Compulsory Licensing: The Widow-Maker Or Galvanizer Of The Automotive Industry

By: Jace D. Williams

  1. Introduction

            In March 2020, the EPA released its annual automotive trends report, highlighting record low emissions and record high fuel economy.[i]  But the Sierra Club, an environmental lobbyist group, was critical of the report, noting that only 3 out of 14 major automakers met 2018 compliance without using emissions credits.[ii]  The Deputy Advocacy Director of the group stated the automotive industry still needs to do more to reduce emissions.[iii]

            Sierra Club’s sentiment that the automotive industry is not moving fast enough to address environmental issues is shared by several lobbyist groups.[iv]  The EPA and the NHTSA are working together on a proposal with the industry to satisfy the EPA’s regulatory goals.[v]  The purpose is to create a comprehensive timetable for reaching the EPA’s goals and all options are on the table — including using compulsory licensing to acquire patented technology from automakers.[vi]  But the Fifth Amendment Takings Clause protects private property from government infringement without just compensation.[vii]  Could the EPA use compulsory licensing under the Clean Air Act to satisfy its emissions goals, or would this breach the Takings Clause

2. Background

a.     Patents Categorized as Private Property

            Under the law’s current framework, patents are the only form of private property that does not receive Takings Clause protection.  Seymour v. Osborne is the Supreme Court’s earliest case recognizing patents as a form of private property.[viii]  Two decades later, Schillinger v. United States was decided and spurred the confusion at the heart of the legal debate concerning patents and the Takings Clause.[ix]  The Schillinger Court split patent infringements into two categories:  (1) compensation claims for authorized use, and (2) patent infringements sounding in tort — thus rejecting the Seymour Court’s argument that the second category is protected under the Takings Clause.[x]  Justice Harlan’s dissent argued that the Court’s distinction is arbitrary because it is settled law that the government can be sued for just compensation under the Takings Clause.[xi]  Justice Harlan concluded that patentees will have little  recourse against the government if their claims are not protected by the Takings Clause.[xii]

            The United States Court of Appeals in Zoltek Corp. v. U.S. rejected an attempt under modern law (twentieth-century courts) to re-establish patent protection under the Takings Clause.[xiii]  Most importantly, the Zoltek court maintained that Schillinger was still the law concerning patents’ status as a private property interest with relation to the Takings Clause.[xiv]  Zoltek returned to the United States Court of Appeals in 2012.[xv]  Although Zoltek re-adjudicated a preliminary matter, the ruling is legally significant for this discussion—the court vacated its previous ruling on the government’s potential liability under the Takings Clause.[xvi]  After Zoltek’s ruling, it is unclear whether a patentee has a cause of action against the government under the Takings Clause.

b.     The Clean Air Act

            One of the Clean Air Act’s stated purposes is to both initiate and accelerate national research and development programs to prevent and control air pollution.[xvii]  The Act’s compulsory licensing provision is intended to help achieve the Act’s purpose and set technology standards.[xviii]  This provision incentivizes the government to freely access emission reducing technology if it is in the interest of the government to do so.[xix]  Most importantly, the EPA is constrained by the statutory requirement that the technology must be achievable or available.[xx]3

3. Analysis

            The EPA should not be able to use compulsory licensing under the Clean Air Act to satisfy its emission goals because patents are private property protected by the Takings Clause.  Further, modern courts incorrectly distinguish the tangible nature between patents and land as private property.  As a doctrinal matter, courts need two constitutional predicates to secure a property right under the Takings Clause.[xxi]  First, courts must categorize the property in question as “private property.”[xxii]  Second, a patentee must be able to bring the government in court as a defendant.[xxiii]

            The first prong has support in nineteenth-century precedent.  As discussed above, Seymour recognized patents as a form of private property.  Schillinger recognized patents as private property under the Constitution but rejected patent protection under the Takings Clause.  Zoltek reinforced Schillinger’s ruling.  Most significantly, the EPA’s Clean Air Act explicitly and implicitly recognized patents as private property protected by the Constitution.[xxiv]  The second prong is also illustrated by nineteenth-century precedent.  This precedent firmly illustrated that a patentee’s recourse was rooted in the Constitution before modern law arbitrarily restricted previously available alternatives.

            As stated above, the language in the Clean Air Act both explicitly and implicitly recognizes patents as private property protected by the Constitution.  The compulsory licensing clause was created to address the conflict of interests between environmental goals and patent owners’ rights.[xxv]  The policy considerations behind compulsory licensing further depict the government’s recognition of the private property rights that attach to patents.  The policy seeks to balance the EPA’s interest in sufficient environmental protection with patent owners’ right to exercise their property rights.[xxvi]  The reasons are non-exhaustive, but the policy discussion concedes an important point — patents are private property that receive protection under the Constitution.

            There are, however, proponents that support the premise that patents are distinguishable from other forms of private property that receive protection under the Constitution.  Modern law distinguishes between patents and other property, like land, by focusing on how the right to exclude differs between tangible and intangible property.[xxvii]  For land, the right to exclude is breached by a trespass — a physical intrusion on the private right to own land.[xxviii]  Conversely, intellectual property is an intangible form of private property.  Patent infringement does not trigger the right to exclude in the same way that land does because patents are not physical forms of property.  One person using information in a patent does not exclude the patentee from using his own patent.[xxix]  Accordingly, courts do not find dispossession in takings claims for patents and conclude there is insufficient evidence for breaching the patentee’s right to exclude.[xxx]

            Modern law incorrectly distinguishes between properties’ tangible or intangible nature by highlighting immaterial issues while ignoring material issues.  The rule for triggering the Takings Clause cannot be the property’s nature as a tangible or intangible object.  Rather, the trigger should be the loss of the constitutional rights and privileges that Congress confers to private property owners.[xxxi]  

            Distinguishing property rights using the loss of the constitutional rights and privileges creates a stronger, less volatile analysis because the Constitution and Congress already use that language to vest property rights.  Article I, Section 8, Clause 8 of the United States Constitution secures patentees’ rights to exclude others and profit off their inventions.  Similarly, the Takings Clause restricts the government’s ability to interfere with a property owner’s right to use, enjoy, and exclude others from his private property.  Patent rights represent legitimate expectations on par with property rights in land already secured under the Takings Clause.[xxxii]  The tangible nature of land and patents may be different, but the rights and privileges conferred to the owners of both are identical.

4. Conclusion

            Patents are private property and should be protected by the Fifth Amendment Takings Clause.  Modern law delineates between patents and land based on their tangible nature and ability to affect a taking, but this is incorrect.  The trigger for a Fifth Amendment taking should be the private property owner’s loss of his constitutional rights and benefits conferred by Congress.  Sustaining a patentee’s rights under the modern law will cause negative externalities that will defeat the ultimate purpose of the Clean Air Act.

[i] Envtl. Prot. Agency, The 2019 EPA Automotive Trends Report:  Executive Summary, (March 2020), https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100YVK3.pdf. 

[ii] Larisa Manescu, New EPA Report Shows Auto Industry Needs to Do Better on Fuel Efficiency for Climate & Consumers, Sierra Club (March 3, 2020), https://www.sierraclub.org/press-releases/2020/03/new-epa-report-shows-auto-industry-needs-do-better-fuel-efficiency-for.

[iii] Manescu, supra note ii.

[iv] See, e.g., Lauren Reid, These 12 Car Companies Are Setting the World on Fire, GreenPeace (Sept. 10, 2019), https://www.greenpeace.org/international/story/24136/these-12-car-companies-are-setting-the-world-on-fire/ (arguing that promoting hybrid cars and promoting fuel efficiency are not good enough solutions to lower carbon emissions); At D.C. Auto Show, Activists Denounce Ford Motor Company’s Greenwashing, PublicCitizen (Apr. 4, 2019), https://www.citizen.org/news/at-d-c-auto-show-activists-denounce-ford-motor-companys-greenwashing/ (arguing that Ford and other automakers are backpedaling on climate and consumer protections that are supposed to drive improvements in fuel efficiency).

[v] Harrison Noble, A War Is Brewing Between The EPA, CARB, And the Auto Industry, Enginelabs (Apr. 4, 2018), https://www.enginelabs.com/news/war-waging-epa-auto-industry/.

[vi] Id.

[vii] U.S. Const. amend. V.

[viii] See 78 U.S. 516, 533-35 (1871) (holding that patents grant the patentee the exclusive right and liberty to make and vend his patent to others in order to promote the progression of science and the useful arts as contemplated by the Constitution); U.S. Const. art. I, § 8, cl.8 (explaining Congress has the power to promote the progress of science and useful arts by securing, for a limited time to authors and inventors, the exclusive right to their respective writings and discoveries).

[ix] 155 U.S. 163 (1894).

[x] Schillinger, 155 U.S. at 167-68 (ruling that the government taking a patentee’s patent did not qualify as a taking under the Fifth Amendment unless the patentee had an express or implied contract with the government).

[xi] See id. at 178-79 (arguing that the government’s liability primarily arises out of the Takings Clause and refers to the just compensation provision).

[xii] See id. at 179 (concluding if the patentee, in the case before the Court, could not have recourse and be compensated under the Takings Clause, then it is difficult to imagine where else he is supposed to get compensation from).

[xiii] See 442 F.3d 1345 at 1349, 1352-53 (noting that 28 U.S.C. § 1498 limits a patentee’s legal recourse because Congress both creates and defines the nature of property interests, not the Constitution, and section 1498 stands as Congress’ explicit definition on the nature of patents as a property interest); 28 U.S.C. § 1498 (2018).

[xiv] See id. at 1350 (disagreeing with the Court of Claims’ argument that Crozier v. Fried. Krupp Aktiengesellschaft, 224 U.S. 290 (1912) “effectively overruled” Schillinger in silence).

[xv] See generally 672 F.3d 1309 (2012).

[xvi] See id. at 1327 (vacating the trial court’s decision and stating there was no need to reach the issue of the government’s liability under the Takings Clause since liability was established under section 1498(a)).

[xvii] 42 U.S.C. § 7401 (2018).

[xviii] See 42 U.S.C. § 7608 (stating that the government can issue an order requiring the person that owns a patent to license it on reasonable terms if the patent:  (i) serves a public or commercial use; (ii) is necessary to comply with the limitations of the statute; and (iii) if there is no reasonable alternative to accomplish the statute’s purpose).

[xix] See Paul Gormley, Comment, Compulsory Patent Licenses and Environmental Protection, 7 Tul. Envtl. L. J. 131, 139-40 (1993) (explaining the government’s incentives to handle environmental concerns can be addressed through compulsory licensing even if the inventor has an incentive to keep the product or process of making the product exclusive).

[xx] See Gormley, supra note xix, at 141 (stating the agency must consider:  (i) the extent that the technology will be available at the time a new production begins; and (ii) the economic effects of the compulsory licensing).

[xxi] Adam Mossoff, Patents as Constitutional Private Property:  The Historical Protection of Patents Under the Takings Clause, 87 B.U. L. Rev. 689, 700-01 (2007).

[xxii] Mossoff, supra note xxi.

[xxiii] Mossoff, supra note xxi.

[xxiv] See Gormley, supra note xix, at 140-41 (stating that the compulsory license is not a complete destruction of patent property rights because the patentee still gets his adequate royalties under reasonable terms).

[xxv] Gormley, supra note xix, at 138-40 (stating that a crucial aspect of the compulsory license is not depriving the inventor of all of his expectations and benefits of his invention).

[xxvi] Gormley, supra note xix, at 146-47.

[xxvii] Mossoff, supra note xxi, at 720-21 (explaining that modern courts focus on the right to exclude as the primary right in the bundle of rights that it secures as constitutional private property).

[xxviii] Mossoff, supra note xxi, at 720-21 (explaining that dispossession became the jurisdictional hook of the analysis for private property in takings cases because they usually involved condemnation, physical invasion, or indirectly through a regulation that results in something equivalent to dispossession) (emphasis added).

[xxix] Mossoff, supra note xxi, at 721 (explaining that the government’s unauthorized use of a patent does not interfere with a patentee’s use of the invention).

[xxx] See, e.g., Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 539 (2005); Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434-35 (1982) (holding generally that physical dispossessions of property by the government are takings and that dispossession is evidence of the breach of the right to exclude).

[xxxi] See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978) (identifying several factors that could impact a court’s decision to find a taking:  (i) the extent the regulation interferes with the economic-backed expectations of the claimant; (ii) the character of the government action; and (iii) whether there is a physical dispossession).

[xxxii] Mossoff, supra note xxi, at 694-95.

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