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PETROLITE CORP. v. UNITED STATES EPA

UNITED STATES DISTRICT COURT, DISTRICT OF COLUMBIA


June 25, 1981

PETROLITE CORPORATION, Plaintiff,
v.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, et al., Defendants

The opinion of the court was delivered by: GREENE

MEMORANDUM

Plaintiff, a producer of specialty chemical products, challenges the constitutionality of the 1978 amendments to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. ยงยง 136-136y. FIFRA regulates the distribution and marketing of pesticides by requiring any prospective supplier to obtain a registration for its pesticide from the Environmental Protection Agency (EPA). To secure such a registration, the manufacturer must submit sufficient test data in support of its application to convince EPA that the chemical is both safe and efficacious. Specifically at issue in this action are two provisions of FIFRA governing the conduct of EPA with regard to data submitted in support of a registration application: section 136a(c)(1)(D), which provides that in certain circumstances EPA may consider data submitted by one applicant in support of a subsequent application by another applicant for registration of the same pesticide; and section 136h(d), which permits EPA to disclose publicly specified test data.

 Plaintiff seeks a preliminary injunction restraining EPA from disclosing or considering in other applications data plaintiff has submitted, on two *fn1" grounds: (1) that the statute effects an unconstitutional taking of private property either for a private purpose or, alternatively, without just compensation; and (2) that it violates the due process clause of the Fifth Amendment by virtue of both its procedural and its retroactive provisions.

 The government has responded with a motion for summary judgment, and, after extensive briefing and an oral hearing on the motions, the Court disposes of all issues in this Memorandum.

 I

 Prior to 1972, FIFRA was silent on the question of the use of submitted data to support the registration of other applicants' pesticides. *fn2" In that year, Congress amended the Act to convert it into a comprehensive regulatory statute governing the use of pesticides, and for the first time it legislated on both the use and the disclosure of data. *fn3" Section 10 of the 1972 Act allowed applicants to designate portions of submitted data they considered trade secrets (or confidential commercial or financial information), and it prohibited EPA from publicly disclosing any such information. The statute further provided that no trade secret data the public disclosure of which was prohibited by section 10 could be used in support of another registration application. *fn4" Curiously, the 1972 amendment did not specify any effective date, but that deficiency was remedied in 1975, when Congress amended the statute again to mandate that the 1972 use and disclosure provisions applied only to data submitted on or after January 1, 1970. *fn5"

 In 1978, Congress comprehensively revised the FIFRA disclosure and use provisions, *fn6" changing both the disclosure and use sections. The disclosure prohibition was narrowed from the 1972 provision (which had been interpreted by the courts to cover all "trade secrets," as that term is defined in the Restatement of Torts) to a ban on disclosure of three specific types of information: manufacturing processes, inert ingredients, and methods for testing for such ingredients. *fn7" Insofar as use is concerned, the amended statute divided data into three categories. The first classification, data submitted in support of pesticides registered after September 30, 1978, was granted a period of exclusive use for ten years from the date of the registration. The second group, data submitted after December 31, 1969, was provided a period of fifteen years of use only with compensation, either by negotiation or through mandatory, binding, and nonreviewable arbitration. The third category of data, for which the periods of exclusive use and compensation under the statute had expired, were made available for unlimited use.

 The rough net effect of this arrangement was to establish a middle ground between the pre-1972 unlimited use provision and the exclusive use stipulation, requiring permanent compensation, of the 1972 amendment. For all future registrations, the original data submitter would be entitled to ten years of exclusive use and five years of mandatory compensated licensing, to be followed by unlimited use in perpetuity. The 1978 scheme handled the transition problem by stipulating that data submitted between 1970 and 1978 would qualify for future compensation to the extent necessary to provide a total compensation period of fifteen years from registration. Data submitted before 1970, and hence previously unregulated by statute, but considered freely by agency practice (see note 2 supra), remained available for unlimited use without compensation. *fn8" Finally, the 1978 statute eliminated any exemptions from these use provisions for trade secret or proprietary data.

 Plaintiff's challenges to the 1978 amendments go to both the use and the disclosure provisions of the statute. It seeks to restrain EPA both from issuing registrations for chemicals to plaintiff's competitors based in part on data submitted by plaintiff to EPA and from the disclosing plaintiff's test data. Plaintiff has not stated expressly that the specific test data at issue span all three categories of the 1978 statute, *fn9" but from the thrust and scope of the legal arguments presented by the parties, it may be inferred that they do, and that therefore the constitutionality of the use and disclosure provisions of the statute are before the Court in their entirety. *fn10"

 II

 With regard to the provisions allowing the consideration of submitted data to support subsequent applications, plaintiff claims that the statute's treatment of each category of data constitutes a taking of private property either for a private purpose or, if for a public purpose, without just compensation, in violation of the Fifth Amendment.

 It is customary to begin an analysis of a takings issue by determining whether a bona fide property right exists, because in the absence of such an entitlement there can be no constitutional violation. In a recent case in which the identical use conditions of the 1978 statute at issue here were challenged, the Court of Appeals for the Third Circuit held that there is no property right to non-use by the government of data voluntarily submitted to it, and on that basis it dismissed the challenge to the statute without further inquiry. See Chevron, supra, 641 F.2d at 114-16; see also, Mobay Chemical Corp. v. Costle, 517 F.Supp. 254 at 267 (W.D.Pa.1981). Although the reasoning in Chevron may well be sound, in the view of this Court the existence vel non of a property interest is a difficult and close question that need not be addressed to resolve the pending motions. Instead, this Memorandum assumes arguendo that there is a valid property right at stake and proceeds to what the Court conceives to be the least troublesome legally of the three *fn11" major questions involved whether the use of submitted data by EPA constitutes a taking.

 III

 To resolve whether the statute works a taking of property, the three categories of data must be analyzed separately, not only because the statute treats them differently, but also because plaintiff's expectations concerning their treatment reasonably may have differed.

 Under recent Supreme Court doctrine, primary among the considerations to be applied to the determination of whether governmental action constitutes a taking are whether "the interference with property can be characterized as a physical invasion by government," and "the extent to which the regulation has interfered with distinct investment-backed expectations." Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124, 98 S. Ct. 2646, 2659, 57 L. Ed. 2d 631 (1978). None of the governmental actions challenged by plaintiff constitutes a "physical invasion," of course, and the question therefore arises whether the regulation has interfered with distinct investment-backed expectations.

 Data submitted in support of registrations after September 30, 1978, the effective date of the 1978 amendment, were granted ten years of exclusive use and five subsequent years of compensated use. Obviously, the use provisions for post-1978 data, being entirely prospective in nature, can hardly be said to have interfered to any significant extent with such expectations. The provisions are typical of many that apply to new areas of business regulation in which the government conditions the future right to conduct a particular line of business upon fulfillment of specified requirements. As the Court of Appeals for the Third Circuit stated in response to a recent constitutional challenge to provisions requiring the disclosure of proprietary data in the nuclear power industry, "A voluntary submission of information by an applicant seeking the economic advantages of a license can hardly be called a taking." Westinghouse Electric Corp. v. Nuclear Regulatory Commission, 555 F.2d 82, 95 (3d Cir. 1977). Plaintiff was free to refrain from submitting data after passage of the 1978 amendments, and its voluntary decision to continue to submit data and to attempt to secure registration after that date precludes it from claiming a government taking. *fn12"

 As concerns the retroactive use provisions of the 1978 law, *fn13" they did no more than to ratify prior practice (see p. 968 supra ). Plaintiff has adduced no evidence indicating that the development and submission of this data preceded in time the adoption of the agency practice of using the data in subsequent applications. In the absence of even a colorable allegation that plaintiff's reasonably "investment-backed expectations" were disrupted by Congress's statutory ratification of long-standing agency practice, its takings argument must be rejected.

 Finally, the 1978 amendments altered the treatment of data submitted between 1970 and 1978. Certainly, the statute retroactively decreased the protection accorded these data from perpetual compensation for use of any data and perpetual exclusive use of trade secret data to limited periods of exclusive and compensated use of all data (including trade secrets). On that basis, plaintiff can claim disappointment of its settled expectations, with at least some deleterious economic consequences. The question, then, is whether this is a case in which " "justice and fairness' require that economic injuries caused by public action be compensated by the government, rather than remain disproportionately concentrated on a few persons," *fn14" or whether it merely represents a manifestation of the type of situation characterized by the observation that "(government) hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law." *fn15"

 Among the factors which are appropriately considered in resolving this question, in addition to those noted above, are whether the government regulation amounted merely to "the denial of one traditional property right," out of "a full "bundle' of property rights," rather than to the destruction of all traditional rights; *fn16" whether there was merely a reduction in the most lucrative use of the property; *fn17" and whether the regulations have rendered the plaintiff "unable to derive economic benefit" from the property, or, alternatively, whether it was able to obtain a "reasonable return" on its property. *fn18" It is in light of these general standards that plaintiff's claim must be evaluated.

 First, not only is there no physical invasion of plaintiff's property, but there is not even any restraint on permitted uses that it may make of its property. To be sure, by liberalizing the use provisions the government has rendered one use of the data licensing it to competitors, either by voluntary agreement or by operation of statute more difficult or, in certain situations, impossible. But this interference amounts to a preclusion of merely one financial use among many, and for that reason it establishes nothing more than a diminution in the value of plaintiff's data.

 It is noteworthy in this connection that plaintiff has not attempted to argue that the 1978 provisions destroyed its ability to earn a reasonable return on its investment in hazard and efficiency data. *fn19" Considering the recent vintage of statutory restrictions on the use of data and plaintiff's longstanding involvement in this field, it appears uncontrovertible that plaintiff's primary "investment-backed expectations" concerned the use of data in support of its own applications, not those of others. Moreover, Congress did not, in enacting the 1978 statute, eliminate all protection for data submitted between 1970 and 1978. Instead, it replaced terms authorizing unlimited use of non-trade secret data with a provision allowing the use of all data with compensation for fifteen years. Thus, as in Penn Central, supra, 438 U.S. at 137, 98 S. Ct. at 2665, plaintiff has not even been wholly deprived of the one strand of its bundle of property interests affected. *fn20" The provision of valuable replacement rights in the instant case through a fifteen-year period of compensation, and in Penn Central through transferable development rights mitigates the financial burden of the government action and must be considered in assessing the extent of the government's interference with plaintiff's property.

 The interference with plaintiff's property is, considered as a whole, insignificant relative to those in which the Supreme Court has found no taking. *fn21" Thus, this governmental action, like others before it, must be chalked up to the costs individuals must bear to secure "the advantage of living and doing business in a civilized community." Pennsylvania Coal Co., supra, 260 U.S. at 422, 43 S. Ct. at 163 (Brandeis, J., dissenting).

 IV

 The second takings claim concerns the disclosure provisions. Here, too, examination of the constitutionality of the disclosure terms must be separated into the prospective and the retroactive aspects. Because the disclosure of data submitted to the government after the effective date of the statute authorizing the disclosure cannot conceivably be regarded as interfering with investment-backed expectations, plaintiff's challenge to the 1978 statute's narrowing of the privilege for post-1978 data cannot be sustained. The retroactive features of the amendment present a closer question, particularly because prior to 1972 the government had refrained from disclosing trade secret data submitted to it. Nevertheless, the Court concludes that the disclosure provisions do not constitute a taking even in their retroactive application.

 Plaintiff has not adequately refuted the natural assumption that it generated and submitted its data primarily for the development and registration of its products, without regard to potential subsequent disclosure. Moreover, it has made no showing that the disclosure of its hazard and efficacy data pursuant to statute destroys its ability to earn a reasonable return from its investment in this data. At most, it will suffer a loss in profits as a result of the disclosure, but under Allard, and in these circumstances, such a loss does not constitute a taking. *fn22" In this regard, it is significant, too, that the 1978 provisions did not eliminate all protection from disclosure of data, but merely narrowed the categories of privileged data with specific exemptions. Such an approach mitigates the retroactive impact of the statute and attenuates even further plaintiff's claim of a taking.

 Although none of the cases cited by the parties is directly on point, the mandatory labeling cases lend significant support to the government's position. *fn23" Corn Products Refining Co. v. Eddy, 249 U.S. 427, 39 S. Ct. 325, 63 L. Ed. 689 (1919), concerned a constitutional challenge to a state statute requiring the labeling of ingredients in table syrups. The Supreme Court stated (249 U.S. at 431, 39 S. Ct. at 327) that a "manufacturer or vendor has no constitutional right to sell goods without giving to the purchaser fair information of what it is that is being sold." This holding was broadened in National Fertilizer Association v. Bradley, 301 U.S. 178, 57 S. Ct. 748, 81 L. Ed. 990 (1937), which sustained the retroactive regulation of products manufactured before enactment of the regulating statute.

 Additionally, the government has catalogued numerous federal regulatory statutes which authorize or require the disclosure of trade secret data submitted to the government. See Memorandum in Support of Defendants' Motion for Summary Judgment at 46 n. 37. In enacting these provisions, which concern health, safety, and environmental protection, Congress has established specific mechanisms for balancing the interests of private firms in proprietary information and the public's interest in learning of the potential dangers and risks to which they may be subjected. Plaintiff's argument, if sustained, might preclude the enforcement of all of these statutes *fn24" because the trade-off legislated by Congress in each case does not furnish absolute immunity from disclosure of all trade secrets as defined by the Restatement of Torts. In the words of the Supreme Court, Allard, supra, 444 U.S. at 65, 100 S. Ct. at 326, "To require compensation in all such circumstances would effectively compel the government to regulate by purchase." *fn25"

  V

 Plaintiff's other claims can be disposed of more briefly. Plaintiff contends that application of the 1978 amendments would deprive it of property without due process of law. The due process argument has two facets: plaintiff contends that the provisions retroactively destroy vested property rights, and that the failure of the statute to provide adequate notice violates procedural due process. As to the former claim, the burden is on plaintiff to demonstrate that the statute operates irrationally. Williamson v. Lee Optical Co., 348 U.S. 483, 487-88, 75 S. Ct. 461, 464-65, 99 L. Ed. 563 (1955). Although statutes that operate retroactively must be examined with particular care to determine whether their retroactive features are themselves irrational or arbitrary, *fn26" the retroactive aspects of the 1978 amendments do not pose anything resembling a close question. The legislative history of the statute demonstrates that Congress thoughtfully and thoroughly considered the deficiencies in the pesticide registration program and legislated a careful scheme to provide the optimal accommodation, in its view, between competition and innovation in the industry. See, e. g., Memorandum in Support of Defendants' Motion for Summary Judgment at 35-38. The retroactive provisions are a rational means for effectuating Congress's intent that the registration program be made more efficient and speedy, that increased competition be provided in the industry, and that potential hazards be disclosed to the public. Having established the rational relationship between Congress's goals and the means it chose to implement them, the Court's investigation is at an end.

 Plaintiff's procedural due process claim fails as well. Once the Court has concluded that the 1978 statute does not effect a taking of private property without just compensation or an interference with vested property rights, plaintiff's claim that the government must accord it notice and a hearing before each disclosure or use of its data obviously cannot be sustained. *fn27"

 VI

 Plaintiff has failed to establish any of the elements comprising the standard for preliminary relief in this Circuit. The Court has concluded that the challenged statute does not effect a taking. Even if it were incorrect on this issue, plaintiff could prevail only if it were able to demonstrate that the taking was for a private purpose a claim that is patently frivolous or that the Tucker Act remedy had been withdrawn a position that is chancy. For these reasons, the Court concludes that plaintiff's likelihood of success on the merits are remote. Additionally, since damages would appear to be a satisfactory remedy, plaintiff has not begun to show irreparable injury; the balance of harms do not clearly go plaintiff's way; *fn28" and the public interest favors implementation of the congressional scheme embodied in the 1978 amendments.

 The government has moved for summary judgment. The material facts that, according to plaintiff, remain in dispute are either legal conclusions or are immaterial to the Court's determinations. The Court therefore concludes that there are no genuine issues of material fact, and that defendant is entitled to judgment as a matter of law.


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