Philip Morris Inc. v. Reilly, 267 F.3d 45, 1st Cir. (2001)

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267 F.3d 45 (1st Cir. 2001)

PHILIP MORRIS, INC., R.J. REYNOLDS TOBACCO

COMPANY, BROWN & WILLIAMSON TOBACCO

CORPORATION, and LORILLARD TOBACCO COMPANY,

Plaintiffs, Appellees,v.

THOMAS F. REILLY, ATTORNEY GENERAL OF

MASSACHUSETTS,and HOWARD KOH,

MASSACHUSETTS COMMISSIONER OF PUBLIC

HEALTH, Defendants, Appellants.

UNITED STATES TOBACCO COMPANY, BROWN &

WILLIAMSON TOBACCO CORPORATION, CONWOODCOMPANY, L.P., NATIONAL TOBACCO COMPANY, L.P.,

THE PINKERTON TOBACCO COMPANY, and SWISHER

INTERNATIONAL, INC., Plaintiffs, Appellees,

v.

THOMAS F. REILLY, ATTORNEY GENERAL OF THE

COMMONWEALTH OF MASSACHUSETTS and HOWARD

K. KOH, MASSACHUSETTS COMMISSIONER OF PUBLIC

HEALTH, Defendants, Appellants.

No. 00-2425 & No. 00-2449

United States Court of Appeals For the First Circuit

Heard May 10, 2001

Decided October 16, 2001

1 APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF MASSACHUSETTS

2 [Hon. George A. O'Toole, Jr., U.S. District Judge][Copyrighted Material

Omitted]

3 William W. Porter, Assistant Attorney General, with whom Thomas A.

Barnico, Assistant Attorney General, and Thomas F. Reilly, Attorney General,

were on brief, for appellants.



4 Douglas N. Letter, Appellate Litigation Counsel, with whom Stuart E. Schiffer,

Deputy Assistant Attorney General, and Donald K. Stern, United States

Attorney, were on brief for the United States, amicus curiae.

5 John D. Echeverria on brief for Environmental Defense, Consumer Federation

of America, Calvert Group, Ltd., OMB Watch, Working Group on Community

Right to Know and Atlantic States Legal Foundation, amici curiae.

6 Bonnie I. Robin-Vergeer, David C. Vladeck, Public Citizen Litigation Group,

Matthew L. Myers, and National Center for Tobacco -Free Kids, on brief for

Public Citizen, Inc., National Center for Tobacco-Free Kids, American Cancer

Society, American College of Cardiology Massachusetts Chapter, American

College of Chest Physicians, American College of Physicians-American

Society of Internal Medicine, American Heart Association, American Lung

Association, American Medical Association, American Public HealthAssociation, American School Health Association, American Thoracic Society,

Massachusetts Medical Society, and The National Association of Local Boards

of Health, amici curiae.

7 Henry C. Dinger, with whom Henry C. Dinger, P.C., Cerise Lim-Epstein,

Goodwin, Procter LLP, Clausen Ely, Jr., Patricia A. Barald, Covington &

Burling, Richard M. Zielinski, Robert D. Ryan, and Hill & Barlow were on

brief, for Philip Morris Incorporated, and Lorillard Tobacco Company,

appellees.

8 John L. Oberdorfer, with whom Patton Boggs LLP, A. Hugh Scott, Choate,

Hall & Stewart, Peter J. McKenna, Eric S. Sarner, and Skadden, Arps, Slate,

Meagher & Flom LLP were on brief, for Brown & Williamson Tobacco Corp.,

Conwood Company, L.P., National Tobacco Company, L.P., The Pinkerton

Tobacco Company, Swisher International, Inc., and U.S. Smokeless Tobacco

Company, appellees.

9 John H. Henn, Foley, Hoag & Eliot, John B. Connarton, Jr., Marcia E. Harris,

and Connarton, Wood & Callahan on brief, for Brown & Williamson Tobacco

Corporation and R.J. Reynolds Tobacco Company, appellees.

10 Daniel J. Popeo, Richard A. Samp and Washington Legal Foundation, on brief

for Washington Legal Foundation, amicus curiae.

11Before Selya, Circuit Judge, Schwarzer,* Senior District Judge, and Saris,**

District Judge.



12 SCHWARZER, Senior District Judge.

13 We must decide the Constitutional validity of a Massachusetts statute requiring

tobacco companies marketing their products in the Commonwealth to disclose

for each brand the identity of each added ingredient in order of weight, measure

or count--information the companies treat as trade secrets. The district court

held the statute to violate the Fifth and Fourteenth Amendments by effecting anuncompensated taking, the Due Process Clause, and the Commerce Clause, and

entered a permanent injunction. We have jurisdiction over this appeal and

reverse.

I. FACTUAL BACKGROUND

14 Plaintiffs-appellees are manufacturers of cigarettes and smokeless tobacco (theManufacturers).1 Since the late 1970s, when consumers began demanding

lower tar and nicotine levels, the Manufacturers have increased the number of

additives, other than tobacco, in their products, ostensibly to offset the lost

flavor and taste. Today the Manufacturers report using approximately 700

additives, many of which are the focus of public health officials' concern. The

Manufacturers assert that these additives, besides improving taste, flavor and

aroma, serve as solvents, processing aids, and pH modifiers, and also fulfill

other chemical functions. Each brand contains a combination of ingredients that

substantially contributes to its distinctiveness and thus its competitive success.

As such a formula gives a manufacturer a competitive advantage over other

manufacturers who cannot, given the current state of technology, mimic it, the

Manufacturers have invested many millions of dollars in creating their

distinctive blends and take extensive precautions to protect the identity of the

ingredients from disclosure.

15 Federal law requires the Manufacturers to submit to the Department of Health

and Human Services (DHHS) an aggregate list of ingredients used in cigarettes

and smokeless tobacco, without identification of the relevant manufacturer or

brand or disclosure of quantities.2 Thus, although the lists compiled under the

federal statutes are voluminous, they do not identify the ingredients (or the

amounts) used in any particular brand nor do they enable public health experts

to research how these ingredients might impact health when combined in

particular amounts with others. See E.R. at 516 (Letter from David Satcher,

M.D., Ph.D., Director of Centers for Disease Control, to Congress ("Many of

the approximately 700 ingredients added to tobacco could be causes of diseases

or potential adverse health effects, if a sufficiently high dose is ingested. . . .

[W]e do not know what potentially harmful byproducts may be produced when

tobacco additives are burned alone or in combination, as they are in



cigarettes.")). In 1996, responding to what it perceived as this very problem, the

Massachusetts legislature enacted the Massachusetts Tobacco Ingredients and

Nicotine Yield Act (the Disclosure Act), the law at issue here. Mass. Gen.

Laws ch. 94, § 307B (2000).3

16 The Disclosure Act requires each manufacturer to provide the Massachusetts

Department of Public Health (DPH) with an annual report listing, for each brand, "the identity of any added constituent . . . in descending order according

to weight, measure, or numerical count."4 The Disclosure Act further provides

that both the brand's ingredient list and nicotine yield rating (the estimated

amount of nicotine an average consumer would ingest when using the product)

"shall" become a public record if two conditions are met. First, DPH must

determine that "there is a reasonable scientific basis for concluding that the

availability of such information could reduce risks to public health." See Mass.

Regs. Code tit. 105, §§ 660.200(A)-(C). Second, the Massachusetts AttorneyGeneral must advise DPH that the public release of the information would not

constitute an unconstitutional taking of property. Id. 105, §§ 660.200(D)-(E).

The regulations require DPH to give the manufacturer sixty days' written notice

of the information to be disclosed if the Attorney General decides that

disclosure would not be a taking. Id. § 660.200(E). The manufacturer may then

cease sales in Massachusetts or remove the product from the Massachusetts

market in order to reformulate it without the constituent(s) identified as

problematic by DPH. Id. § 660.200(F). Under a 1999 amendment to theregulations, all information provided to DPH is to remain confidential unless

and until: (1) the manufacturer notifies DPH in writing that it does not consider

the additive information it has submitted to be confidential; (2) sixty days has

elapsed since DPH notified the manufacturer of the information to be disclosed

and no complaint has been filed in a court of competent jurisdiction challenging

disclosure on the grounds that it would make public a trade secret; (3)

disclosure is authorized by a court of competent jurisdiction and the time for

appeal has elapsed; or (4) disclosure is authorized by agreement of the parties.Id. § 660.200(G).

17 The Disclosure Act will enable DPH to study additives and the potential

synergistic effects of certain ingredients in particular brands to determine

whether they present health risks. If the requirements for public disclosure are

met, DPH will be able to inform consumers whether a particular brand contains

ingredients it has determined to be associated with adverse health effects,

including enhanced nicotine delivery. In particular, it will be able to informconsumers whether the designation of several brands as "light" or "ultra light"

(based upon estimates of low tar and nicotine delivery under the Federal Trade

Commission (FTC) machine testing method) is misleading. See 61 Fed. Reg.



44,970-79, 974 (Aug. 28, 1996) (noting that the Food and Drug Administration

has found that "the actual nicotine delivery to the smoker from some brands

may be higher than the FTC yield because of the addition of ammonia or

similar compounds to increase free nicotine"); see also 61 Fed. Reg. 45,108-16

(Aug. 28, 1996) (detailing similar manipulation of nicotine delivery in

smokeless tobacco). Even in the absence of public disclosure, DPH's study of

additive safety could provide valuable information contributing to publichealth.

18 Texas has also enacted legislation requiring brand-specific reporting of

ingredients.5 See Tex. Health & Safety Code Ann. §§ 161.351-.355 (1999). The

Texas statute obligates the Manufacturers to report the same information

required by the Disclosure Act, but, like the federal statutes which require the

Secretary of DHHS to treat the submitted information as "trade secret or

confidential information," see 15 U.S.C. § 1335a(b)(2)(A); 15 U.S.C. § 4403(b)(2)(A), the Texas statute provides explicit protection for trade secrets. See Tex.

Health & Safety Code Ann. § 161.354(d) (1999). It is the absence of such

protection in the Disclosure Act, and the consequences that may ensue, that

impel the Manufacturers' challenge.

II. PROCEDURAL BACKGROUND

19 The Manufacturers initially filed this action in the fall of 1996. In separate suits

which were later consolidated, the cigarette and smokeless tobacco companies

claimed that the statute was preempted by federal law and that it ran afoul of

the Takings Clause, the Commerce Clause, and the Due Process Clause. On

February 7, 1997, the district court held that the Disclosure Act was not

preempted by either the Federal Cigarette Labeling and Advertising Act, 15

U.S.C. §§ 1331-41, or the Comprehensive Smokeless Tobacco Health

Education Act of 1986, 15 U.S.C. §§ 4401-08. After granting interlocutory

review, this court affirmed. Philip Morris, Inc. v. Harshbarger ("Philip MorrisI"), 122 F.3d 58 (1st Cir. 1997).

20 In September 1997, the Manufacturers moved for a preliminary injunction to

prevent enforcement of the Disclosure Act's ingredient-reporting requirements.

In December 1997, the district court, finding that they were likely to succeed on

the merits of their taking claim and that they faced irreparable harm, enjoined

the Commonwealth from enforcing these provisions. On interlocutory appeal,

we once again affirmed. Philip Morris, Inc. v. Harshbarger ("Philip Morris II"),

159 F.3d 670 (1st Cir. 1998).

21 In Februar 1 8 all arties filed summar ud ment motions and on



RIPENESS

, ,

September 7, 2000, the district court granted the Manufacturers' motions and

denied the Commonwealth's. Finding that the ingredient-reporting provisions

of the Disclosure Act would effect an uncompensated taking of the

Manufacturers' trade secrets in violation of the Fifth Amendment, would

impose an undue burden on interstate commerce in violation of the Commerce

Clause, and would deny the Manufacturers due process by depriving them of a

meaningful opportunity to argue against publication of their trade secrets prior to public release, the court permanently enjoined the Commonwealth from

enforcing those provisions of the Disclosure Act.6 The Commonwealth timely

filed this appeal, we have jurisdiction pursuant to 28 U.S.C. § 1291, and we

reverse.

III.

22 The Commonwealth first contends that this case is not ripe for review. Relying

on Williamson County Regional Planning Commission v. Hamilton Bank of

Johnson City, 473 U.S. 172 (1985), it argues that regulatory taking claims are

not ripe until the government agency charged with implementing the challenged

law has made a final decision about the application of the law to the property in

question. Because DPH has not determined whether or to what extent to

publicly release the ingredient lists, it argues, there has been no final decisionwith regard to disclosure of the Manufacturers' trade secrets and thus

preenforcement review is not warranted.

23 In ruling on ripeness, the district court focused on the statute. With regard to

the first condition to disclosure--that DPH determine that "there is a reasonable

scientific basis for concluding that the availability of such information could

reduce risks to public health"--the court found this threshold so low that an

affirmative answer was all but a foregone conclusion. With regard to the

second--that the Attorney General advise that disclosure would not constitute

an unconstitutional taking--the court found that, given the Attorney General's

position in this litigation, there was no question as to what his advice would be.

Thus, the court concluded, there was no need for further "ripening" of the

issues or factual development.

24 The point of the ripeness inquiry is primarily "to prevent the courts, through

avoidance of premature adjudication, from entangling themselves in abstract

disagreements." Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967). We apply

a two-part test to assess ripeness. See Stern v. United States District Court for



the District of Mass., 214 F.3d 4, 10 (1st Cir. 2000). First, we must determine

whether the issue presented is fit for judicial review--"an inquiry that 'typically

involves subsidiary queries concerning finality, definiteness, and the extent to

which resolution of the challenge depends on facts that may not yet be

sufficiently developed.'" Id. (quoting Ernst & Young v. Depositors Econ. Prot.

Corp., 45 F.3d 530, 535 (1st Cir. 1995)). Second, we must evaluate the extent

to which passing on the issue will impose hardship--"an inquiry that 'typicallyturns upon whether the challenged action creates a "direct and immediate"

dilemma for the parties.'" Id. (quoting W.R. Grace & Co. v. EPA, 959 F.2d 360,

364 (1st Cir. 1992) (citation omitted)).

25 As to the first prong, the Commonwealth argues that the district court erred in

treating disclosure as a foregone conclusion. We disagree. The Disclosure Act's

accompanying regulations define the terms "could reduce the risks to public

health" to mean "that knowledge about an added constituent could result inreduced risk of adverse health effects associated with tobacco use, including but

not limited to nicotine addiction and adverse health effects associated with

exposure to environmental tobacco smoke." Mass. Regs. Code tit. 105, §

660.003. We agree with the district court that, given this low threshold, it is

likely that at least with respect to some ingredients or combination of

ingredients, DPH would find that there is a reasonable scientific basis to

conclude that disclosure could reduce health risks, and hence that a

recommendation in favor of disclosure is a probability. As for the AttorneyGeneral's resolution of the taking issue, here, too, we agree with the district

court that, given his position in this litigation, it is predictable once the DPH

makes the requisite determination based on reasonable scientific evidence. See

Abbott Labs., 387 U.S. at 151-52.

26 The Commonwealth argues that because a 1999 amendment to the regulations

would require a stay of public disclosure if the Manufacturers filed a complaint,

see Mass. Regs. Code tit. 105, § 660.200(g)(2), disclosure is not inevitable.Whether this amendment will be effective has yet to be determined by the state

courts. However, the Disclosure Act itself states that ingredient information

"shall be" public records after DPH and the Attorney General have performed

their respective tasks, and as a public record, its production and disclosure

could be compelled, notwithstanding a claim to trade secret protection, by

anyone requesting it.7 Moreover, the Manufacturers' taking claim is not limited

to public disclosure by DPH. They contend that the required submission of

ingredient information itself impairs their trade secrets because DPH has failedto adopt adequate security procedures to protect the information's

confidentiality. Since their claim also turns on the submission without adequate

security procedures (i.e., satisfactory encryption technology and fingerprint



UNCONSTITUTIONAL TAKING

readers) and not simply on the public disclosure of ingredients, the sixty-day

stay provision, even if valid, is not wholly dispositive. See United States v.

Geophysical Corp. of Alaska, 732 F.2d 693, 698 (9th Cir. 1984).

27 The Commonwealth further argues that under the Disclosure Act, DPH may

release information about ingredients that are not trade secrets. Of course, as

the Manufacturers point out, DPH does not need the Disclosure Act to publishinformation in the public domain. The Manufacturers, moreover, dispute that

DPH could make such tailored disclosures without risk to trade secrets because

they claim each ingredient in any particular brand alone to be a trade secret. In

any event, even assuming that DPH could make ingredient disclosures that

contain no secrets, this is not a case like Williamson County because there is

"no question here about how the regulations at issue [apply] to the particular

[property] at issue." Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725,

739 (1997). Both sides moved for summary judgment and no claim is madethat further administrative proceedings are contemplated before the Disclosure

Act is applied to the Manufacturers. See Abbott Labs., 387 U.S. at 149.

Whether the required disclosures encompass trade secrets and whether they

constitute takings are questions of law ripe for adjudication. Knowing the exact

nature and character of the property that may become implicated or the exact

economic impact will not change the constitutional inquiry. No further factual

development is shown to be necessary, particularly considering that the

Manufacturers' claim rests not only on the ultimate disclosure by DPH but alsoon the adverse consequences of having to submit trade secret information to it

without security precautions.

28 This brings us to the second ripeness prong--the hardship faced by the

Manufacturers if decision is delayed. Delay would put the Manufacturers on the

"horns of a dilemma." Stern, 214 F.3d at 11. It would force the Manufacturers

to choose between abandoning the Massachusetts market altogether or

submitting trade secrets to DPH and risking their diminution or destruction. Weconclude that, given "the fitness of the issues for judicial decision and the

hardship to the parties of withholding court consideration," Abbott Labs., 387

U.S. at 149, the claims are ripe for review. See Suitum, 520 U.S. at 743-44

("'[W]here a regulation requires an immediate and significant change in the

plaintiffs' conduct of their affairs with serious penalties attached to

noncompliance,' hardship has been demonstrated.") (citation omitted).

IV.



29 The taking issue came before us in Philip Morris II in the context of the

Commonwealth's appeal from the entry of a preliminary injunction against

enforcement of the Act. In affirming the injunction, we held that the

Commonwealth's arguments did not "satisf[y] its weighty burden of

demonstrating the district court committed a clear error of law or an abuse of

discretion [in granting the preliminary injunction]." See Philip Morris II, 159

F.3d at 680. We made it clear that we did "not rule definitively on the point,"

that our statements were of a "probable outcome[]," and that we "cannot

entirely dismiss the Commonwealth's argument." Id.

30 We now have before us the appeal from the summary judgment in favor of the

Manufacturers, which we review de novo, Euromotion, Inc. v. BMW of N.

Am., Inc., 136 F.3d 866, 869 (1st Cir. 1998), and we consider the issue with the

benefit of additional briefing, argument, study and reflection.

31 In its summary judgment ruling, the district court held that by compelling

public disclosure of trade secrets, the Disclosure Act will deprive the

Manufacturers of their property interest in the trade secrets, resulting in a taking

for which the Constitution requires that just compensation be made. In doing

so, it relied on a line of cases addressing the validity of land use regulations,

beginning with Agins v. City of Tiburon, 447 U.S. 255 (1980), and on its

interpretation of the decision in Ruckelshaus v. Monsanto Co., 467 U.S. 986,which it held not to support the validity of the Disclosure Act. The district

court's analysis reflects the two prongs of takings jurisprudence: per se (or

categorical) takings and regulatory takings. Government action categorically

violates the Takings Clause if it results in the permanent physical occupation of

property or if it denies the owner all economically beneficial use of his

property. See Lucas v. S. C. Coastal Council, 505 U.S. 1003, 1015 (1992). In

these instances, known as per se takings, just compensation is required, no

matter how minor the invasion or how great the public purpose served by the

regulation. Id. In contrast, in noncategorical regulatory takings cases, courts

must engage in an ad hoc, factual inquiry to determine whether the government

regulation goes too far. Id.; see also Penn. Coal Co. v. Mahon, 260 U.S. 393,

415 (1922) ("The general rule at least is that while property may be regulated to

a certain extent, if regulation goes too far it will be recognized as a taking.").

A.

Per se Taking

32 The Commonwealth contends that taking cases addressing land use regulations



are inapposite. We agree. In Lucas, for example, the Court distinguished its

taking analysis of a land use regulation from that of the government's exercise

of its power to regulate, without compensation, the sale of goods in commerce.

The Court said:

33 It seems to us that the property owner necessarily expects the uses of his

property to be restricted, from time to time, by various measures newly enacted by the State in legitimate exercise of its police powers; "[a]s long recognized,

some values are enjoyed under an implied limitation and must yield to the

police power." And in the case of personal property, by reason of the State's

traditionally high degree of control over commercial dealings, he ought to be

aware of the possibility that new regulation might even render his property

economically worthless (at least if the property's only economically productive

use is sale or manufacture for sale). In the case of land, however we think the

notion pressed by the Council that title is somehow held subject to the "impliedlimitation" that the State may subsequently eliminate all economically valuable

use is inconsistent with the historical compact recorded in the Takings Clause

that has become part of our constitutional culture.

34 505 U.S. 1027-28 (citations omitted). See also Dolan v. City of Tigard, 512

U.S. 374, 396 (1994) ("Cities have long engaged in the commendable task of

land use planning, made necessary by increasing urbanization. . . . The city's

goals of reducing flooding hazards and traffic congestion, . . . are laudable, butthere are outer limits to how this may be done."); Nollan v. Cal. Coastal

Comm'n, 483 U.S. 825, 831-32 (1987) ("[W]here governmental action results in

'[a] permanent physical occupation' of the property, by the government itself or

by others, 'our cases uniformly have found a taking to the extent of the

occupation' . . . . We think a 'permanent physical occupation' has occurred, for

purposes of that rule, where individuals are given a permanent and continuous

right to pass to and fro, so that the real property may continuously be traversed

. . . .") (citation omitted).

35 The essential rationale of these cases is "to bar Government from forcing some

people alone to bear public burdens which, in all fairness and justice, should be

borne by the public as a whole." Nollan, 483 U.S. at 836 n.4 (quoting

Armstrong v. United States, 364 U.S. 40, 49 (1960)). See also Loretto v.

Teleprompter Manhattan CATV Corp., 458 U.S. 419, 433 (1982) (ordinance

requiring property owners to provide space for cable television connections a

taking). Because the Manufacturers are not asked to bear a burden that shouldinstead be borne by Massachusetts citizens, this rationale has no relevance to

the Disclosure Act.



36 The other type of categorical taking occurs where the government denies all

economically beneficial or productive use of the property. See Lucas, 505 U.S.

at 1015. While a complete seizure of personal property may amount to a

categorical taking, see, e.g., Armstrong, 364 U.S. at 46 (seizure of boats on

which plaintiff held mechanics lien a taking); Nixon v. United States, 978 F.2d

1269, 1284 (D.C. Cir. 1992) (seizure of former President's papers a taking), we

cannot conclude, under the reasoning of Lucas, that the regulation of personal

property which may be destructive of the value of trade secret information can

be regarded as such a taking. Rather, the Disclosure Act establishes a regulatory

scheme conditioning the ability to sell tobacco products in Massachusetts on

the reporting for potential public disclosure of trade secret information, deemed

by the legislature to serve the interest of public health. Thus, in our view, the

Disclosure Act does not result in a categorical taking. See Yee v. City of

Escondido, 503 U.S. 519, 527 (1992) (noting the distinction between

"regulatory taking cases" and cases of "physical takings"). Instead, we findinstructive the Supreme Court's frequent observation that "whether a particular

restriction will be rendered invalid by the government's failure to pay for any

[resulting] losses proximately caused by it depends largely 'upon the particular

circumstances [in that] case'"--that is, on "essentially ad hoc, factual inquiries."

Penn Cent. Trans. Co. v. City of New York, 438 U.S. 104, 124 (1978) (citation

omitted). We therefore turn to consideration of Monsanto, the controlling

authority on regulatory takings.

B.

Regulatory Takings

37 Monsanto involved a taking challenge to several provisions of the Federal

Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. §§ 136-136y

(2001), which, when first enacted in 1947, was primarily a labeling andregistration statute. Monsanto, 467 U.S. at 991. FIFRA required all pesticides

sold in interstate or foreign commerce for use within the United States to be

registered with the Secretary of Agriculture and appropriately labeled. Id. It

also empowered the Secretary to require applicants for registration to submit

testing data, including pesticide formulae and data on a pesticide's health,

safety, and environmental impact.8 Id. The first version of FIFRA, in effect

from 1947 to 1972, specifically prohibited public disclosure of any formula

information, but was silent as to disclosure of health and safety data submitted by manufacturers with applications for registration. Id. In 1972, due to

"mounting public concern about the safety of pesticides and their effect on the

environment," Congress amended FIFRA's statutory scheme to provide for



more comprehensive regulation. Id. It specifically prohibited the

Environmental Protection Agency (EPA) from publicly disclosing any health,

safety, and environmental data submitted by manufacturers which, both in its

judgment and the submitting manufacturer's, contained or related to "trade

secrets or commercial or financial information."9 Id. at 992. The third version,

adopted in 1978, "provide[d] for disclosure of all health, safety, and

environmental data . . ., notwithstanding the prohibition against disclosure of trade secrets" contained elsewhere in the statute. Id. at 995-96. The provision

did not authorize disclosure of information that would reveal "manufacturing or

quality control processes" or the identity or percentage quantity of deliberately

added inert ingredients unless the EPA "first determined that the disclosure is

necessary to protect against an unreasonable risk of injury to health or the

environment."10 Id. at 996. A separate subsection established a criminal penalty

for wrongful disclosure of confidential or trade secret information by a

government employee or contractor. Id. at 997.

38 Monsanto contended that the use or disclosure of any health, safety, and

environmental information containing trade secrets submitted during any of the

three periods constituted a regulatory taking. Id. at 998-99. The Court

acknowledged that to the extent that Monsanto had an interest in its health,

safety, and environmental data cognizable as a trade-secret property right under

state law, that property right was protected by the Takings Clause. Id. at 1003-

04. It identified three factors to be taken into account in determining whether government action has gone beyond regulation and effects a taking: the

character of the government action, its economic impact, and its interference

with reasonable investment-backed expectations. Id. at 1005.11 It found the

force of the last of the three factors "so overwhelming" as to be dispositive. Id.

The Court then analyzed each of the three periods of the statutory scheme to

determine whether Monsanto had a reasonable investment-backed expectation

during the operation of any of the three versions. We examine the Court's

analysis in detail because it is dispositive of our case.

39 Stating that a reasonable investment-backed expectation must be more than a

"unilateral expectation or an abstract need," id., the Court first held that with

respect to data submitted by Monsanto after 1978 (the third period):

40 Monsanto could not have had a reasonable, investment-backed expectation that

EPA would keep the data confidential beyond the limits prescribed in the

amended statute itself. Monsanto was on notice of the manner in which EPAwas authorized to use and disclose any data turned over to it by an applicant for

registration. . . . If Monsanto chose to submit the requisite data in order to

receive a registration, it can hardly argue that its reasonable investment-backed



expectations are disturbed when EPA acts to use or disclose the data in a

manner that was authorized by law at the time of the submission.

41 Id. at 1006-07. The Manufacturers argue that the determining factor in this

portion of the court's holding was not that the company had notice that its data

might be disclosed but that it received compensating benefits for permitting the

data to be used by the EPA. Their argument not only lacks textual support butalso flies in the face of the plain language of the Court's opinion. The

Manufacturers look for support in a footnote in the Nollan opinion which

contains a passing reference to Monsanto, stating that there "we found merely

that the Takings Clause was not violated by giving effect to the Government's

announcement that application for 'the right to [the] valuable Government

benefit' of obtaining registration of an insecticide would confer upon the

Government a license to use and disclose the trade secrets contained in the

application." Nollan, 483 U.S. at 833 n.2 (citation omitted). This passage issomewhat misleading because the words it quotes are not those of the

Monsanto Court but rather those of the appellee Monsanto. In its full context,

the Court's statement is as follows:

42 Monsanto argues that the statute's requirement that a submitter give up its

property interest in the data constitutes placing an unconstitutional condition on

the right to a valuable Government benefit. See Brief for Appellee 29. But

Monsanto has not challenged the ability of the Federal Government to regulatethe marketing and use of pesticides. Nor could Monsanto successfully make

such a challenge, for such restrictions are the burdens we all must bear in

exchange for "'the advantage of living and doing business in a civilized

community.'" This is particularly true in an area, such as pesticide sale and use,

that has long been the source of public concern and the subject of government

regulation. That Monsanto is willing to bear this burden in exchange for the

ability to market pesticides in this country is evidenced by the fact that it has

continued to expand its research and development and to submit data to EPAdespite the enactment of the 1978 amendments to FIFRA.12 Thus as long as

Monsanto is aware of the conditions under which the data are submitted, and

the conditions are rationally related to a legitimate Government interest, a

voluntary submission of data by an applicant in exchange for the economic

advantages of a registration can hardly be called a taking. See Corn Products

Refining Co. v. Eddy, 249 U.S. 427, 431-432, 63 L. Ed. 689, 39 S.Ct. 325

(1919) ("The right of a manufacturer to maintain secrecy as to his compounds

and processes must be held subject to the right of the State, in the exercise of its police power and in promotion of fair dealing, to require that the nature of the

product be fairly set forth").



43 Id. 1007-08 (some citations omitted).

44 It is difficult to imagine a more authoritative and compelling statement in

support of the validity of the Disclosure Act. The "benefit" Monsanto received

in exchange for the submission of data, "the ability to market pesticides in this

country," is no different from the benefit the Manufacturers receive for submission of their data, viz. the ability to market tobacco products in

Massachusetts.13 Under Monsanto, the Commonwealth's power to regulate the

marketing of tobacco products is beyond argument, particularly given that they

have "long been the source of public concern and the subject of government

regulation." Id. at 1007. Thus, the contention that the Commonwealth cannot

condition the "right to continue to sell a legal item of commerce [i.e., tobacco

products]" on disclosure of trade secret information will not wash.

45 The Court's citation of Corn Products Co. v. Eddy, 249 U.S. 427, a decision

whose age has not staled its authority, underlines the sweep of the Monsanto

holding.14 In that case, the Court upheld a Kansas criminal statute requiring

sellers and dealers of corn syrup to state on each can sold in the state the

percentage of each ingredient of which the syrup was composed. Plaintiff

argued that because its brand of syrup was made with a secret formula,

requiring disclosure on the label would constitute a taking of property without

due process of law. The Court rejected the argument, stating:

46 [I]t is too plain for argument that a manufacturer . . . has no constitutional right

to sell goods without giving to the purchaser fair information of what it is that

is being sold. The right of a manufacturer to maintain secrecy as to his

compounds and processes must be held subject to the right of the state, in the

exercise of its police power . . ., to require that the nature of the product be

fairly set forth.

47 Id. at 431;15 see also Andrus v. Allard, 444 U.S. 51, 65 (1979) (prohibition of

sale of eagle feathers not a taking because "government regulation--by

definition-- involves the adjustment of rights for the public good" and "[o]ften

this adjustment curtails some potential for the use or economic exploitation of

private property"); Nat'l Fertilizer Ass'n v. Bradley, 301 U.S. 178, 181 (1937)

(following Corn Prods., holding requirement to disclose fertilizer ingredients

claimed to be trade secrets not a taking); Westinghouse Elec. Corp. v. United

States Nuclear Regulatory Comm'n, 555 F.2d 82, 95 (3d Cir. 1977) ("Avoluntary submission of information by an applicant seeking the economic

advantages of a license can hardly be called a taking."); Petrolite Corp. v. EPA,

519 F. Supp. 966, 972-73 (D.D.C. 1981). Given the Commonwealth's



indisputably rational concern regarding the health effects of tobacco

additives,16 no less can be said with respect to the Manufacturers here.

48 We find further support for our conclusion in the Court's treatment of the pre-

1972 period, when FIFRA gave the EPA no authority to disclose data

submitted by Monsanto and the only prohibition against disclosure of trade

secrets was found in the general Trade Secrets Act, 18 U.S.C. § 1905.17 TheCourt held that "the Trade Secrets Act is not a guarantee of confidentiality to

submitters of data, and, absent an express promise, Monsanto had no

reasonable, investment-backed expectation that its information would remain

inviolate in the hands of EPA." Monsanto, 467 U.S. at 1008. Thus, in the case

of information submitted during the pre-1972 scheme, the Court also found no

taking. Certainly this conclusion cannot be rested on the receipt of any valuable

Government benefits, for the pre-1972 scheme offered Monsanto none in

exchange for submitting its information. And the generalized, nonspecific tradesecret protection under the Trade Secrets Act is indistinguishable from that

offered by Massachusetts law.18

49 In contrast, under the statutory scheme in effect in the 1972-78 period,

Monsanto had an opportunity to protect its trade secrets from disclosure by

designating them as trade secrets when submitted. The statute gave Monsanto

explicit assurance that the EPA was prohibited from disclosing publicly any

data submitted by an applicant if both the applicant and the EPA determinedthey were trade secrets. The Court held that

50 with respect to trade secrets submitted under the statutory regime in force

[during the 1972-78 period], the Federal Government had explicitly guaranteed

to Monsanto and other registration applicants an extensive measure of

confidentiality and exclusive use. This explicit governmental guarantee formed

the basis of a reasonable investment-backed expectation.

51 Id. at 1011.

52 Thus, the Court concluded that only the use or disclosure of data submitted by

Monsanto during the 1972-78 period, designated on submission as trade secrets

and used or disclosed in "conflict[] with the explicit assurance of confidentiality

or exclusive use contained in the statute," effected a taking; disclosure of data

submitted during the pre-1972 or post-1978 period did not. Id. at 1013. Thisanalysis leaves no room to argue that Massachusetts' general statutory and

common law protections of trade secrets create a reasonable, investment-backed

expectation. See, e.g., Jet Spray Cooler, Inc. v. Crampton, 282 N.E.2d 921, 925



COMMERCE CLAUSE

(Mass. 1972); Mass. Gen. Laws ch. 4 § 7, cl. 26(g) (exempting from protection

trade secrets submitted as required by law).19 Those protections do not

constitute "explicit assurance of confidentiality" binding on DPH with respect

to the submission of data. If they were sufficient, the Monsanto Court would

necessarily have found such an expectation with respect to the data submitted

prior to 1972.

53 In addition to this statutory exemption, the property interest in trade secrets, and

its dimensions, may be changed prospectively to address health and safety

concerns. See Gen. Chemical Corp. v. Dep't of Envtl. Quality Eng'g, 19 Mass.

App. Ct. 287, 291 (1985) ("We may assume that the legislature, in its

regulation of hazardous waste industries, might prospectively deprive industries

of a property right in the confidentiality of certain classes of records, even

though they contain matter previously regarded as trade secrets); see generally

restatement (third) of Unfair competition § 40, cmt. c (1995) (commenting thata privilege to disclose trade secrets is likely to be recognized for "information

that is relevant to public health or safety . . ."). Further, it is still an open

question of state law "what rights a submitter of information to a governmental

entity may have to restrain disclosure of exempt information by that entity." Id.

at 292-292 n.3 (quoting Globe Newspaper Co. v. Boston Ret. Bd., 388 Mass.

427, 442 n.24 (1983)).

54 Accordingly, we conclude that the Disclosure Act, requiring Manufacturerswho market tobacco products in Massachusetts to report for potential public

disclosure the constituents for each brand in order of weight, measure or

numerical count--information the Manufacturers treat as a trade secrets--is a

valid exercise of the police power 20 and, in the absence of explicit guarantees of

confidentiality from the Commonwealth, does not effect an unconstitutional

taking.21

V.

55 The district court found the Disclosure Act to offend the Dormant Commerce

Clause on two grounds. First, the court concluded, its practical effect would be

to alter relationships in the market for tobacco products outside Massachussetts

by depriving Manufacturers of the competitive advantage they would otherwise

have in other markets by reason of their trade secrets. See Healy v. The Beer Inst., 491 U.S. 324, 339 (1989). Second, by conditioning the right to sell

tobacco products on the surrender of valuable trade secrets, the Disclosure Act

imposes a burden on commerce that exceeds its putative local benefits. See



Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

A.

Extraterritorial Regulation

56 The Commerce Clause states: "The Congress shall have Power . . . To regulate

Commerce . . . among the several States. . . ." U.S. Const. Art. I, § 8 cl. 3. This

affirmative grant of authority to Congress also encompasses an implicit

"dormant" limitation on the authority of the states to enact legislation affecting

interstate commerce. See Healy, 491 U.S. at 326. At the same time, the

Supreme Court has long recognized that "in the absence of conflicting

legislation by Congress, there is a residuum of power in the state to make laws

governing matters of local concern which nevertheless in some measure affectinterstate commerce or even, to some extent, regulate it."22 So. Pac. Co. v.

Arizona, ex rel. Sullivan, 325 U.S. 761, 767 (1945). While that "residuum" is

particularly strong when a state acts in the interest of health and consumer

protection, a finding that it has acted to further these matters of legitimate

concern does not automatically end the inquiry. See Hunt v. Wash. State Apple

Adver. Comm'n, 432 U.S. 333, 350 (1977).

57 We have noted before that the prohibitions imposed upon state regulation bythe Dormant Commerce Clause fall into three general categories. See Pharm.

Research and Mfrs. of Am. v. Concannon, 249 F.3d 66, 79 (1st Cir. 2001).

First, a state statute which has an "extraterritorial reach," whether intended or

not, is a per se violation of the Clause. Id. Thus, when a state statute regulates

commerce occurring wholly outside the state's borders or when it has a practical

effect of requiring out-of-state conduct to be carried on according to in-state

terms, it will be invalid. Id. Second, if a statute discriminates against out-of-

state commerce, or when its effect is to favor in-state economic interests over

out-of-state interests, it will be held invalid unless the state can "show that it

advances a legitimate local purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives." Or. Waste Sys., Inc. v. Dep't of

Envtl. Quality of Or., 511 U.S. 93, 100-01 (1994) (alteration and internal

quotation marks omitted). Lastly, we apply a lower level of scrutiny when the

state statute does not discriminate but has incidental effects on interstate

commerce. Concannon, 249 F.3d at 80. "Where the statute regulates

evenhandedly to effectuate a legitimate local public interest, and its effects on

interstate commerce are only incidental, it will be upheld unless the burden

imposed on such commerce is clearly excessive in relation to the putative local

benefits." Pike, 397 U.S. at 142.



58 The Manufacturers first argue that to require public disclosure of commercially

important trade secrets negates the protection afforded by every other state. But

the cases principally relied on do not support a finding of extraterritorial

regulation. Those cases involved a particularized regulatory scheme--so-called

price affirmation--requiring out-of-state shippers to affirm that their posted in-

state prices for products are no higher than those in the bordering states. Healy,

491 U.S. at 325; see also Brown-Forman Distillers Corp. v. New York StateLiquor Auth., 476 U.S. 573 (1986); Baldwin v. G.A.F. Seelig, 294 U.S. 511,

519 (1935). In Healy, the Court struck down a Connecticut requirement that

out-of-state beer shippers affirm that their posted prices in Connecticut were no

higher than their lowest prices in any border state. 491 U.S. at 329. The Court

found the statute to have extraterritorial effect by "preventing brewers from

undertaking competitive pricing [out-of-state] based on prevailing market

conditions . . . [and] requir[ing] out-of-state shippers to forgo the

implementation of competitive-pricing schemes in out-of-state markets becausethose pricing decisions are imported by statute into the Connecticut market

regardless of local competitive conditions." Id. at 338-39.

59 We find Healy and the other cases on which the Manufacturers rely to be

inapposite. The reasoning underlying those decisions--all of which involved

price controls, price affirmation, or price tying schemes--is wholly inapplicable

to the Disclosure Act. A price control, affirmation or tying scheme restricts the

advantage of interstate sellers in local markets by extending a state's controlover prices across state lines, viz. to lower prices out-of-state, a shipper must

lower its prices in the regulating state as well. See Healy, 491 U.S. at 326;

Brown-Forman, 476 U.S. at 582; Baldwin, 294 U.S. 519; see also Concannon,

249 F.3d at 81. The Disclosure Act (aside from having nothing to do with

prices) does not purport to regulate across state lines, nor is it an attempt at

economic protectionism by the Commonwealth; its out-of-state effect is merely

incidental to an in-state (non-price) regulatory scheme and any resulting loss of

competitive advantage is unrelated to interstate commerce.

60 Decisions involving other interstate transactions also help to illumine the

principle of extraterritoriality and its inapplicability here. Thus, in Nat'l Solid

Wastes Mgmt. Ass'n v. Meyer, 63 F.3d 652 (7th Cir. 1995), the Seventh Circuit

Court of Appeals struck down a Wisconsin statute conditioning the use of

Wisconsin landfills by non-Wisconsin waste generators on their home

communities' adoption and enforcement of Wisconsin recycling standards,

finding that "the Wisconsin statute seeks to force Wisconsin's judgment withrespect to solid waste recycling on communities in its sister states 'at the pain of

an absolute ban on the flow of interstate commerce.'" Id. at 660 (quoting

Baldwin, 294 U.S. at 524). See also Fort Gratiot Sanitary Landfill, Inc. v. Mich.



Dep't of Natural Res., 504 U.S. 353 (1992) (striking down waste import

restriction); compare Cotto Waxo Co. v. Williams, 46 F.3d 790, 794 (8th Cir.

1995) (upholding statute prohibiting import into Minnesota of petroleum-based

sweeping compounds, the court stated, "Clearly, the Act has affected Cotto

Waxo's participation in interstate commerce. Nevertheless, the Act itself is

indifferent to sales occurring out-of-state."). The Disclosure Act does not

require that out-of-state commerce in tobacco products be conducted accordingto in-state terms. It imposes no mandates or restrictions on other states. It

simply requires that the Manufacturers, should they chose to do business in

Massachusetts, provide additional ingredient information to the

Commonwealth's health authorities. This may eventually impact the profits of

some Manufacturers, but "[s]imply because the manufacturers' profits might be

negatively affected by the [statute], however, does not necessarily mean that the

[statute] is regulating those profits." Concannon, 249 F.3d at 82.

61 The Manufacturers' reliance on BMW of North America v. Gore, 517 U.S. 559

(1996), is also misplaced. Gore was a due process clause case, not a commerce

clause case. It involved an Alabama punitive damage award against a national

car distributor, BMW, whose policy of not informing dealers of minor pre-

delivery damage was challenged by an Alabama customer. In the Supreme

Court, Gore argued that the large punitive damage award was necessary to

induce BMW to change a nationwide disclosure policy that, even if found

unlawful in Alabama, was lawful in a number of states. The Court held thatwhile Alabama could inflict penalties on those who transgress its laws, in the

interest of protecting its consumers, it does not have the power to punish BMW

for conduct that was lawful where it occurred and had no impact on Alabama

or its residents. Id. at 572. Thus, Alabama could "not impose economic

sanctions on violators of its laws with the intent of changing the tortfeasors'

lawful conduct in other States." Id. at 572 (emphasis added).

62 The Disclosure Act bears no resemblance to the judgment imposed in Gore.First, the Commonwealth can hardly be deemed to be instituting "economic

penalties" along the lines of those described in BMW. See S.D. Meyers, Inc. v.

City and County of San Francisco, 253 F.3d 461, 2001 WL 664233 *8 (9th Cir.

(Cal.)). The Disclosure Act, by providing for disclosure, may economically

harm the Manufacturers, but it does not impose a "legislatively authorized fine."

BMW, 517 U.S. at 571. Second, even if we accept the Manufacturers'

proposition, nothing in the record indicates, nor do the Manufacturers seriously

contend, that the Commonwealth intends to affect national tobacco policy.Rather, it aims to protect its own consumers and, presumably, through future

savings in medical expenses should the education effort reduce tobacco use, its

economy. BMW, 517 U.S. at 571. This surely does not offend the principles of



comity and state sovereignty referred to in BMW. Moreover, even if the due

process analysis were relevant in this context, we find Osborn v. Ozlin, 310

U.S. 53 (1940), more to the point:

63But the question is not whether what Virginia has done will restrict appellants'

freedom of action outside Virginia by subjecting the exercise of such freedom

to financial burdens. The mere fact that state action may have repercussions beyond state lines is of no judicial significance so long as the action is not

within that domain which the Constitution forbids.

64 Id. at 62.

B.

Excessive Burden

65 The district court also held the Disclosure Act to fail the Pike balancing test.

397 U.S. at 142. The court held the burden imposed by the Disclosure Act to be

excessive, finding that there was "good reason to think" that much, if not all, of

the intended benefit of the Disclosure Act--promoting public health by

increasing the information available to consumers about ingredients in tobacco

products--could be achieved by disclosure requirements, such as the aggregateingredient list compiled under the federal statutes, which are tailored to avoid

the loss of trade secrets.23

Under Pike:

66 Where the statute regulates evenhandedly to effectuate a legitimate local public

interest, and its effects on interstate commerce are only incidental, it will be

upheld unless the burden imposed on such commerce is clearly excessive in

relation to the putative local benefits. If a legitimate local purpose is found,

then the question becomes one of degree. And the extent of the burden that will

be tolerated will of course depend on the nature of the local interest involved,

and on whether it could be promoted as well with a lesser impact on interstate

activities.

67 Id. Here, the Disclosure Act regulates evenhandedly to effectuate a legitimate

local public interest--to protect the health and safety of the Commonwealth's

citizens by investigating and possibly disclosing the additives in the products

they use--and its effects on interstate commerce are only incidental. Thus, the



question is one of degree: whether the burden it imposes compared to the

putative local benefits is clearly excessive.

68 As we said in Concannon, "[a]rguably, the only burden imposed on interstate

commerce by the . . . Act is its possible effects on the profits of the individual

manufacturers." 249 F.3d at 84. This is not sufficient to rise to a Commerce

Clause burden because the Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations. Id. (citing

Instructional Sys., Inc., v. Computer Curriculum Corp., 35 F.3d 813, 827 (3d

Cir. 1994) and Exxon Corp. v. Governor of Md., 437 U.S. 117, 127-28 (1978));

cf. Minn. v. Clover Leaf Creamery, 449 U.S. 456, 474 (1981) ("A non-

discriminatory regulation serving substantial state purposes is not invalid

simply because it causes some business to shift from a predominantly out-of-

state industry to a predominantly in-state industry."); Corn Prods., 249 U.S. at

431 ("[I]t is too plain for argument that a manufacturer . . . has no constitutionalright to sell goods without giving to the purchaser fair information of what it is

that is being sold"); Savage v. Jones, 225 U.S. 501, 539 (1912) ("The state has

determined that it is necessary in order to secure proper protection . . . that

purchasers of the described feeding stuffs should be suitably informed of what

they are buying and has made reasonable provision for disclosure of ingredients

by certificate and label, and for inspection and analysis."); Mfrs. Ass'n of Tri-

County v. Knepper, 623 F. Supp., 1066, 1069 (M.D. Pa. 1985) (upholding

Pennsylvania law requiring manufacturers and suppliers of chemicals to bear the burden of required disclosure of hazardous chemicals employed in the

workplace, even though the right to withhold identity of a certain chemical as a

trade secret is curtailed), aff'd in part and rev'd on other grounds, 801 F.2d 130,

134 (3d Cir. 1986).

69 Turning then to the question of local benefits, we think-given the low level of

scrutiny applicable, see Concannon, 249 F.3d at 83-that there is substantial

reason to expect that public disclosure of potentially harmful ingredients intobacco products will benefit the Massachusetts public.24 The Supreme Court

has only recently reiterated that "tobacco use, particularly among children and

adolescents, poses perhaps the single most significant threat to public health in

the United States." Lorillard Tobacco Co. v. Reilly, 121 S.Ct. 2404, 2430

(2001) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,

161 (2000)); see also Fort Gratiot Sanitary Landfill, 504 U.S. at 366 n.6 ("For

Commerce Clause purposes, we have long recognized a difference between

economic protectionism, on the one hand, and health and safety regulation, onthe other."). Moreover, smokers are highly responsive to information about

health risks. See Nat'l Paint & Coatings Ass'n v. City of Chicago, 45 F.3d 1124,

1128 (7th Cir. 1995) (citing W. Kip Viscusi, Smoking: Making the Risky



CONCLUSION

Notes:

Decision (1992)).

70 It is quite true, as the district court said, that "loss of trade secrets is not central

to the achievement of the purpose of the statute," but informing consumers of

the potentially harmful ingredients to which they would be exposed by smoking

a particular brand of cigarettes surely is. Thus, the aggregate reporting required

by the federal schemes, lumping together some 700 ingredients withoutindication which are found in which brand, would certainly not achieve "the

hoped-for benefit" of the statute.25 This is so even though, as the court

explained, "consumers already have the ability to compare brands on the basis

of the most notoriously harmful aspects of every brand, such as nicotine and

tar." The aim of the Disclosure Act is educating Massachusetts consumers and

helping them to choose less harmful brands, taking into account not only

advertised nicotine and tar ratings but also the synergistic effects of various

additives, such as those enhancing the delivery of "free" nicotine to theconsumer (thus making deceptive the "light" and "ultra light" labels on many

brands). Without brand-specific ingredient lists, researchers do not know which

combinations to test and are left to guess which additives might co-exist in

certain formulas on the market; like the Manufacturers' competitors, they

cannot reverse engineer a formula and thus any health research they conduct is

difficult and at best inexact.26 Brand-specific information in order of magnitude

would enable DPH to use its resources most efficiently by targeting the most

popular brands, focusing on those ingredients present in the highest quantity toserve the Act's purpose of providing information to consumers about the health

risks of particular brands.

71 In short, disclosure under the Disclosure Act will put consumers in a better

position to know if their brand contains harmful additives, and to assess the

health risks involved. Because we find that no less burdensome alternative has

been shown to effect the Commonwealth's goal "as well," Pike, 397 U.S. at

142, we hold that the Disclosure Act does not violate the Dormant CommerceClause. See Kassel v. Consol. Freightways Corp., 450 U.S. 662, 679 (1981)

(Brennan, J., concurring) (stating that courts should refrain from attempting to

"second-guess the empirical judgments of lawmakers concerning the utility of

legislation").

72 The judgment of the district court is reversed.



Of the Northern District of California, sitting by designation.

Of the District of Massachusetts, sitting by designation.

The cigarette companies are Philip Morris, Inc., R.J. Reynolds Tobacco Co.,

Lorillard Tobacco Co., and Brown & Williamson Tobacco Corp. Thesmokeless tobacco companies are U.S. Smokeless Tobacco Co. (formerly

United States Tobacco Co.), Conwood Co., L.P., National Tobacco Co., L.P.,

the Pinkerton Tobacco Co., Swisher International, Inc., and also Brown &

Williamson Tobacco Corp., which, according to the smokeless tobacco

companies' brief, ceased manufacturing and selling smokeless tobacco products

in September 2000, and has sought the Commonwealth's agreement to a

stipulation permitting it to withdraw from the smokeless tobacco companies'

case.

The Federal Cigarette Labeling and Advertising Act, 15 U.S.C. §§ 1331-41

(2001), requires manufacturers to provide to the Secretary of DHHS a list of the

ingredients added to tobacco in the manufacture of cigarettes, without

identification of the company using it or the brand containing it. Information

provided by the manufacturers is to be treated as trade secrets pursuant to the

Trade Secrets Act, 18 U.S.C. § 1905 (2001), but may not be withheld from any

committee or subcommittee of Congress. See 15 U.S.C. §§ 1335a(a), (b)(2)(A)

& (B). The Comprehensive Smokeless Tobacco Health Education Act, 15U.S.C. §§ 4401-08 (2001), contains similar reporting requirements and

confidentiality protections applicable to smokeless tobacco products. See id. §§

4403(a), (b)(2)(A) & (B).

The Disclosure Act states:

For the purpose of protecting the public health, any manufacturer of cigarettes,

snuff or chewing tobacco sold in the commonwealth shall provide thedepartment of public health with an annual report, in a form and at a time

specified by that department, which lists for each brand of such product sold

the following information:

(a) The identity of any added constituent other than tobacco, water or

reconstituted tobacco sheet made wholly from tobacco, to be listed in

descending order according to weight, measure, or numerical count; and

(b) The nicotine yield ratings, which shall accurately predict nicotine intake for average consumers, based on standards to be established by the department of

public health.

*

**

1

2

3



The nicotine yield ratings so provided, and any other such information in the

annual reports with respect to which the department determines that there is a

reasonable scientific basis for concluding that the availability of such

information could reduce risks to public health, shall be public records;

provided, however, that before any public disclosure of such information the

department shall request the advice of the attorney general whether such

disclosure would constitute an unconstitutional taking of property, and shall notdisclose such information unless and until the attorney general advises that such

disclosure would not constitute an unconstitutional taking.

Mass. Gen. Laws ch. 94, § 307B. The Department of Public Health has adopted

implementing regulations. See Mass. Regs. Code tit. 105,§ 660.000 (2001).

The reporting form requires the Manufacturers to list, by brand and sub brand,

added constituents in descending order according to weight, measure or

numerical count, but not their quantities. See Mass. Regs. Code tit. 105, §

660.400. The regulation defines "added constituent" as "any ingredient,

substance, chemical or compound other than tobacco, water or reconstituted

tobacco sheet, which is added by the manufacturer to the tobacco, paper or

filter of a cigarette or the tobacco of a smokeless tobacco product during the

processing, manufacture, or packing." Id. § 660.003.

Minnesota has also done so, but to a lesser extent. The Minnesota statute

requires manufacturers to annually report the use of any of several targetedadditives in their products. Minn. Stat. § 461.17 (2000). We know of no other

state which requires any brand-specific reporting. However, the European

Community has recently adopted Directive 2001/**/EC of the European

Parliament and of the Council requiring member states to require manufacturers

and importers of tobacco products to submit a list of all ingredients, and

quantities thereof, used in the manufacture of those products by brand name and

type and to make the lists public. Council Directive 01/**/EC, art. 6.

The district court did not consider whether equitable relief is available to enjoin

the alleged taking of private property for public use when a suit for

compensation can be brought against the sovereign subsequent to the taking.

See Ruckelshaus v. Monsanto, 467 U.S. 986, 1016 (1984). In view of our

disposition of this case, we need not reach this question.

It is not clear whether a person requesting ingredient information under the

Public Records Act, Mass. Gen. Laws ch. 66, § 10 (a)(2000),could avoid the60-day hiatus and judicial review process described in the amended regulation.

Cf. Mass. Gen. Laws ch. 4, § 7, cl. 26(g) (2000) (defining "public records" to

exclude "trade secrets or commercial or financial information voluntarily

4

5

6

7



provided to an agency for use in developing governmental policy and upon a

promise of confidentiality; but this subclause shall not apply to information

submitted as required by law or as a condition of receiving a governmental

contract or other benefit.")(emphasis added). This question should be resolved

in the first instance by the state courts.

Monsanto and other pesticide manufacturers, like the Manufacturers here,invested millions of dollars in the research and development of potential

commercial pesticides. The district court found that development of a

potentially commercial pesticide candidate typically required the expenditure of

$5 to $15 million annually for several years, that the development process may

take between 14 and 22 years, and that Monsanto had incurred costs in excess

of $23.6 million to develop the data it submitted under FIFRA. Id. at 998.

Because of the value to competitors of ingredient and manufacturing

information, as well as health and safety data, the manufacturers used stringentsecurity measures to ensure secrecy. Id.

The 1972 amendments also allowed for information sharing: the EPA could

use data submitted by one applicant in its consideration of another applicant's

request for registration of a similar chemical, provided that some compensation

was supplied. This provision applied to data designated as trade secret only if

the initial applicant consented to such use. Id. at 992-93.

The post-1978 regime also modified the information sharing provisions. Whileapplicants who submitted health, safety, or environmental information to the

EPA after 1978 received a ten-year period of exclusive use for any data that

related to new active ingredients, any data submitted after 1969 (but before

1978) would be made available for consideration with later applications for

fifteen years after the original submission date, provided that the later applicant

agreed to compensate the original applicant. Id. at 994.

Significantly, the Court did not apply the per se taking analysis our dissentingcolleague advocates and it made no reference to the "Loretto [v Teleprompter

Manhattan CATV Corp., 458 U.S. 419 (1982)] branch of the per se takings

doctrine", which appears central to his analysis. (Diss. 50-51)

In a footnote at this point, the Court states: "Because the market for Monsanto's

pesticide products is an international one, Monsanto could decide to forgo

registration in the United States and sell a pesticide only in foreign markets.

Presumably it will do so in those situations where it deems the data to be protected from disclosure more valuable than the right to sell in the United

States." Monsanto, 467 U.S. at 1007 n.11.

Our dissenting colleague argues that "[i]n the period after 1978 ... the EPA

8

9

10

11

12

13



provided compensation to pesticide manufacturers." Diss. 53-54, see also 54

("the EPA fully compensated the pesticide manufacturers for the taking.") That

"compensation" consisted of a statutory proviso barring EPA for ten years from

considering data submitted by a registrant under the 1978 Act in support of

another registrant's application without the written permission of the original

submitter. In addition, data submitted by a registrant after 1969 could for a

fifteen year period be considered by EPA in support of another registrant'sapplication only if the latter had made an offer to compensate the original

submitter. Monsanto, 467 U.S. at 994-95. In substance, then, the statute

provided that certain trade secret information submitted to the EPA could not

be used by competitors in seeking EPA registration for ten years and that other

information could not be used for that purpose for fifteen years unless

agreement was reached on compensation by the competitor. Such legislation

the effect of which is to permit the owner of a trade secret to retain some

portion of its value by placing limits on its use by competitors "d[id] not offer the Manufacturers anything more than what they already ha[d]" and could

hardly be considered due compensation under the Takings Clause. Diss. 54.

Our dissenting colleague argues that the authority of Corn Products has

withered over the years, otherwise "the EPA would not have been forced to

compensate Monsanto for divulging trade secrets in the second period (1972-

1978)." Diss. 54. In fact, Congress in the 1972 amendment simply allowed

EPA to consider data submitted by one applicant for registration in support of

another application provided the subsequent applicant offered to compensate

the applicant who originally submitted the data, a "mandatory data-licensing

scheme." Monsanto, 467 U.S. at 992.

The opinion does not suggest that the state is free to use its police power to

force a manufacturer to list ingredients on the label only so long as the state has

compensated the manufacturer for the forced disclosure of any trade secrets.

See Diss. 54-55.

See supra pp. 48-50. While food ingredients are approved as safe for use by the

FDA and detailed on the labels of food products in order of predominance, see

21 U.S.C. §§ 342, 343, 348; 21 C.F.R. §§ 170.20-170.38, and drug products are

subject to rigorous pre-market approval and must disclose on the label each

active ingredient, see 21 U.S.C. §§ 352(e)(1), 355, additives to tobacco

products are not subject to pre-market approval, safety testing or disclosure by

product brand.

The Trade Secrets Act prohibits a government employee from disclosing

confidential information received in an official capacity. See 18 U.S.C. § 1905.

14

15

16

17



See supra n.7. "The Court's tacit analysis seems to be this: an expectation of

confidentiality can be grounded only on a statutory nondisclosure provision

situated in close physical proximity, in the pages of the United States Code, to

the provisions pursuant to which information is submitted to the Government."

Id. at 1023 (O'Connor, J., concurring and dissenting).

Unlike the ingredient information in the present case, the proprietary hazardouswaste information in General Chemical Corp. was submitted pursuant to a

specific statutory scheme that ensured the nondisclosure of trade secrets. See

mass. gen. laws ch. 21C, § 12.

The Disclosure Act "comfortably falls within the "health and safety' realm of

traditional police powers." Philip Morris I, 122 F.3d at 67.

Inasmuch as we find that the Manufacturers have no cognizable property right

in their brand-specific ingredient information in the face of state health andsafety regulatory authority, we have no occasion to address the Manufacturers'

due process arguments.

We have previously held that the Disclosure Act is not preempted by the

federal tobacco statutes. Philip Morris I, 122 F.3d at 61.

See supra pp. 48-49.

The smokeless tobacco producers argue that they should be treated differently

from their fellow appellees because all of the additives for smokeless tobacco

products are either Generally Recognized as Safe ("GRAS") or approved for

use in food by the FDA, except for denatured alcohol, which is approved for

use in tobacco products by the Bureau of Alcohol, Tobacco and Firearms, see

27 C.F.R. § 20.114 (2000). Unlike the additives in cigarettes and cigars,

smokeless tobacco additives are not burned in a manner that creates additional

dangerous byproducts. From this, the smokeless tobacco producers argue that

the Commonwealth has a lesser interest in requiring the public disclosure of

their ingredient lists. We disagree. Although the approved additives may be

comparatively harmless when consumed alone and in unburned form, the DPH

could conclude under the applicable standard that their use in smokeless

tobacco products presents a public health concern. See, e.g., 61 Fed. Reg.

45.108-16 (analyzing manner in which smokeless tobacco additives have been

utilized to manipulate the delivery of nicotine into the bloodstream). Thus, the

Commonwealth has a significant interest in "further[ing] the accumulation of

knowledge about the health risks of smokeless tobacco use, particularly the

possible hazards of substances added to tobacco to enhance flavor and for other

purposes." Philip Morris I, 121 F.3d at 66 n.17 (quoting S.Rep.No. 99-209 at 14

(1986), reprinted in 1986 u.s.c.c.a.n.7, 13).

18

19

20

21

22

23

24



The Manufacturers also point to the Texas Statute as a less burdensome

alternative. But, as noted above, see supra pp. 50-51, that statute provides

specific protection against disclosure for trade secret information and thus

cannot effectively provide for the education of Massachusetts consumers.

See supra pp.45-48.

25

26

73 SELYA, Circuit Judge (concurring in part and dissenting in part).

74 This is a difficult case, made more so by the danger that smoking presents to

public health. My colleagues have grappled with it, and I share their view on

two of the questions before us. First, the issues are ripe for determination.

Second, the Act does not offend the Commerce Clause (in my judgment, it

would be strange to hold that the Act unduly burdened commerce in trade

secrets when there is no evidence that the trade secrets in dispute here are, or have been, traded or sold in commerce).

75 The majority's resolution of the Takings Clause is another matter. In holding

that the Commonwealth may use its police power to defeat the Manufacturers'

takings claim, the majority sacrifices bedrock principles of individual property

rights in order to uphold a creative, but at best marginally effective, response to

a public health problem. Whatever one's personal feelings about smoking and

the manufacturers of cigarettes and other tobacco products -- and I am no greatfan of either -- the Constitution compels a state to compensate these

manufacturers whenever it unabashedly takes their property for public use. In

turning a deaf ear to this constitutional compulsion, I fear that they have fallen

into an ancient trap. See East India Co. v. Paul, 13 Eng. Rep. 811, 821 (P.C.

1849) (Campbell, L.J.) (admonishing that "it is the duty of all Courts of Justice

to take care, for the general good of the community, that hard cases do not

make bad law"). Because the majority's holding allows states to ransack the

trade secrets of virtually any business without providing even minimalrecompense, I respectfully dissent.

I.

76 Before proceeding to address the takings issue, I think it is useful to narrow my

differences with my colleagues. We agree that information provided to DPH

under the Act inevitably will be disclosed to the public, and that such

information will include valuable trade secrets, susceptible to destruction if so

exposed. With this in mind, I believe that this court's prior opinion in Philip

Morris, Inc. v. Harshbarger, 159 F.3d 670 (1st Cir. 1998) (Philip Morris II),



provides the correct interpretation and application of the Takings Clause vis-a-

vis the Manufacturers' trade secrets. As that opinion explains, the Supreme

Court's multifaceted decision in Monsanto requires that the government provide

a benefit of real value to a private party whenever the government divulges that

party's trade secrets (and, thus, takes its property). See id. at 676.

77 Rather than repastinating this well-ploughed ground, I think that my time (andthe reader's) is better spent elaborating upon what I perceive to be the three

major errors in the majority's analysis of this issue: (1) the failure to

acknowledge the full extent of the Manufacturers' property interest in their trade

secrets; (2) the restriction of the per se takings doctrine to real property

interests; and (3) the conclusion, under the regulatory takings doctrine, that the

Act comports with the teachings of Monsanto.

A.

78 In my view, the majority starts off on the wrong foot: my colleagues do not

properly distinguish the Manufacturers' property interest in their trade secrets

from the Manufacturers' property interest in their tobacco products.

Massachusetts law long has protected trade secrets as property. See Jet Spray

Cooler, Inc. v. Crampton, 385 N.E.2d 1349, 1354-55 & n.8 (Mass. 1979)

(detailing the extensive historical case law and statutory protections of trade

secrets in Massachusetts). Such a trade secret -- one that has achieved the status

of a property interest under state law -- is, in and of itself, property for the

purposes of the Takings Clause. See Monsanto, 467 U.S. at 1003-04. Hence,

the Takings Clause should apply to such trade secrets independent of the

holders' property rights in the products that embody them.

79 That seems fairly straightforward. It seems equally straightforward that the

extent of the holder's interest in a trade secret typically is defined by the extent

to which the holder protects that interest from disclosure to others. Id. at 1002.

These verities, coupled with the majority's concession that the Act may well

result in revealing the Manufacturers' trade secrets to the public, ante at 53-54,

point unerringly to the conclusion that the Commonwealth, by making such

revelations, will drain all economic value from the Manufacturers' property

interest.

80 It is most curious, then, that the majority writes around this rather blatantdeprivation of a recognized property interest, treating the Manufacturers'

interest in their trade secrets as a sort of quasi-interest, protected only to the

extent that tobacco products are protected. To this end, the majority



characterizes the Act as "a regulatory scheme conditioning the ability to sell

tobacco products in Massachusetts on the reporting for potential public

disclosure of trade secret information, deemed by the legislature to serve the

interest of public health," ante at 56, and declares that "the Manufacturers have

no cognizable property right in their brand-specific ingredient information in

the face of state health and safety regulatory authority," id. at 32 n.21. Under

the majority's interpretation, the property interest in a trade secret lasts onlyuntil the state determines that it will regulate the product in which the trade

secret is incorporated.

81 I cannot accede to this resupinate reasoning. Property interests are fashioned,

and their contours etched, by state law. See Bd. of Regents v. Roth, 408 U.S.

564, 577 (1972). Under Massachusetts law, companies have interests in their

trade secrets quite apart from their interests in the products to which those

secrets relate, see Jet Spray, 385 Mass. at 166 n.8, and federal courts areobliged to follow this line of authority in determining whether the destruction

of trade secrets constitutes a taking. Consequently, we must analyze a state's

enforced disclosure of a trade secret without regard to the product in which that

trade secret is embodied. When my colleagues note that the Manufacturers are

regulated in other areas of their business and then treat that fact as dispositive of

the takings claim, they act entirely without support in the reported cases and, in

the bargain, violate a fundamental postulate of Takings Clause jurisprudence:

that "a sovereign, by ipse dixit, may not transform private property into public property without compensation." Monsanto, 467 U.S. at 1012 (citation and

internal punctuation omitted). And this extraordinary attempt to carve out a

judge-made exception for cases in which a trade secret relates to a regulated

product is bad policy as well as bad law: given that virtually every sector of life

is subject to government regulation, the majority's holding would permit a state

to violate the trade secrets of nearly every legitimate business without

providing compensation so long as the state is acting under its police power.

82 Aligning the analytic framework in what I believe to be the proper fashion has

important consequences. To the extent that a property interest in a trade secret

is independent from the holder's property interest in its tobacco products, the

Act is patently an expropriation of the former interest and requires

compensation under the Takings Clause. See Lane v. Commonwealth, 517

N.E.2d 1281, 1283 (Mass. 1988) ("The idea that agents of the government

could properly seize and use property of a citizen without legislative or

common law authority and without compensation is unacceptable. The likelyunconstitutionality of such an uncompensated act is obvious.").

B.



83 The majority's next error lies in its modest view of per se takings jurisprudence.

Under the per se takings doctrine, as I understand it, government action is

"compensable without case-specific inquiry into the public interest advanced in

support of the restraint." Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015

(1992). The doctrine applies whenever the government either effects a

"permanent physical occupation" of a property, Loretto v. Teleprompter

Manhattan CATV Corp., 458 U.S. 419, 441 102 S.Ct. 3164 (1982), or establishes a rule (as, say, by enacting a law or promulgating a regulation) that

deprives the property of all economically viable use, Lucas, 505 U.S. at 1027.

Because the majority now holds -- mistakenly, in my view -- that the per se

takings doctrine does not apply to the confiscation of the Manufacturers' trade

secrets, ante at 56-57, I discuss the matter here.1

84 In holding that the Act does not effect a per se taking, the majority rejects the

Loretto branch of the per se takings doctrine, declaring that this case does not fitwithin the supposedly essential rationale of physical invasion cases: that an

individual should not bear a public burden alone when that burden should be

borne by the public as a whole. Ante at 56. My colleagues then reject the Lucas

branch of the doctrine by repeating their original mistake: they see the

deprivation of the Manufacturers' trade secrets as part of a larger picture

involving the regulation of tobacco. Consistent with this approach, my

colleagues read Lucas narrowly and limit per se takings under that doctrinal

branch to claims involving land use regulations in contradistinction to claimsarising out of "the government's exercise of its power to regulate, without

compensation, the sale of goods in commerce." Ante at 55-56.

85 I take the position opposite to the majority. Even though state law defines the

boundaries of property, "a State may not sidestep the Takings Clause by

disavowing traditional property interests long recognized under state law."

Phillips v. Wash. Legal Found., 524 U.S. 156, 167 (1998). Here, then, we must

analyze the per se takings doctrine in light of the long-recognized propertyinterest imbued in trade secrets under Massachusetts law. That analysis

indicates to me that the public disclosure of the Manufacturers' trade secrets

likely constitutes a per se taking under both the Loretto and Lucas strands of the

doctrine. On the one hand, the government has taken the valuable property of a

business (i.e., its trade secrets) and converted that property to public use, much

like an enforced permanent easement that works a physical occupation of a tract

of land. See Nollan v. Cal. Coastal Comm'n, 483 U.S. 825, 831 (1987). On the

other hand, the Act may be seen as a means of exhibiting the Manufacturers'trade secrets to the public at large and draining them of their inherent value, in

the same way that an overly intrusive land use regulation may deprive a parcel

of real property of all economically viable use. I discuss each of these scenarios



in turn.

86 1. Permanent occupation. In Loretto, the Court made clear the distinctions

between a permanent occupation, a transient invasion, and a regulation that

restricts the use of property. 458 U.S. at 430. It first distinguished a permanent

occupation from a temporary one on the ground that, in the former case, no

balancing test was needed; rather, the occupation, in and of itself, triggered theright to compensation. Id. at 432. The Court then distinguished a permanent

occupation from a regulation restricting property use on the ground that, in the

former situation, "the government does not simply take a single 'strand' from

the 'bundle' of property rights: it chops through the bundle, taking a slice of

every strand." Id. at 435. Critical to this last analysis is the right to exclude

others from the property, "traditionally . . . considered one of the most treasured

strands in an owner's bundle of property rights." Id.

87 The public disclosure of a closely held trade secret is much like a permanent

occupation. The disclosure is irreversible and the information thereafter is

shared by all. Even though the Loretto Court routinely placed the adjective

"physical" next to the term "occupation," there is no logical rationale as to why

such an occupation must be corporeal. Given that the relevant definition of

property is found in an independent source of law -- in this case, the

Massachusetts law of property -- a nonphysical occupation of nonphysical

property should demand compensation just as much as a physical occupation of physical property. The property owner's right to exclude others -- the critical

aspect of most property rights, and of crucial importance here -- has dissolved

just as completely in the one case as in the other.

88 Although the case law on this point admittedly is sparse, I find Nixon v. United

States, 978 F.2d 1269 (D.C. Cir. 1992), instructive. There, the court of appeals

held that the government's taking of presidential papers constituted a per se

taking. Id. at 1284-87. In so holding, the court rejected the argument that the per se takings doctrine applied only to the physical occupation of real property:

89 [T]he Government's inference that the per se doctrine must be limited to real

property is without basis in the law, and we see no reason to give it one. One

may be just as permanently and completely dispossessed of personal property

as of real property. Any distinction along these lines would be purely artificial.

90 Id. at 1285. The court then proceeded to find a taking, stressing President

Nixon's loss of his "paramount property right" -- the right to exclude others

from his papers. See id. at 1286-87.



91 The same rationale applies here. Even if the Act does not grant the

Commonwealth exclusive control of the confiscated information, it nonetheless

deprives the Manufacturers of the right to exclude others. Much like the

landowner who is compelled to grant an unwanted easement, the Manufacturers

still will have access to their hard-won property, but will be forced to share that

property with the public (including their competitors). As such, the Act effects

a permanent occupation and the Manufacturers must be compensated.

92 2. Destruction of all economically viable use. Since the intrinsic value of a

trade secret mounts in direct proportion to the extent that it is secret, the Act

also works a per se taking by displaying trade secrets to the public at large and

thus depriving the Manufacturers of the entire economic value of their property.

Under the applicable precedents, the Commonwealth "may resist compensation

only if the logically antecedent inquiry into the nature of the owner's estate

shows that the proscribed use interests were not part of [what he owned]."Lucas, 505 U.S. at 1027. Given that the states have a traditionally high degree

of control over commercial dealings, a state may regulate the sale of personal

property even though its only economically productive use is its sale and the

regulation makes the property worthless. Id. at 1027-28. A good example of

this phenomenon is the right to regulate the sale of narcotics or particular types

of weapons. Apart from restrictions on sale, however, the justification for other

limitations that deprive the property of all economic value must be found within

the parameters of the property interest or within the background principles of the state's property law. See id. at 1029-30.

93 I believe that in limiting Lucas and its progeny to land use cases, the majority

has adopted an overly literal view. While Lucas, Dolan, and Nollan all involved

land use regulations, there is no reason to think that their teachings pertain only

to real property.2 As said, state law defines property interests for purposes of

the Takings Clause. Webb's Fabulous Pharms., Inc. v. Beckwith, 449 U.S. 155,

161 (1980). Thus, since Massachusetts defines a trade secret as property,common sense suggests that Lucas should apply. Indeed, the Lucas Court's

avowed deference to background principles of state property law in determining

whether the state has effected a total taking makes this conclusion nearly

irresistible. Whether one looks at a taking of land or a taking of some other

form of property, the critical question -- leaving aside the sale of personal

property -- is whether the challenged regulation prohibits a productive use that

previously was permissible under relevant principles of state property law. See

Lucas, 505 U.S. at 1029-30. As such, Lucas speaks to the character of thegovernmental action, not the character of the affected property.

94 Under the Lucas branch of the per se takings doctrine, the Act fails. The



Manufacturers own the trade secrets. Their property interest in the embodied

data is irretrievably lost once the secrets are disclosed to others. See Monsanto,

467 U.S. at 1011. That being so, the background principles of Massachusetts

property law compel the conclusion that the government cannot destroy all

economically valuable uses of the Manufacturers' trade secrets without

providing compensation. After all, Massachusetts law traditionally has

protected such secrets from invasion by outside parties, and there is nohistorical precedent for making an exception here. See Lane, 517 N.E.2d at

1282-83. Thus, if we are to pass on whether the Act effects a per se taking

under the Lucas branch of the doctrine, we must answer in the affirmative.

C.

95 I turn now to the majority's third major mistake. In Philip Morris II, we stated

that "the Commonwealth's unilateral announcement that the privilege of continuing to do business in Massachusetts henceforth will entail the yielding of

a tobacco company's trade secrets cannot, in itself, establish a benefit sufficient

to support a voluntary exchange within the Monsanto paradigm." 159 F.3d at

677. The majority now backtracks on this pronouncement, offering three

reasons for doing so. In my judgment, none of these reasons warrant such

resipiscence.

96 First, the majority cites language from Monsanto purportedly establishing that

the right to sell tobacco products within Massachusetts is a "benefit." Ante at

59-60. Placing this argument into perspective requires an understanding of the

tripartite structure of the Monsanto opinion. In the period before 1972,

Monsanto and other pesticide manufacturers submitted trade secrets to federal

authorities without any expectation that they would be kept secret. When the

Environmental Protection Agency (EPA) revealed this data, there was no

taking. Monsanto, 467 U.S. at 1013. In the period between 1972 and 1978, the

EPA gave explicit assurances that it would not disclose the submitted tradesecrets. Failure to keep this pledge, the Court held, would result in an

unconstitutional taking unless the affected manufacturers were adequately

compensated for the loss in market value engendered by the EPA's disclosure.

Id. at 1013-14. In the period after 1978, the EPA in fact compensated the

pesticide manufacturers for disclosure of their trade secrets, and the Court held

that this arrangement did not effect an unconstitutional taking because the

compensation was just. Id. at 1007-08.

97 The majority, in a somewhat misleading fashion, quotes language applicable to

the third Monsanto period and deems it dispositive: "as long as Monsanto is

aware of the conditions under which the data are submitted, and the conditions



are rationally related to a legitimate Government interest, a voluntary

submission of data by an applicant in exchange for the economic advantages of

a registration can hardly be called a taking." Ante at 59 (quoting Monsanto, 467

U.S. at 1007). Starting from this premise, the majority concludes that the

"benefit" which Monsanto received in exchange for the submission of data --

the ability to market pesticides in this country -- is no different from the

"benefit" that the Manufacturers receive under the Act, namely, "the ability tomarket tobacco products in Massachusetts." Ante at 59.

98 This is a quantum leap, unjustified either in law or in logic. I think that we had

it right the first time, when we stated that:

99 [T]he 1972-78 period presents the closest, most persuasive analogy to the

situation created by Section 307B. The FIFRA scheme then in effect provided

specific protections for trade secret information -- and the Court determinedthat pesticide registrants might reasonably rely on these protections. The

statutory and common law protections for trade secret information in place in

the Commonwealth create a very similar prophylaxis and thus form the basis

for a reasonable expectation of continued confidentiality.

100 Philip Morris II, 159 F.3d at 678 (citation omitted). In the period after 1978, by

contrast, the EPA provided compensation to pesticide manufacturers in the

form of exclusive use rights to the data for ten years and compensation from

later applicants for the next five years. Though the benefit was limited in scope

and duration, Monsanto at least received something over and above the status

quo: exclusive use rights and enforced compensation from competitors may not

seem like much in the abstract, but they were more than what the pesticide

manufacturers had before 1978.3

101 The majority attempts to draw a parallel here, visualizing the Commonwealth

as conferring a benefit on the Manufacturers when it allows them to continue

selling tobacco products in Massachusetts. This creates a false dichotomy. As

we have said, the privilege of continuing to conduct one's business "simply is

not analogous, either in kind or in degree, to the benefit that effected the

exchange and extinguished the takings claim in Monsanto." Philip Morris II,

159 F.3d at 677. Because the Act does not offer the Manufacturers anything

more than what they already have, it does not afford due compensation for a

taking of valuable property rights. Id. at 678. We would not permit a valuable

parcel of land to be taken at a zero valuation simply because the sovereign

promised to let the owner use it in common with the general public. It follows

inexorably that we should not permit the sovereign to take trade secrets at a

zero valuation, publicly disclose them, and pay no compensation.



102 The second pillar on which the majority's Monsanto analysis rests is the

holding in Corn Products Refining Company v. Eddy, 249 U.S. 427, 431-32

(1919), that a property right in a trade secret is subject to the state's police

power.4 Ante at 60-61. The majority touts Corn Products as "a decision whose

age has not staled its authority," and proclaims that it "underlines the sweep of

the Monsanto holding." Ante at 60.

103 I beg to differ. If Corn Products has not completely staled, there is at least some

mildew around the edges. In the eighty-two years since the publication of that

opinion, Takings Clause and trade secret jurisprudence has developed in ways

not foreseen by the Corn Products Court. As part of this progression, Monsanto

substantially limited the breadth of Corn Products, citing it only in the context

of the third period (i.e., after the EPA fully compensated the pesticide

manufacturers for the taking). Monsanto, 467 U.S. at 1007-08. Had Corn

Products been able to carry the weight attributed to it by the majority, then theEPA would not have been forced to compensate Monsanto for divulging trade

secrets in the second period (1972-1978). To my mind, the portion of Corn

Products cited in Monsanto and by the majority here -- one paragraph in all --

now stands only for the proposition that the state is free to use its police power

to force a manufacturer to list product ingredients on the label so long as the

state has compensated the manufacturer for the forced disclosure of any trade

secrets. There is no such compensation here and, accordingly, Corn Products is

inapposite.5

104 Finally, the majority analogizes the Act to the pre-1972 regulatory scheme in

Monsanto, presuming that the "nonspecific trade secret protection under the

[federal] Trade Secrets Act is indistinguishable from that offered by

Massachusetts law." Ante at 60-61. The majority reasons that because the Act

does not provide assurances to the Manufacturers that the trade secrets will be

protected, the Commonwealth does not have to compensate them.6 Ante at 61-

62. Accordingly, the Act "is a valid exercise of the police power and, in theabsence of explicit guarantees of confidentiality from the Commonwealth, does

not effect an unconstitutional taking." Id.

105 This rationale is alarming. As I understand the majority, any time the state

chooses to deprive a corporation of a trade secret without compensation, its

safest course, constitutionally speaking, will be to do so without offering the

slightest assurance that the trade secret will remain confidential. This view of

the law is wholly unsupported by Monsanto: in the period before 1972, the pesticide manufacturers were on notice that their trade secrets would not be

kept confidential because the EPA engaged in the widespread practice of using

data submitted by one pesticide manufacturer in evaluating the application of a



subsequent applicant.7 Monsanto, 467 U.S. at 1009-10 & n.14. Thus, this

portion of the Monsanto opinion stands for the proposition that a party does not

have a reasonable expectation that a trade secret will remain in the bosom of the

lodge when the government has been disclosing the information all along. That

is not the situation here.

106 The majority's reasoning on this point has a second fault: it presumes that courtsmeasure the reasonable investment-backed expectation of an aggrieved party at

the time the state promulgates a regulation that effects a taking. True to this

presumption, the majority analyzes the reasonable investment-backed

expectation here only after the Act has been passed, and accordingly, finds that

there is no such expectation. I believe, however, that we should follow the

Second Circuit's lead and hold that "the critical time for considering

investment-backed expectations is the time a property is acquired, not the time

the challenged regulation is enacted." Meriden Trust & Safe Deposit Co. v.FDIC, 62 F.3d 449, 454 (2d Cir. 1995). One sound reason for adhering to this

view is that the majority's contrary interpretation robs the concept of

"reasonable investment-backed expectation" of any meaning; if a reasonable

investment-backed expectation only commences when the challenged

regulation comes into play, then such expectations are always subject to the

whims of the state. If this prong of the regulatory taking inquiry is to have any

import, the court must examine the reasonable investment-backed expectations

at the time that the investment is backed.

107 Pulling these threads together, I think it is perspicuous that the Act dashes the

Manufacturers reasonable investment-backed expectations. Much like the

pesticide manufacturers in Monsanto during the 1972-1978 period, the

Manufacturers invested millions of dollars in developing ingredient

combinations whilst relying on the trade secret protections embedded in

Massachusetts law. Nothing in the Commonwealth's practice or in its

jurisprudence gave them reason to suspect that the Commonwealth would later demand the revelation of the fruits of their labor for the public good.

108 The short of it is that the Manufacturers have gone to great lengths to keep their

secrets and have done so without any reason to expect governmental

interference, much less government-enforced dissemination of that confidential

information. Yet the Commonwealth is on the brink of taking those secrets,

without offering in return anything above what the Manufacturers already have.

I would find this to be a regulatory taking.8

II.



Notes:

The Monsanto Court did not address whether the taking of a trade secret could

constitute a per se taking. We avoided that question in Philip Morris II, 159

F.3d at 674 n.4, finding the Manufacturers' challenge to the Act likely to

succeed under the regulatory takings doctrine. I continue to believe that Philip

Morris II stayed the proper course, but the majority's conclusory statement of

views on the per se takings doctrine cannot be left unanswered.

To be sure, Lucas makes a brief distinction between personal property and

landed interests, but the distinction is between the restrictions on commercial

sale of personal property and the restrictions on commercial sale of land. See

Lucas, 505 U.S. at 1027-28.

Significant to this analysis, the Supreme Court found that these benefices were

enough to compensate Monsanto because Monsanto had continued submitting

trade secrets after 1978. Monsanto, 467 U.S. at 1007. In other words, by silentlycapitulating to the exchange, Monsanto lost the right later to claim that the

government had not provided proper compensation. Here, however, the

Manufacturers have fought the Commonwealth's proffered exchange tooth and

nail, without the slightest sign of acquiescence.

In Corn Products, the Court permitted Kansas to breach trade secrets,

vouchsafing that "[t]he right of a manufacturer to maintain secrecy as to his

compounds and processes must be held subject to the right of the State, in the

exercise of its police power and in the promotion of fair dealing, to require that

the nature of the product be fairly set forth." 249 U.S. at 431-32.

Despite the fact that the jurisprudence of the Takings Clause evolved rather

109 I do not dispute that tobacco products are hazardous to health, or that the

Commonwealth may regulate tobacco products, or that the Commonwealth

may legislate with respect to the trade secrets of the Manufacturers, or even that

the Commonwealth has the power under the Constitution to seize the trade

secrets and then disclose them to the public at large in exact detail. Should it

choose this course, however, the Commonwealth must accord the

Manufacturers' property interests the same respect that it would show to the property interests of any other legitimate person, firm, or corporation. To that

end, the Commonwealth must provide adequate compensation to the

Manufacturers for the trade secrets that it destroys. Because the Act and this

court's opinion permit the Commonwealth to shirk this obligation, I respectfully

dissent.

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dramatically during the second half of the twentieth century, the only Supreme

Court case from the last sixty years cited by the majority to support its

favorable interpretation of Corn Products is Andrus v. Allard, 444 U.S. 51

(1979). That case, which held that the federal government could prohibit the

sale of bird feathers without offending the Takings Clause, id. at 64-68, has no

bearing here: Massachusetts has not attempted a mere prohibition on the sale of

trade secrets; instead, it has paved the way for the utter destruction of their value.

The majority implies that Massachusetts law has carved an exception to the

inviolability of trade secrets when that information is submitted to government

pursuant to law. Ante at 61-62. The citations provided, however, in no way

support such a remarkable proposition. At most, these cases suggest that the

state may deprive an individual of a property interest in his trade secret without

offending state law. See Gen. Chem. Corp. v. Dep't of Env. Quality Eng'g, 474 N.E.2d 183, 185 (Mass. App. Ct. 1985). They do not (and could not) grant the

state permission to ignore the mandates of the Takings Clause when it deprives

the individual of this property interest.

The majority's citation to Justice O'Connor's dissent as an explanation of the

rationale adopted by the Monsanto majority, ante at 61 n.18 (citing Monsanto,

467 U.S. at 1023 (O'Connor, J., concurring in part and dissenting in part)),

cannot be allowed to obfuscate what the Monsanto Court actually did and what

it held. In any event, were we to follow Justice O'Connor's suggestion and look at the protections given to trade secrets by Massachusetts law (as opposed to

how trade secrets are treated by the government in practice), we would reach

the same conclusion: the Manufacturers have a reasonable investment-backed

expectation that their trade secrets will remain inviolate. See Philip Morris II,

159 F.3d at 678.

The majority summarily disposes of the Manufacturers' due process claim,

reasoning that the lack of a cognizable property interest in the trade secretsdefeats such a claim. Ante at 61-62 n.21. Because I believe that the

Manufacturers have such a property interest, I also believe that the

Commonwealth may not deprive them of that interest without the necessary

procedural safeguards, i.e., a hearing. Mathews v. Eldridge, 424 U.S. 319, 333

(1976). The essential requirement of this hearing is that it affords notice and an

opportunity to respond. Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532,

546 (1985). Whenever feasible, it must occur prior to the deprivation.

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Documents

Philip Morris Inc. v. Reilly, 267 F.3d 45, 1st Cir. (2001)