Copyhype

This past Thursday, the Cato Institute held a forum called Copyright Unbalanced: From Incentive to Excess to discuss the current state of copyright law and issues raised by the Institute’s recently released book with the same title. The panel discussion featured the book’s editor, Jerry Brito of the Mercatus Center, Mitch Glazier of the RIAA, and one of the book’s contributors, law professor Tom Bell.

Much could be said concerning the event and book. I’d like to focus in on one specific point.

Tom Bell says in the book that “to change the way that people think about copyright, we have to change the way they talk about it.” To do so, he proposes banishing the conception of copyright as “property” and instead consider it a “mere privilege”, capable of all sorts of capricious intervention by the government. Bell argues that copyrights do not “deserve” to be called property. What accounts for all this property-talk throughout history? ¹For just one example, see Myths from the Birth of US Copyright for evidence that the Founding Fathers primarily conceived copyright as a property right. According to Bell, “bad philosophy.”

He next provides several examples that purport to distinguish a copyright from other forms of property. Today I want to focus on one specific example Bell provides to distinguish copyright from more deserving forms of property: that “copyright does not qualify for just compensation under the Fifth Amendment’s takings clause.” Bell is correct in noting that “the exact question remains as yet unlitigated,” but how does the rest of his analysis stack up?

Does the Takings Clause Apply to Copyright?

The “Takings Clause” of the Fifth Amendment prohibits Congress (and the States through the Fourteenth Amendment) ²Chicago B & QR v Chicago, 166 US 226 (1897). from taking private property for public use, without just compensation. Literally, the government cannot take private property, unless it is for public use, and the government provides just compensation. The clause has been broadened over time: today, it applies not only to an actual taking of legal title to property, but also to regulations that impact the economic use of property in such a way that they can be characterized as a “taking.” ³See Penn Central Transport v New York City, 438 US 104, 124 (1978). But, on its face, the clause requires some interest in “property.” It is here Bell makes his argument: if copyright is, indeed, “property”, then the government should be limited by the Fifth Amendment in what it could do.

One could look toward the Supreme Court to see if it is. Indeed, in 1998, four Supreme Court Justices stated that “The ‘private property’ upon which the [Takings] Clause traditionally has focused is a specific interest in physical or intellectual property.” [Emphasis added.] ⁴Eastern Enterprises v Apfel, 524 US 498, 554 (Dissent, J. Stevens, J. Souter, J. Ginsburg, and J. Breyer).

That may not be satisfactory enough, since it, though a descriptive statement, is not binding precedent.

We can look instead to another case, where a majority held that trade secrets are property and subject to the Takings Clause (citing, among others, William Blackstone and John Locke):

This general perception of trade secrets as property is consonant with a notion of “property” that extends beyond land and tangible goods and includes the products of an individual’s “labour and invention.”

Although this Court never has squarely addressed the question whether a person can have a property interest in a trade secret, which is admittedly intangible, the Court has found other kinds of intangible interests to be property for purposes of the Fifth Amendment’s Taking Clause. That intangible property rights protected by state law are deserving of the protection of the Taking Clause has long been implicit in the thinking of this Court:

“It is conceivable that [the term `property’ in the Taking Clause] was used in its vulgar and untechnical sense of the physical thing with respect to which the citizen exercises rights recognized by law. On the other hand, it may have been employed in a more accurate sense to denote the group of rights inhering in the citizen’s relation to the physical thing, as the right to possess, use and dispose of it. In point of fact, the construction given the phrase has been the latter.” ⁵Ruckelshaus v Monsanto, 467 US 986, 1002-03 (1984).

The Court later adds:

The right to exclude others is generally “one of the most essential sticks in the bundle of rights that are commonly characterized as property.” With respect to a trade secret, the right to exclude others is central to the very definition of the property interest. Once the data that constitute a trade secret are disclosed to others, or others are allowed to use those data, the holder of the trade secret has lost his property interest in the data. That the data retain usefulness for Monsanto even after they are disclosed — for example, as bases from which to develop new products or refine old products, as marketing and advertising tools, or as information necessary to obtain registration in foreign countries — is irrelevant to the determination of the economic impact of the EPA action on Monsanto’s property right. The economic value of that property right lies in the competitive advantage over others that Monsanto enjoys by virtue of its exclusive access to the data, and disclosure or use by others of the data would destroy that competitive edge.

Patents and copyrights would also be included in this analysis since they enjoy at least as much status (if not more) as property than trade secrets. ⁶In Kewanee Oil v Bicron Corp., 416 US 470, 497 (1974) (J. Douglas & J. Brennan dissenting)., two Supreme Court Justices stated off-hand that, contrary to this case, “A trade secret, unlike a patent, has no property dimension.” So it would follow that a subsequent decision saying trade secrets do in fact have a property dimension for Fifth Amendment purposes implies patents and copyrights certainly fall within the Clause’s scope.

Zoltek v US

Bell, however, relies on Zoltek v US, a 2006 Federal Circuit Court decision, as his sole support for the claim that “copyright does not qualify for just compensation under the Fifth Amendment’s takings clause.” ⁷442 F.3d 1335.

But I don’t think the case suggests what Bell says it suggests. In Zoltek, the Federal Circuit rejected the Takings Clause claim of a patent owner whose patent was infringed by the US Government. Not because patents are not Fifth Amendment “property”, but because patent owners already have a remedy against the United States for infringement (the same holds true for copyright infringement). ⁸See 28 USC § 1498(a), (b).

The court did not expand its holding past the issue of infringement by the federal government — that is, one cannot draw from the court’s decision the general case, that any interference in a patent or copyright is not subject to the Takings Clause, from the specific case, that infringement by the United States involves a “taking.” (It’s also worth noting that the court’s decision drew a vigorous dissent both in its original decision and in its denial for rehearing.) ⁹464 F.3d 1335 (2006).

Contrary Case Law

Much more fatal to Bell’s claim that a solitary Circuit Court decision “strongly suggests” copyright is not subject to the Takings Clause is the existence of decisions from five other Circuit Courts that suggest otherwise.

In a 1989 case, the First Circuit was confronted with a situation similar to the one in Zoltek, except here the alleged infringement was done by the state of Massachusetts rather than the federal government, raising the issue of sovereign immunity under the Eleventh Amendment. ¹⁰Lane v First National Bank of Boston, 871 F.2d 166 (1st Cir. 1989). Ultimately, the court held that the Copyright Act did not abrogate sovereign immunity for copyright infringement, but noted that not all was lost for the copyright owner. Massachusetts had separate statutes that allowed tort claims against the state and claims for compensation when private property is confiscated. Said the court:

The statutory scheme manifests a recognition that where private property is taken for public use, a constitutional right to just compensation attaches. Since a copyright is property, [the plaintiff] may very well be able to sue in state court on a state-law claim for essentially the harm that she contends the Commonwealth has perpetrated. And if she exhausts State remedies and establishes that the Massachusetts legal system affords her no just compensation for the wrongful confiscation of her property, the Takings Clause of the federal Constitution might at that point enable her to pursue a damage remedy in federal court. ¹¹Id. at 174.

A few years prior, the Second Circuit was confronted with a dispute over the validity of a work-for-hire contract. ¹²Roth v Pritikin, 710 F.3d 934 (2nd Cir. 1983). The agreement was entered into right before the Copyright Act of 1976 went into effect, while the work at issue, and the subsequent dispute, did not arise until shortly after the Act became law. The Copyright Act of 1976 changed the rules governing the work-for-hire doctrine, and under the circumstances of this case, the difference between the old rule and the new rule would result in a different outcome.

Said the court:

Although the language of the Act, its legislative history and rules of statutory interpretation are sufficient answers to Roth’s claim, we note, en passant, adoption of her interpretation of § 301 would, in addition, raise a serious issue concerning the Act’s constitutionality. An interest in a copyright is a property right protected by the due process and just compensation clauses of the Constitution. The agreement between Roth and the appellees, pursuant to which Roth surrendered any rights she might otherwise have obtained in the copyright, was valid when it was entered into, and a subsequently enacted statute which purported to divest Pritikin and McGrady of their interest in the copyright by invalidating the 1977 agreement could be viewed as an unconstitutional taking. Resolution of this issue is not required for our holding, and will have to wait for an appropriate case.

Moreover, the district court failed to make any findings relevant to this question, and accordingly, we do not decide whether retroactive application would, in fact, violate constitutional restrictions. Even the spectre of a constitutional issue concerning the proper application of the “takings clause”, however, is sufficient cause to construe the statute to provide for exclusively prospective relief, particularly in the absence of any clear congressional mandate to the contrary. ¹³Id. at 939.

The Second Circuit again noted the possibility that the Takings Clause applies to copyright in CCC Information Serv. v Maclean Hunter Mkt. Rep. ¹⁴44 F.3d 61 (2nd Cir. 1994). There, the creator of a database of used car valuations (CCC) sought a declaration that its copying and republishing of used car values from a competitor was not copyright infringement. It argued, in part, that since the competitor’s used car valuations were incorporated by reference into several state insurance regulations, the compilation of values had “passed into the public domain.” The Second Circuit disagreed, saying:

We are not prepared to hold that a state’s reference to a copyrighted work as a legal standard for valuation results in loss of the copyright. While there are indeed policy considerations that support CCC’s argument, they are opposed by countervailing considerations. For example, a rule that the adoption of such a reference by a state legislature or administrative body deprived the copyright owner of its property would raise very substantial problems under the Takings Clause of the Constitution. ¹⁵Id. at 74.

The Ninth Circuit relied in part on CCC Information to uphold the validity of a copyright in Practice Management Info. v American Medical Ass’n, quoting approvingly the Second Circuit’s Takings Clause discussion. ¹⁶1212 F.3d 516, 520 (9th Cir. 1997).

The Fifth Circuit has had occasion to weigh in on this issue of copyright and the Takings Clause. Like several of the cases already discussed, Chavez v Arte Publico Press concerned tensions between the Copyright Act and the Eleventh Amendment’s protection of state sovereign immunity. ¹⁷157 F.3d 282 (5th Cir. 1998). Here, an author alleged copyright infringement and breach of contract against the University of Houston, a state institution. During its discussion, the Circuit Court stated, “Copyrights are indeed a species of property, but the extent to which they are protectable against the states raises troubling issues.” Citing to the Supreme Court’s holding in Ruckelshaus that trade secrets are property protected by the Takings Clause, the court said, “By analogy, copyrights constitute intangible property that, for some purposes at least, receives constitutional protection.” The court ultimately held, however, that one of those purposes does not include copyright infringement by a State.

Finally, the Sixth Circuit also appears to have taken the view that copyrights may be subject to the Takings Clause. In a non-precedential opinion, it affirmed the dismissal of a copyright infringement claim against the National Science Foundation because the plaintiff had failed to register his work with the Copyright Office before bringing suit. ¹⁸Cawley v Sw’earer, 936 F.2d 572 (6th Cir. 1991). But not without expressing “some doubt as to the grounds for dismissal.” The source of this doubt stemmed from constitutional concerns; as the court noted, “the Copyright Act does not preempt the Fifth Amendment’s Takings Clause.”

In short, it’s reasonable to conclude that the Takings Clause would apply to copyrights — the opposite of what Bell claims. This is obviously but one point in the larger work of Copyright Unbalanced. I may look at other points raised in the book at a later date, but for now would suggest to anyone reading it to approach it with a skeptical eye.