorrectly evaluated navigability for the purpose of establishing title – finding the entirety of the rivers at issue navigable (and thus belonging to the state) because portions of them are – contravening the legal standard established by the U.S. Supreme Court in United States v. Utah (which analyzed the riverbeds section-by-section to achieve a “precise” assessment of navigability).  Second, the court effectively transferred a substantial quantity of land from private owners to the state – a judicial taking that violates either the Fifth or Fourteenth Amendments (as the Court described in the recent Stop the Beach Renourishment case, in which Cato also filed a brief).  

In short, the Court should reaffirm the Utah standard for navigability in the context of establishing title and protect private property owners against judicial takings.  By doing so, it would send a strong message to state courts across the nation that judicial usurpations of property rights are just as unconstitutional as those undertaken by other branches of government.

The Court will hear the case of PPL Montana, LLC v. Montana late this year or in early 2012.  Again, you can find Cato’s brief here.

Monday Links

The Takings Clause Has No Expiration Date II

As I wrote last week, a decade ago in Palazzolo v. Rhode Island, the Supreme Court rejected the idea that those who buy property subject to burdensome regulations lose the right the seller otherwise has to challenge those regulations.  The Court ruled that the Takings Clause does not have an “expiration date.”  Sadly, not all government authorities or courts took Palazzolo to heart, and now we have a second such case meriting Cato’s involvement in the span of a week.

In 2000, after the EPA issued a Record of Decision concerning limiting access to a “slough” (a narrow strip of navigable water) on its Superfund National Priorities List, CRV Enterprises began negotiations to buy a parcel of land next to the slough across from a site once occupied by a wood-preserving plant.  CRV hoped to develop that parcel and others it already controlled into a mixed-use development, including a marina, boat slips, restaurants, lodging, storage, sales, and service facilities.  The company eventually bought the land with notice of the EPA’s ROD but the EPA later installed a “sand cap” and “log boom” that obstructed CRV’s access to the slough.

CRV sued the United States in the Court of Federal Claims, which dismissed the case for lack of standing. The Federal Circuit affirmed, finding that CRV’s claim “is barred because [the company] did not own a valid property interest at the time of the alleged regulatory taking.”  The Federal Circuit thus turned two Supreme Court precedents on their head and put that “expiration date” on the Takings Clause.  It did so despite the fact that multiple federal courts have upheld Palazzolo’s rule and that longstanding California common law recognizes that a littoral (next to water) owner’s access to the shore adjacent to his property is a property right.

Cato, joined by Reason Foundation, the Center for Constitutional Jurisprudence, and the National Federation of Independent Business, filed an amicus brief supporting CRV’s request that the Supreme Court review the Federal Circuit’s decision and reaffirm Palazzolo.  We argue the following: (1) when post-enactment purchasers are per se denied standing to challenge regulation, government power expands at the expense of private property rights; (2) a rule under which pre-enactment owners have superior rights to subsequent title-holders threatens to disrupt real estate markets; (3) the Federal Circuit abrogated the rule of Palazzolo; and (4) this case — viewed in the context of other courts’ rulings — indicates the need for the Supreme Court to settle the spreading confusion about Palazzolo.  Otherwise, the existence of a “post-enactment” rule will create a “massive uncompensated taking” from small developers and investors that would preserve and enhance the rights of large corporations.

Palazzolo put to rest “once and for all the notion that title to property is altered when it changes hands.”  The ability of property owners to challenge government interference with their property is essential to a proper understanding of the Fifth Amendment; the Court must reestablish the principle that transfer of title does not diminish property rights.  Significantly, the Federal Circuit isn’t alone in its misapplication of Palazzolo; the Ninth Circuit in Guggenheim v. City of Goleta (in which Cato also filed a brief) recently issued an opinion severely narrowing Palazzolo’s scope and deepening a circuit split.

Thanks to legal associate Nick Mosvick and former legal associate Brandon Simmons (acting as our outside counsel in this case) for their work on this case, CRV Enterprises v. United States.