Local “Fracking” Bans Face Constitutional Takings Challenges

sboxermanFeatured Expert Column – Environmental Law and Policy

by Samuel B. Boxerman, Sidley Austin LLP with Ben Tannen, Sidley Austin LLP

Recently, the citizens of Denton, Texas voted to ban hydraulic fracturing within the city limits, becoming the first municipality in the state to do so. One day later, the Texas Oil and Gas Association filed suit, arguing the ordinance was unconstitutional and preempted by state law. N1 In enacting a ban, Denton joined the list of municipalities that have adopted limits on hydraulic fracturing, N2 including a number of outright bans. N3 The bans reflect the ongoing battle between state and local interests over the value and risks of oil and gas development. The legality of local bans is being hotly disputed in the courts, with two common challenges being that the bans are preempted by state law or constitute an unconstitutional taking.

Preemption

Plaintiffs have challenged local bans as expressly preempted by or in direct conflict with a comprehensive state oil and gas statute—quite simply, the argument goes, municipalities and other local governments cannot prohibit what has already been expressly authorized by the state. Moreover, as a policy matter, allowing local governments to restrict or otherwise regulate oil and gas development would create a patchwork of regulation within a state—or even within a single county. To date, several courts have found preemption, but others have deferred to local land use authority. N4

Takings

Plaintiffs have also challenged local bans on constitutional grounds, N5 asserting a range of claims, including a Takings claim under the Fifth Amendment (and state analogs). N6 Although as of yet no courts have ruled on the issue, here are a few of the basics:

Of course a traditional “taking” occurs when the government actually causes a “permanent physical occupation” of an individual’s property. N7 A regulation, however, can be a taking when it affects or limits the use of private property to a sufficient degree. N8 According to the Supreme Court, a “regulatory” taking occurs if the regulation deprives the property holder of all economically beneficial use of their property, Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), or satisfies a three-part balancing test set out by the Court in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978). Continue reading

Copyright and Patent Holders Advance Separate Market-Based, Self-Help Initiatives

copyrightIntellectual property (IP) rights and innovation are inextricably intertwined. It’s not surprising, then, that in the spirit of innovation, some IP owners have taken proactive steps to advance and defend their own property rights. They understand that reliance on current or future government action is no panacea. In separate developments this past week, some of the world’s most successful copyright holders adopted a creative approach to bolster those rights, while leaders of three different patent “self-help” entities explained their unique strategies at a Washington Legal Foundation (WLF) briefing.

Copyrights and WhereToWatch. Pirated online file peddlers and their apologists routinely argue that they are meeting consumers’ unfulfilled demand for affordable access to digital music, movies, and TV shows. As we noted in a WLF Legal Pulse post last month, however, “Huge music libraries can be accessed for free or low cost at outlets such as Spotify, Pandora, Amazon Music, and iTunes. Online options for TV and movie content continue to multiply. Copyright-infringing consumers can no longer claim that they seek pirated content because it isn’t digitally available for a reasonable price.” A September 23, 2014 report by KPMG provides empirical supports that argument. It found, for instance, that 96% of the top 20 movies for the years 2000 to 2010 were available through legal online distributors. Also, 96% of television’s top 100 shows in 2012 were available. Continue reading

Profit, Not Ideology, Motivates Cyberlockers that Facilitate Copyright Infringement

copyrightwarningInformation wants to be free” is a standard rejoinder to criticism of online entertainment piracy. Such a sentiment may motivate some copyright thieves, but profit, not ideology, drives the proprietors of “cyberlockers” whose business is trafficking pirated entertainment content. A recent study by the Digital Citizens Alliance (DCA)—”Behind the Cyberlocker Door“— has laid bare that reality. These websites generate profit margins that lawful businesses can only dream of, and they do so on the backs of countless workers in the music, movie, and television industries.

DCA analyzed data from the 15 top direct download cyberlockers and 15 top streaming cyberlockers. It found that 78% of the files on the direct download sites, and 84% on the streaming sites, were infringing content such as music, movies, and TV shows. Total annual revenue for the 30 businesses was $96.2 million, which averages out to $3.2 million a site. The average profit ratio of the direct download sites was 63.4%, with one site enjoying 88.5%. For the streaming cyberlockers, the average ratio was 87.6%, with the highest coming in at 96.3%.

Much like people who run the illicit cyberlockers, some of those who unlawfully access and share copyright-protected content may claim to be advancing an extreme public commons ideology or “sticking it to Big Entertainment,” but the volume of such piracy reflects a baser motivation. Pirated content consumers’ catchphrase shouldn’t be “information wants to be free;” it should be  “we want free information.” Continue reading

Consumer Product “Plain Packaging” Boomerangs in Australia

boomerangIn publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang  . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”

Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.

First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.

Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.

Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.

Also available at WLF’s Forbes.com contributor page

With CLS Bank Int’l, SCOTUS to Decide if Computers are “Machines”

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

Earlier this year, the U.S. Court of Appeals for the Federal Circuit sat en banc to review software patents in CLS Bank Int’l v. Alice Corp. This was a decision that was supposed to clarify business method patents and software patents, the scope of 35 U.S.C. § 101, and what an “abstract idea” means in practice. Instead of clarity, however, the judges of the Federal Circuit issued seven different opinions (or reflections), with no consensus beyond the ultimate judgment, which was that the invention was patent ineligible. The split gave almost every judge an opportunity to provide his or her unique philosophical view on software patents. As the title of this commentator’s last post on CLS Bank reflected, Want Clarity on Software Patents?: Skip CLS Bank Int’l Opinion and Wait for Supreme Court Review. That wait is now over, as the Supreme Court agreed on December 6 to review the Federal Circuit’s “decision.”

Prior Supreme Court decisions in cases like Bilski v. Kappos and Mayo v. Prometheus provide clues as to how the Supreme Court might rule in this case. First, the Supreme Court is probably not going to create “a categorical rule denying patent protection for inventions in areas not contemplated by Congress,” such as software, business methods, or even diagnostic testing. Indeed, the Supreme Court in Bilski explicitly stated that a “business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting under § 101.” And the Court stated in Mayo that “too broad an interpretation” of exclusionary principals “could eviscerate patent law.” As a result, the Supreme Court will not even attempt to eliminate all types of method patents in one fell swoop.   Continue reading

Court Rulings Show Abusive Patent Litigators Can Be Beaten (But Is It Worth The Cost?)

Patent litigation in the U.S.?

Patent litigation in the U.S.?

Cross-posted at WLF’s Forbes.com contributor page

What causes a feeding frenzy?

In the undersea world, the smell or sound of wounded prey can attract one shark after another, fueling the carnivores’ aggression. On dry land, analogous signs of weakness inspire patent litigators, especially where software-related technology companies are the quarry.

End-users of technology and small companies with scant resources have become popular targets of “patent trolls,” as have larger companies that readily settle for nuisance value. Fighting back successfully—as some recent court rulings show it can be done—can fend off the circling shiver of sharks plaintiffs’ lawyers at least temporarily and perhaps permanently. But doing so is not for the faint of heart or shallow of pockets, a reality that policy makers must keep in mind as patent reform debates evolve.

“Settling Feeds Trolls.” Some companies have adopted the posture that consistently fighting back is the best shark repellant. Online software and hardware retailer Newegg has been admirably aggressive. It has even designed a t-shirt that reflects its patent litigation posture. Privately-held and represented in-house by well-spoken (and outspoken) chief legal officer Lee Cheng, Newegg has prevailed in court over patent trolls twice this year already.

tshirtPresented with a loss in the Eastern District of Texas to patent licensing company Soverain, Newegg didn’t join J.C. Penney, Victoria’s Secret, Zappos and others who settled. It instead appealed to the U.S. Court of Appeals for the Federal Circuit, which in May invalidated Soverain’s online “shopping cart” patent. Soverain then brought on highly-regarded, white-shoe appellate counsel and sought a rehearing. On September 4, the Federal Circuit sustained its holding. This January, the Federal Circuit unanimously, and without comment, affirmed Newegg and Overstock.com’s Eastern District of Texas trial court win over Alcatel-Lucent. That company had been asserting highly ambiguous patents acquired when Bell Labs went out of business. Zappos, Amazon, Sears, and other companies had previously paid over $10 million in licensing fees to Alcatel-Lucent on that patent. Continue reading

The Federal Circuit Should Rehear Novo Nordisk v. Caraco Ruling En Banc

federal circuitCross-posted at WLF’s Forbes.com contributor page

Last week, pharmaceutical products and services company Novo Nordisk petitioned the U.S. Court of Appeals for the Federal Circuit to rehear en banc a June 18 Federal Circuit panel ruling that invalidated a Novo patent (Novo Nordisk A/S v. Caraco Pharm. Labs; 2-1 with Judge Newman in dissent). Because the panel misapplied Patent Act § 103‘s standards for obviousness to Novo’s “combination drug,” the Federal Circuit should agree to rehear the case en banc and reverse the three-judge panel.

Background. In 1994, a Novo scientist conceived of an unorthodox way to improve a drug-based therapy for Type II diabetes. The scientist combined metformin, a compound that targets the liver’s sensitivity to insulin, with an insulin stimulator compound called repaglinide. The goal was to extend the amount of time that metformin worked in a patient’s body. The use of repaglinide was controversial for two reasons: 1) combinations of metformin and other insulin stimulators from a “genus” different from that of repaglinide (such as sulfonylurea) offered mixed results; and 2) research showed that repaglinide was eliminated from the body within one hour of use.

Hence, the synergy of the 1994 metformin-repaglinide combination was astonishing. The combination was eight times more effective than administering metformin alone. In other words, it led to an 800% increase in reducing diabetes patients’ fasting plasma glucose (FPG) over an eight-hour period. To this day, there is no scientific explanation for this synergistic effect. Continue reading