Defining Ideas

Doctrinal Tangle At SCOTUS

Monday, June 26, 2017
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The United States Supreme Court recently handed down two opinions that reveal a deep inconsistency in its basic constitutional jurisprudence.

In Matal v. Tam, the Court wisely rejected the effort of the Patent and Trademark Office to deny registration of the trade name of the Asian band “The Slants” on the ground that the name disparages Asians. The Court unanimously held first that trademark registration does not convert the name “The Slants” into government (rather than private) speech, which would allow the state vast discretion in deciding whether or not to grant the trademark. Second, the Court held that the First Amendment protects hate speech. In the words of Justice Samuel Alito, “Speech that demeans on the basis of race, ethnicity, gender, religion, age, disability, or any other similar ground is hateful; but the proudest boast of our free speech jurisprudence is that we protect the freedom to express the thought that we hate.”

The Court’s approach could not have been more different in the much watched takings case of Murr v. Wisconsin. There, a divided Supreme Court could not frame a coherent rule to determine when government regulation goes “too far” so as to constitute a taking of property for public use, such that just compensation is owed. Murr involved Wisconsin landowners who unwisely put two adjacent plots of land under common ownership instead keeping their respective titles in two separate entities. The state pounced on this conveyancing misstep, insisting that its elaborate environmental land use regulations allowed the Murrs to develop only one of these two plots. Without this slip, both could have been developed.

In determining what government regulations are compensable, Justice Anthony Kennedy—writing for himself and the four liberal justices—looked to “a complex of factors” articulated in Penn Central Transportation Co. v. City of New York: “(1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.” Under this test, the Court held that Wisconsin was entitled to treat the two parcels as one, even though the original boundary lines remained in place. This point was critical because, under Penn Central, an award of compensation depends on the diminution in value of “the” regulated parcel. Finding the right “denominator” for making this measurement is all important. Lump the two parcels together, and only some value is lost. Treat them separately and the value of that parcel is wiped out, guaranteeing compensation. The environmental impact of the common title, which is precisely zero, was never discussed.

It should be apparent that in these two cases, the Court adopted different standards of judicial scrutiny. The Court cares about the protection of free speech, and hence it subjects speech regulations to a strict level of judicial scrutiny—and that drove the two key results in Tam. First, the Court held that intellectual property receives the same level of protection as land and personal property. The common law developed a system of trademark protection long before the 1946 Lanham Act gave trademark holders two additional protections: notice of the trademark to the world and a presumption in favor of its validity. Most critically, the Court recognized that protecting common law rights by recordation is not a federal subsidy that converts trademarks into government speech, which would then allow the government to invalidate trademarks either at will, or under the permissive rational basis test now used in land use regulation cases. The Court rightly decided that these rights should not be treated like government grants to fund scientific research or the arts, where a high level of government discretion is necessary. Maintaining the distinction between government recordation and government subsidies is of the utmost importance, lest recordation of ownership for land, automobiles, patents and copyrights turns them into government property, thereby undermining the security of title that makes it possible to sell, license, or mortgage these asset classes.

The Tam case further categorically refused to let the offense felt by other groups, no matter how genuine, veto the trademark protection otherwise afforded by law. The decision thus effectively ends the PTO’s campaign to cancel the Washington Redskins registered trademark. Tam thus rests on the sensible view that marks that are offensive to some individuals are not to others. Ironically, 90 percent of Native Americans are not offended by the Washington Redskins’ trademark. This outcome makes perfect sense: entertainment and sports groups do not pick names to disparage their own products; nor could they retain fans if their trademarks were universally abhorred. In addition, Tam dampens the perverse incentives for interest groups to work themselves into a white heat in order to increase their legal rights at the expense of others. The law remains clear, and market forces can then decide which trademarks survive and why. If a fan base approves of the designation, the trademark will last.

The value of this no-offense rule is seen most clearly when Tam is contrasted with the dangerous situation that has developed under so-called state human rights laws, which have been routinely sustained against First Amendment challenges. These laws have made it illegal for photographers, bakers, and florists—small businesses all—to refuse to supply services for same-sex weddings that violate their religious beliefs. The twin judicial arguments for this flawed position are, first, that people who are turned down for these services deserve legal protection for their consequent emotional and dignitary harm, and, second, that no market can work so long as any merchant can turn away customers because of their sexual orientation.

The only reason why courts take this approach to offense in the discrimination cases is that they reject the strict scrutiny standard at work in Tam, and use the low rational basis test found in land use cases. This dangerous approach allows dominant factions to force vulnerable people to act against their religious beliefs even though legions of other firms, eager for these customers’ business, are usually just down the street. Application of the human rights law also invites and intensifies sustained abuse and emotional distress on the proprietors of these small, isolated businesses. And it is all wrong-headed. So long as competitive conditions hold, markets work just fine when some firms, or indeed some customers, decide not to serve, or patronize, other groups. Firms face serious reputational losses if their position meets with public disapproval. Only public utilities and common carriers have a duty to supply their services on fair, reasonable, and nondiscriminatory terms, precisely because their customers’ alternatives are so limited.

At root, the property rights cases like Murr suffer from the same constitutional malaise of the rational basis standard eschewed in Tam. In property cases, the sensible rule, followed before progressive thought took control, was that land use regulation was a taking unless it was intended to prevent the creation of nuisances to the air and water, or indeed to any private neighbors. The common law has always regarded these actions as wrongful, and sophisticated public enforcement against them was part of the basic legal system as early 1536.  Its purpose was to make sure that serious harms do not slip through the cracks just because no private person will step up to provide widespread public benefit at private expense. But the moment the inchoate Penn Central factors are put into play, as George Mason University law professor Ilya Somin stresses, no person can figure out which regulations should be sustained and which struck down, because the complex factors announced with evident pride by Justice Kennedy permit any court to reach whatever result it wants in any case in which there is no total wipeout of land use value through regulation.

And it is all so unnecessary. In Penn Central, a New York landmark preservation statute was used to condemn the air rights over Grand Central Terminal, which received protection under state common law. Justice Brennan’s twisted logic sought to compare the value of the property taken with the value of the property that remained, and concluded where the ratio was small, no compensation was owing. The whole enterprise of finding this takings “denominator” is bizarre, for the correct measure in all cases is to look solely at the diminution in value of the property taken, and not by looking at the ratio between the value taken and the total value of the property. So a per se rule, similar to that announced in Tam, emerges: pay for the air rights taken, no more or less, and dispense with the balancing tests that pose such a danger to the stability of property rights and general social well-being. Had Murr taken this approach, it would have been treated as an easy case for compensation. More importantly, the full set of common law property rights, for tangible and intangible property alike, would be protected by a uniform and coherent theory that avoids the doctrinal tangles routinely arising in today’s discrimination and property cases.