Data Use and Compensation Under FIFRA: Can Monsanto Survive Supreme Court Review?

Peter O. Safir and Kinsey S. Reagan

Editors' Summary: In order to register a pesticide under FIFRA, the registrant must submit data on the pesticide's safety and efficacy to EPA. FIFRA's provisions on EPA's use and disclosure of such data have proved controversial. In particular, the provision allowing EPA to use one manufacturer's data to support the application of another has repeatedly been challenged as an unconstitutional taking of property. In Monsanto Co. v. Acting Administrator, Environmental Protection Agency, the issue has reached the Supreme Court. Messrs. Safir and Reagan analyze the FIFRA taking issue, examining the history of the challenged provision, how various lower courts have dealt with challenges to it, and what routes are open to the Supreme Court. Finally, they consider the potential impact on similar federal registration statutes should the FIFRA provisions be struck down.

Mr. Safir is a partner and Mr. Reagan is an associate in the firm of Kleinfeld, Kaplan & Becker, Washington, D.C.

[14 ELR 10055]

Under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA),¹ the Environmental Protection Agency (EPA) is responsible for regulating the sale and distribution of pesticides. To obtain registration of a pesticide, an applicant must provide all of the data that EPA requires to support an application. Thus, FIFRA § 3(c)(1)(D) states that the application must contain "a full description of the tests made and the results thereof … or alternatively a citation to data that appear in the public literature or that previously had been submitted to the Administrator."² This section, however, limits the right to cite, without permission, data submitted by others unless the second applicant offers to pay reasonable compensation to the original data submitter.

Section 3(c)(1)(D) of FIFRA has been controversial both as it first appeared in 1972 and as it was amended in 1978. The controversy has centered on three distinct, though related, aspects of registration:

1. EPA construed § 3(c)(1)(D) to authorize the agency to require an applicant to cite all data in EPA's files that concern its product or a similar product, even if the applicant submitted its own data which the applicant itself generated and considers sufficient to support registration. This is the so-called "cite-all" method of supporting an application. In the wake of National Agricultural Chemicals Association (NACA) v. United States Environmental Protection Agency, declaring this interpretation invalid, this policy has been substantially modified.³

2. The data compensation mechanism set forth in § 3(c)(1)(D) provides for mandatory arbitration with virtually no provision for judicial review if the parties fail to agree on compensation. This scheme to effectuate the data submitter's statutory compensation entitlement has been recently held to violate Article III of the Constitution as an invalid delegation of judicial power.⁴

3. After the first applicant has submitted support data, under § 3(c)(1)(D) a competitor can use that data in a second application without the first applicant's consent. This so-called "free ride" to second applicants has been repeatedly attacked as a taking of property without due process or just compensation in violation of the Fifth Amendment. Up until 1983, federal courts in three circuits had rejected this argument, on various theories.⁵ On April 12, 1983, the U.S. District Court for the Eastern District of Missouri broke ranks with previous decisions and ruled in Monsanto Co. v. Acting Administrator, Environmental Protection Agency⁶ that § 3(c)(1)(D) worked an unconstitutional "taking." The court enjoined EPA from implementing and enforcing, in any manner, the data use and compensation provisions in § 3(c)(1)(D) of FIFRA.⁷ This decision (together with the NACA decision mentioned above) forced EPA to modify substantially its procedures for submitting data to support pesticide registrations, requiring second applicants for manufacturing registrations either to conduct [14 ELR 10056] their own testing or to present evidence of specific permission to cite data already submitted.⁸ On October 11, 1983 the Supreme Court noted probable jurisdiction in Monsanto⁹ and the case is expected to be argued February 27, 1984.

This article focuses on the data use issues before the Supreme Court and, without attempting to forecast the direction the Supreme Court will take, analyzes the arguments that the appellees must overcome to gain affirmance, as well as at least some of the potential impact an affirmance would have, both on the current pesticide registration programs and on other related statutory programs, notably those regulating foods and drugs.

Statutory Background

Federal law has regulated the sale in interstate commerce of agricultural chemicals since the passage of the Insecticide Act of 1910.¹⁰ The Insecticide Act outlawed manufacture or sale of adulterated or misbranded insecticides. Subsequent years saw major growth in the development and use of pesticides, and in 1947 Congress enacted the Federal Insecticide, Fungicide, and Rodenticide Act to establish a more comprehensive regulatory system.¹¹ Primarily a labeling law, the 1947 statute required directions and warnings to protect humans, other animals, and vegetation — including poison labeling for certain highly toxic substances.¹² The 1947 legislation also required the registration of pesticides prior to their sale in interstate commerce.¹³ Applicants for registration had to file with the Secretary of Agriculture (later, the EPA Administrator) a copy of the product labeling including directions for use, a statement of claims made for the pesticide, and "if requested by the Administrator, a full description of the tests made and the results thereof upon which the claims are based."¹⁴ Under this authority an applicant was required in practice to submit data showing both the efficacy of the pesticide and the hazards, if any, in its use.¹⁵ Although the 1947 Act specifically prohibited disclosure of information concerning product formulas,¹⁶ FIFRA did not prohibit the Department of Agriculture (USDA) or later, EPA, from publicly disclosing submitted test data or from using data supplied by one applicant to determine whether to register a pesticide subsequently offered by another.¹⁷

Over the succeeding 25-year period the role of pesticides in American agriculture grew, and with the expansion came increasing public concern over the regulation of pesticides. To update the federal regulatory scheme and to balance the varied needs of farmers, pesticide manufacturers, environmentalists, and consumers, Congress in 1972 enacted the Federal Environmental Pesticide Control Act of 1972.¹⁸ The 1972 amendments to FIFRA extended federal regulation to the intrastate manufacture and sale of pesticides, and for the first time regulated directly the use of pesticides, as well as their labeling and marketing. The new law also strengthened the requirements for test data submission, conditioning registration on a showing that the pesticide would not "cause unreasonable adverse effects on the environment."¹⁹

In addition, the 1972 amendments revamped the procedures for registration and explicitly dealt with the issues of EPA use and disclosure of test data. These issues had become controversial, generating intense lobbying pressure and a correspondingly didactic legislative history. For many years after 1947 USDA had required only limited health and safety data. Advances in the science of pesticides led, however, to increasing requirements. By 1971, the pesticide industry was finding thatt the increasing rigor of the administrative criteria for registration was forcing them to submit more and more extensive, and costly, test data.²⁰ And, USDA (and later EPA) had adopted the practice of considering such data when reviewing subsequent applications by others for registration of the same or a similar pesticide.²¹ The National Agriculture Chemicals Association, the trade association of the major companies, took the position that this practice discouraged pesticide research and development.²²

In response, a House bill provided that test data submitted by one applicant could not be considered by EPA in support of another applicant without the permission of the original data submitter.²³ The bill passed the House over the objections of several members that this "exclusive use" provision represented an unwarranted extension of patent protection, would present a [14 ELR 10057] substantial bar to entry into the pesticide market, and was anticompetitive.²⁴ As one court has concluded, the House apparently "favored protection of investment in research over easing entry of competitors into the market and greater disclosure of test data to the public."²⁵

In the Senate, the House bill was reported favorably by the Committee on Agriculture and Forestry, who believed that

[g]iving applicants proprietary rights in their test data will encourage applicants to spend the money necessary to test their products fully and assure their safety. Requiring subsequent applicants to make their own tests will serve as a double check on the original test procedures and either provide double assurance that the products are safe or show up their short-comings.²⁶

The Senate Committee on Commerce, however, recommended deletion of the "exclusive use" provision on the grounds that EPA's use of test data to support a subsequent application was necessary (1) to avoid creation of barriers to entry into the market beyond those envisioned by the patent system and (2) to prevent the diversion of research funds to the performance of duplicative tests.²⁷ The Department of Justice and EPA also supported this position.²⁸

The conflict in the Senate was resolved by a compromise: EPA would be allowed to consider data in support of a later application if the later applicant offered to pay reasonable compensation to the original data "exclusive use" would be retained only for trade secrets and privileged or confidential commerical and financial information.²⁹ The full Senate and the House and Senate conference accepted the compromise.³⁰ In addition to addressing the conditions for EPA use of test data, the 1972 amendments provided that if the parties could not agree on compensation following an offer by the later applicant, the EPA Administrator would determine the amount and method of payment. If the original data submitter did not agree with this determination he could appeal to a federal district court; the court hearing such an appeal was not allowed to set payment lower than that determined by the Administrator.

The 1972 amendments raised retroactivity and effective data questions which spawned litigation.³¹ Congress addressed these problems in 1975, amending FIFRA to provide that the compensation requirement applies only to data submitted on or after January 1, 1970 and only with respect to "me-too" applications filed on or after October 21, 1972.³² The 1975 amendments also permitted either party to appeal an EPA determination of compensation, removed the restriction on judicial lowering of EPA-determined compensation amount, and provided that registration shall not be delayed pending the determination of reasonable compensation.

In the meantime, EPA was having substantial difficulty implementing the 1972 amendments to FIFRA. In Mobay Chemical Corp. v. Train, a federal district court held that EPA's interim procedures for implementing § 3(c)(1)(D) of FIFRA wrongly placed the burden of invoking the data compensation provisions on the original data submitter rather than on the subsequent applicant.³³ Similarly, in Dow Chemical Co. v. Train, the court held that EPA's procedures improperly failed to provide "specific delineation and identification of the data which is to be used to support [the subsequent] application" and to require that the offer of compensation be made directly to the original data submitter.³⁴

However, the greatest difficulties stemmed from the failure of FIFRA to define "trade secrets," i.e., those information and data that EPA was not to disclose publicly nor consider in support of other applications. EPA took the position that no test data were entitled to confidential treatment (as trade secrets or otherwise) under § 10(b) of FIFRA except to the extent they disclosed confidential formulae, manufacturing or quality control information, or information in a registration application not yet approved by the EPA Administrator.³⁵ In a series of cases, several federal district courts adopted the industry's position that test data could constitute "trade secrets" under the broader definition and criteria set forth in § 757 of the RESTATEMENT OF TORTS.³⁶ Moreover, § 10(a) of FIFRA permitted a data submitter to mark those portions of submitted data which in its opinion are trade secrets.³⁷ Many data submitters took advantage of this provision and marked their test data on file with EPA as trade secrets, precluding the data's use in support of another company's application, unless EPA made a formal — and judicially reviewable — determination that the data were not "trade secrets."³⁸

The combination of the exclusion of § 10(b) "trade secrets" from the compensated use provisions and EPA's [14 ELR 10058] determination of the compensation amount subject to judicial review produced "an administrative nightmare in which the process of registering new pesticides simply ground to a halt."³⁹ Neither EPA nor the Department of Justice was pleased with the situation; NACA, on the other hand, still sought the protection of "exclusive use" for submitted test data.⁴⁰ As a result of this mutual dissatisfaction, both the Senate and the House in 1977 began to reconsider the data use and compensation provisions of FIFRA.

In the Senate, EPA and the Department of Justice were successful in obtaining passage of a bill that deleted the cross reference to § 10(b) in the data use and compensation provisions of FIFRA.⁴¹ The Senate bill also rejected "exclusive use" and limited compensation to a period of seven years after registration. In the House, NACA gained passage of a bill that granted a five-year period of "exclusive use," followed by a five-year compensated use period, with compensation to be determined by binding arbitration.⁴²

The Federal Pesticide Act of 1978 reflects the rather complex compromise between the competing House and Senate bills.⁴³ First, the 1978 amendments eliminated the exclusion of § 10(b) "trade secrets" from FIFRA's data use and compensation provisions.⁴⁴ Second, the 1978 amendments created three categories of submitted test data: (1) data submitted in support of an application for a new active ingredient or new use of a pesticide, which is registered after September 30, 1978, is protected by a 10-year period of "exclusive use";⁴⁵ (2) any data submitted on or after January 1, 1970, may be used in support of another application (except during any applicable "exclusive use" period) within a 15-year period following submission of the data, only if the applicant has offered to compensate the original data submitter;⁴⁶ and (3) data for which any periods of "exclusive use" or compensated use have expired may be freely considered by EPA in support of any other application.⁴⁷ Third, the 1978 amendments provided that disputes about compensation would be settled through binding arbitration by the Federal Mediation and Conciliation Service, with judicial review limited to cases of fraud, misrepresentation, or misconduct by a party or the arbitrator. The 1978 amendments also clarified the procedure for filing required test data, proving that the applicant could submit such data directly or "alternatively a citation to data that appear in the public literature or that previously had been submitted to the Administrator."⁴⁸

Constitutional Challenges

As mentioned in the introduction, the Monsanto court is not the first court to have addressed the constitutional issues raised by the FIFRA data use and compensation provisions.⁴⁹ The pesticide industry has challenged both the 1972 and 1978 amendments on constitutional grounds in a continuing series of cases. In these cases the plaintiffs have relied primarily on the Fifth Amendment, which provides that no person "shall be deprived of … property, without due process of law; nor shall private property be taken for public use, without just compensation."⁵⁰

Although all but one of the pre-Monsanto decisions upheld the constitutionality of the statute, the individual courts often focused on different elements of the constitutional question as central to their decisions. The question of whether an act of Congress effects an unconstitutional taking of property without due process or without just compensation raises a series of subsidiary issues: (1) Is the interest which the statute is alleged to take a "property" interest? (2) Do the effects of the statute constitute a "taking of the plaintiff's property? (3) Does the statutory scheme result in a taking of property for a "private purpose"? (4) If the purpose of the taking is a "public purpose," has "just compensation" been provided to the property owner? Thus, the industry plaintiffs in the FIFRA cases had a grueling series of hurdles to leap, and not until Monsanto did anyone successfully complete the course, at least at the district court level, and obtain a decision on the merits enjoining EPA from implementing the statute.

In the earliest decision addressing a constitutional challenge to the 1972 and 1975 amendments, Dow Chemical Co. v. Train, a federal district court denied Dow preliminary injunctive relief on its claim that the limitation of compensation to data submitted on or after January 1, 1970 constituted a taking of its property without just compensation.⁵¹ The court found that Dow had "not even attempted to demonstrate that it does not have an adequate remedy at law under the Tucker Act."⁵²

[14 ELR 10059]

The federal district court in Chevron Chemical Co. v. Costle conducted a more complete analysis of the constitutional issues.⁵³ Seeking a preliminary injunction against use of its data to support registration of certain pesticide products by its competitors, Chevron argued that this "taking" of its data must be enjoined because (1) FIFRA does not authorize the consideration of pre-1970 data, (2) the "taking" is for a private rather than a public purpose, and (3) the procedure for binding arbitration precludes a judicial determination of "just compensation."⁵⁴ With respect to the first issue, the district court consulted the legislative history and concluded that the intent of § 3(c)(1)(d)(iii) of FIFRA was to permit free use of data submitted before 1970. Chevron's position would "result in a perpetual period of 'de facto exclusive use' for pre-1970 data," a result at odds with the legislative purpose of the 1978 amendments as a whole.⁵⁵ The court next considered Chevron's argument that consideration of any of its data must be enjoined as an unconstitutional taking for a private use, i.e., for the benefit of Chevron's competitors.Holding that Congress had determined the pre-1978 FIFRA to be needlessly anti-competitive, counterproductive, and resulting to some extent in an artificial extension of pesticide patent rights, the court found a sufficient public purpose for the 1978 amendments, particularly in view of the required "judicial deference to legislative determinations."⁵⁶ The court also found no evidence of congressional intent to withdraw a Tucker Act remedy, inasmuch as the FIFRA compensation and arbitration procedures relate only to compensation by a private entity, the subsequent applicant, and not to the liability of the government to pay just compensation if a taking occurs."⁵⁷

The Third Circuit adopted a somewhat different analytical approach in affirming Chevron.⁵⁸ The court of appeals noted that before exploring "the intriguing constitutional law issues Chevron tenders, it is appropriate to examine the threshold question whether there is such a property right" in the EPA files containing test data submitted by Chevron.⁵⁹ The court first examined federal law to determine whether any federal statute created a property entitlement. The court drew an important distinction between rights to nondisclosure of data and the right to nonuse, and concluded that

[s]ince 1972, section 3(c)(1)(D) [of FIFRA] has in one form or another conferred a federal expectation — a property right — in some data submitted to EPA. But prior to the enactment of Pub. L. 92-516 [the 1972 amendments], the only federal statute to which we have been referred that appears at all relevant is 18 U.S.C. § 1905. That statute does not confer a private cause of action, although it may provide a standard by which to judge the legality of proposed agency disclosures. At best it can be construed to create a federal law right of nondisclosure, not of non-use by the agency. Aside from section 3(c)(1)(D), Chevron has shown us no federal statute preventing internal agency use of the contents of files compiled in the performance of the agency's statutory functions.⁶⁰

Finding no property interest created by federal law, the court went on to examine state law. The court reviewed § 757 of the RESTATEMENT OF TORTS and held that its definition of trade secret

affords no help since it deals with liability for disclosure of trade secrets without a privilege to do so. EPA does not propose disclosure. Nor did EPA or its predecessor agencies obtain the material in its files by any improper means, or for the purpose of advancing the business of Chevron's competitors. It is true that the material was submitted to the federal government with some expectation of confidentiality. Prior to 1972, however, 18 U.S.C. § 1905 and agency practice defined the scope of that expectation, and since 1972 the several versions of section 3(c)(1)(D) have done so. None of those statutes could reasonably have been the source of an expectation of general agency non-use.⁶¹

Moreover, the court noted that "even if there were any state law purporting to protect the confidentiality of data voluntarily submitted to a federal regulator, there is some doubt that it would survive supremacy clause scrutiny."⁶² Thus, the court of appeals affirmed the district court's decision on the basis of a threshold determination that Chevron simply had no protected property interest in its submitted data, beyond that conferred by Section 3(c)(1)(D) of FIFRA and 18 U.S.C. § 1905.⁶³

A third approach to the constitutional issues is represented by the federal district court's decision in Petrolite Corp. v. United States Environmental Protection Agency, in which Petrolite sought to restrain EPA from issuing registrations to its competitors based on Petrolite's data,⁶⁴ In Petrolite the district court "assum[ed] arguendo that there is a valid property right at stake end proceed[ed] to what the Court conceives to be the least troublesome legally of the three major questions involved — whether the use of submitted data by EPA constitutes a taking."⁶⁵

[14 ELR 10060]

In determining whether an action is a taking, the Petrolite court held that the primary considerations are

whether "the interference with property can be characterized as a physical invasion by government," and "the extent to which the regulation has interfered with distinct investment-backed expectations." Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124, 98 S. Ct. 2646, 2659, 57 L. Ed. 2d 631 (1978). None of the governmental actions challenged by plaintiff constitutes a "physical invasion," of course, and the question therefore arises whether the regulation has interfered with distinct investment-backed expectations.⁶⁶

The court applied this test first to data which are subject to the exclusive use provision, i.e., data submitted in support of registrations for new ingredients or new uses after September 30, 1978, and held that the FIFRA use and compensation scheme cannot be said to interfere with such expectations to any significant extent, inasmuch as the use provisions are entirely prospective for post-1978 data.⁶⁷ The court noted that this scheme is "typical of many that apply to new areas of business regulation in which the government conditions the future right to conduct a particular line of business upon fulfillment of specified requirements." Petrolite's voluntary decision, after passage of the 1978 amendments, "to continue to submit data and to attempt to secure registration after that data precludes if from claiming government taking"⁶⁸

With respect to pre-1970 data, the court found that the 1978 amendments "did no more than to ratify prior practice."⁶⁹ Finally, the Petrolite court conceded that the 1978 amendments did decrease the "protection accorded [data submitted between 1970 and 1978] — from perpetual compensation for use of any data and perpetual exclusive use of trade secret data to limited periods of exclusive and compensated use of all data (including trade secrets)."⁷⁰ Under these circumstances, the court held that whether the economic injury to original data submitters was a taking depended on the balancing of several factors related to the degree of the governmental intrusion. First, the court noted that FIFRA did not place "any restraint on permitted uses that [Petrolite] may make of its property.'⁷¹ FIFRA's restrictions on Petrolite's ability to control the licensing of its data were characterized as "nothing more than a diminution in the value of plaintiff's data."⁷² Moreover, the court found no evidence that the 1978 amendments had destroyed Petrolite's ability to earn a reasonable return on its investment in safety and efficacy data and concluded that Petrolite's primary "investment-backed expectations" involved the the use of this data in support of its own application, not the licensing of such data to others.⁷³ The existence of "valuable replacement rights" — FIFRA's 15-year period of compensated use — was held to mitigate the financial burden of the government action and to support a conclusion that no "taking" occurs under the FIFRA use and compensation provisions.⁷⁴

The Monsanto Decision — A Departure

In Monsanto Co. v. Acting Administrator, United States Environmental Protection Agency, the plaintiff Monsanto sought injunctive and declaratory relief from FIFRA's data use and compensation provisions, 7 U.S.C. § 1366a(c)(1)(D), and FIFRA's public disclosure provisions, 7 U.S.C. §§ 136a(c)(2)(A), 136h(b), 136h(d).⁷⁵ In its decision enjoining EPA from implementing or enforcing these provisions in any manner, directly or indirectly, the federal district court devoted over two-thirds of its opinion to detailed "findings of fact" with finding No. 56 appearing to be the key to the court's legal conclusions:

56. Monsanto would suffer a competitive advantage [sic] should its competitors obtain Monsanto's health and research product. The use or consideration for or disclosure to any third party by defendant of plaintiff's data will irreparably injure plaintiff in the conduct of its business and will confer an immediate and substantial competitive advantage upon its competitors, including foreign government-owned pesticide producers by eliminating the significant, lead-time advantages enjoyed by plaintiff, by advancing significantly the state of such competitors' technology and by permitting the registration of their products, both in the United States and foreign countries without their incurring the enormous expenditure of time and money for research and development which plaintiff has incurred.⁷⁶

The court also made the finding thatt, prior to the 1972 amendments, it was USDA policy not to use data submitted by one registrant in support of any other application for registration, without the permission of the original data submitter.⁷⁷ This "finding of fact," which relates to data submitters' expectations of confidentiality prior to the 1972 and 1978 amendments, appears to conflict with decisions in other FIFRA cases.⁷⁸

Addressing first the issue of whether federal or state law creates a property "entitlement" in Monsanto's research and test data, the court concluded that neither pre-1972 FIFRA nor 18 U.S.C. § 1905 established a federal property right in such data. At most, the court noted, the statutes established "only a right of non-disclosure by EPA."⁷⁹ However, the court held that the state law of Missouri created a property right in Monsanto's data through its recognition of intellectual property expressed in the RESTATEMENT OF TORTS § 757 definition of "trade secrets." The court disagreed with EPA's argument that none of Monsanto's state law property rights affect the federal government's consideration or disclosure of the data:

[14 ELR 10061]

The Restatement specifically prohibits disclosure of trade secrets without privilege. Internal use of Monsanto's data was never a stated risk inherent in submitting the data to EPA. While internal use by EPA does not literally involve disclosure of confidential data, it implicitly amounts, for all practical purposes, to disclosure of the data to Monsanto's competitors and the concomitant use of that data by Monsanto's competitors. The Court believes the Restatement's protection of trade secrets is intended to reach such constructive disclosure and use situations …. The property rights Monsanto possesses in its intellectual property (data) are the rights to exclude others from the enjoyment of such data in particular, the right to prevent the unauthorized use and the right to prohibit disclosure of its data.⁸⁰

Thus, the Monsanto court did not accept any substantial distinction between EPA's public disclosure and its internal use of test data for purposes of Monsanto's state law property rights.

The court then turned to the issue of whether FIFRA's data use and compensation provisions caused an unconstitutional "taking" of Monsanto's property. The court found that the 1978 amendments "give Monsanto's competitors a free ride at Monsanto's expense" and appropriate a "fundamental right of Monsanto and its property — the right to exclude."⁸¹ Moreover, the court also concluded that the use and compensation provision

unabashedly operates to further a private purpose. Internal use of Monsanto's data can only enrich its competitors. The public stands little to gain from § 3(c)(1)(D). This is not a situation where competition is sparse or nonexistent, to the contrary, the trial record amply demonstrates the competition and the pesticide industry as healthy and vibrant.⁸²

In repudiating the legislative history of congressional intent regarding the 1978 amendments, the court claimed it was "aware of the deference which must be shown Congressional pronouncements of what constitutes a public purpose."⁸³ Nevertheless, the court believed it "would be abdicating its responsibility to follow the Constitution if it did not rationally analyze laws which, in the name of public policy, mandate the forced sharing of property and markets created by one person for the benefit of private parties."⁸⁴ EPA's internal use of Monsanto's property to support the registrations of Monsanto's competitors is "a destruction and therefore a taking of Monsanto's property."⁸⁵

On the final issue of whether Congress has provided "just compensation" for the "taking" of Monsanto's property, the court held that FIFRA compensation was "intended to be the sole compensation for any taking effectuated by §§ 3(c)(1)(D) and (10)" and that a "Tucker Act remedy is not available to Monsanto."⁸⁶ Also, the court held the FIFRA arbitration scheme inadequate to provide constitutional just compensation because (1) it is "vague and uncertain," (2) arbitrators have no statutory guidance as to what constitutes just compensation, (3) judicial review of arbitrators' decisions is virtually foreclosed, and (4) the scheme thus delegates judicial power in violation of Article III of the Constitution.⁸⁷

The Supreme Court's Task

The task confronting the Supreme Court in its review of Monsanto may be relatively easy or increasingly complex, depending on how the Court decides dispositive threshold questions. The Court could rule that the data use provisions do not affect a constitutionally protected property right. Generally, any state common law property right falls under the protections of the Fifth Amendment. Although trade secret rights would seem to be protected, the Court could accept the Third Circuit's Chevron reasoning and hold that trade secrets are merely protected from disclosure, not from internal agency use.⁸⁸ This interpretation would still leave FIFRA's data disclosure provisions vulnerable.

An allied argument is that whatever interests Monsanto has in restricting agency use of its trade secret data are created solely by federal law. Inasmuch as the data use provisions are concerned, the data give Monsanto a competitive advantage in registering pesticides, but this advantage exists only by virtue of the federally created data submission requirements of FIFRA. This advantage may rise to the status of an entitlement, subject to due process protection, but its lawful termination via the 1978 amendments does not require compensation. Surely it was a legitimate exercise of legislative power for Congress to enact the data use and compensation provisions to assure that the federally created regulatory scheme does not erect artificial barriers to market entry beyond those protections afforded by the patent law.

Assuming, though, that the Court holds that Monsanto has a protected property interest in submitted test data, the Court must go on to consider whether the FIFRA use and compensation provisions constitute a "taking" of Monsanto's property. The district court's opinion was weak in this area, drawing sweeping conclusions [14 ELR 10062] about the economic injury to Monsanto and enrichment of its competitors with little analysis of the actual commercial facts. If the Supreme Court addresses this issue, it may have to balance a number of private and public interests in a legal context where no simple formula for adjudicating such claims has been established.⁸⁹ The Court's assessment of the record concerning the economic and commercial impact of the FIFRA provisions on Monsanto will play a central role.

If the Supreme Court agrees with the lower court on the property and taking issues, the Court would still have to hold either that the taking was not for a public use or that relief under the Tucker Act is foreclosed in order to affirm the Monsanto ruling. As the district court noted in Chevron, the Court generally has deferred to legislative findings of public use.⁹⁰ And if the Court reaches the Tucker Act issue, it must deal with its own admonition that the dispositive inquiry is not whether Congress has affirmatively expressed an intent to permit recourse to the Tucker Act, but rather whether Congress has "withdrawn the Tucker Act grant of jurisdiction."⁹¹

Whatever legal path it takes, the Court must be concerned about the practical impact of its decision on EPA's current pesticide registration program and on other analogous federal regulatory schemes. For example, the approval process for antibiotic drug products by the Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FFDCA)⁹² has many similarities to the pesticide registration provisions under FIFRA. In order to gain approval for new antibiotic drugs, applicants must submit voluminous and expensive safety and effectiveness data which, if deemed adequate by FDA, result in a specific approval of a Form 5, together with the publication of a regulation describing the specifications for the product. Thereafter, anyone else wishing to market the identical antibiotic need only file an abbreviated application (Form 6) demonstrating to FDA's satisfaction that the antibiotic meets the specifications set forth in the regulation. Unlike pesticide registration, which is specific to each manufacturer, the antibiotic approval process contemplates a public regulation. However, the specific approvals of the Forms 5 or 6 clearly represent individual licenses without which the products cannot be marketed. Similar to § 10 of FIFRA, FDA regulations provide that, unless extraordinary circumstances are shown, safety and effectiveness data submitted in support of antibiotic applications are available to the public immediately upon approval of the intitial antibiotic.⁹³ Even where extraordinary circumstances might be shown, thus preventing public disclosure of the data, the FFDCA and the regulations have been consistently interpreted by FDA for over thirty years to allow FDA use of data of one antibiotic manufacturer to approve an application of a second manufacturer. Similar data use provisions also exist for biological products (which include many of the new and commercially valuable genetically engineered therapeutic and diagnostic agents) regulated by FDA under § 351 of the Public Health Service Act.⁹⁴

Protection of exclusivity under FDA administered statutes, therefore, at least with respect to antibiotics and biological products, rests entirely on the patent system. Affirmance of Monsanto would at least cast some doubt on the constitutional validity of these FDA licensing programs. Should Monsanto be affirmed, it is possible that similar suits will be brought to protect data supporting new antibiotics and biological products not fully protected by patents.

With respect to the impact on pesticide registrations at EPA, the effect of an affirmance is already apparent. Since the Monsanto decision was accompanied by an order enjoining any implementation of the data use sections, EPA has been operating under interim procedures consistent with the decision. Although the procedures have become more onerous, registrations have continued to be processed in accordance with the provision of PR Notice 83-4.⁹⁵

To attempt to predict the outcome of a Supreme Court case is often an unproductive — and potentially embarrassing — exercise. It is clear, however, that an affirmance could have a major impact — not only on EPA's day-to-day registration activity, but more notably on other regulatory programs and constitutional doctrine generally. At least in part for these reasons, conventional wisdom would argue that reversal of the lower court is the more likely outcome.

1. 7 U.S.C. §§ 136-136y, ELR STAT. 42308-20.

2. 7 U.S.C. § 136a(c)(1)(D), ELR STAT. 42309-10.

3. 554 F. Supp. 1209, 13 ELR 20560 (D.D.C. 1983), discussed infra in note 48. See EPA, PR Notice 83-4 (June 16, 1983) (described in Notice of Availability of Interim Procedures for Pesticide Registration, 48 Fed. Reg. 32012 (July 13, 1983)).

4. Union Carbide Agricultural Products Co. v. Ruckelshaus, 571 F. Supp. 117, 124, 13 ELR 20969, 20971 (S.D.N.Y. 1983), discussed infra in note 87.

5. See Mobay Chemical Corp. v. Costle, 517 F. Supp. 252 (W.D. Pa. 1981), aff'd sub nom. Mobay Chemical Corp. v. Gorsuch, 682 F.2d 419, 12 ELR 20776 (3d Cir.), cert. denied, 103 S. Ct. 343 (1982); Pennwalt Corp. v. Gorsuch, 11 ELR 20762 (W.D. Pa. 1981), aff'd as a companion case in Mobay Chemical Corp. v. Gorsuch, 682 F.2d 419 (3d Cir.); Petrolite Corp. v. EPA, 519 F. Supp. 966, 11 ELR 20751 (D.D.C. 1981); Chevron Chemical Co. v. Costle, 499 F. Supp. 732, 11 ELR 20147 (D. Del. 1980), aff'd on other grounds, 641 F.2d 104, 11 ELR 20156 (3d Cir.), cert. denied, 452 U.S. 961 (1981). See also Union Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 10 ELR 20846 (2d Cir. 1980), cert. denied, 450 U.S. 996, reh'g denied, 451 U.S. 976 (1981).

6. 564 F. Supp. 552, 13 ELR 20561 (E.D. Mo. 1983).

7. Id. at 566, 13 ELR at 20568-69. Although the district court also held unconstitutional the closely related data disclosure provisions of FIFRA, this article focuses on the issues surrounding the validity of the data use and compensation provisions. The issues concerning disclosure of pesticide data and the possibility of a legislative solution were reviewed in Safir & Davis, Disclosure of Pesticide Safety Data: A Viable Compromise At Last?, 12 ELR 15017 (1982).

8. EPA PR Notices 83-4 (June 16, 1983) and 83-4a (June 23, 1983).

9. Prob. juris. noted sub nom. Ruckelshaus v. Monsanto Co., 52 U.S.L.W. 3290 (U.S. Oct. 11, 1983) (No. 83-196).

10. Act of April 26, 1910, c. 191, 36 Stat. 335. See Chevron Chemical Co. v. Costle, 641 F.2d 104, 106, 11 ELR 20156, 20156 (3d Cir.), cert. denied, 452 U.S. 961 (1981).

11. Act of June 25, 1947, c. 125, §§ 2-13, 61 Stat. 163-72 (codified at 7 U.S.C. §§ 135-135k, later superseded by 7 U.S.C. §§ 136-136y; 7 U.S.C. §§ 135-135k are set out in a historical note at 7 U.S.C.A. §§ 135-135k (1980) and are reported in ELR STAT. at 42303-07) [hereinafter sections from the Act of 1947 are cited as Old FIFRA].

12. Old FIFRA §§ 2(z), 3(a)(3), 7 U.S.C. §§ 135(z), 135a(a)(3), ELR STAT. 42303, 42304-05.

13. Old FIFRA § 4, 7 U.S.C. § 135b, ELR STAT. 42305.

14. Old FIFRA § 4(a), 7 U.S.C. § 135b(a), ELR STAT. 42305.

15. Union Carbide Agricultural Products Co. v. Costle, 632 F.2d 1014, 1016, 10 ELR 20846, 20847 (2d Cir. 1980), cert. denied, 450 U.S. 996, reh'g denied, 451 U.S. 976 (1981).

16. Old FIFRA §§ 3(c)(4), 8, 7 U.S.C. §§ 135a(c)(4), 135f(c), ELR STAT. 42305, 42307.

17. Union Carbide Agricultural Products Co. v. Costle, 632 F.2d at 1016, 10 ELR at 20847.

18. Pub. L. No. 92-516, 86 Stat. 973 (1972) (codified as amended at 7 U.S.C. §§ 136-136y) [hereinafter cited as 1972 amendments].

19. FIFRA § 3(c)(5)(D), 7 U.S.C. § 136(c)(5)(D), ELR STAT. 42310.

20. Federal Pesticide Control Act of 1971: Hearings Before the House Comm. on Agriculture, 92d Cong., 1st Sess. 331 (1971).

21. Although there has been factual dispute on the issue, the courts generally have found that under the 1947 statute it was the practice of USDA and EPA to make use of test data in its files when evaluating later applications. Union Carbide Agricultural Products Co. v. Costle, 632 F.2d at 1016, 10 ELR at 20847; Mobay Chemical Corp. v. Costle, 439 U.S. 320 (1979); Amchem Products, Inc. v. GAF Corp., 594 F.2d 470, 472, 9 ELR 20610, 20610 (5th Cir. 1979); Mobay Chemical Corp. v. Costle, 517 F. Supp. 254, 267 n.11 (W.D. Pa. 1981).

22. See supra note 20.

23. H.R. 10729, 92d Cong., 1st Sess. § 3(c)(1)(D) (1971); H.R. REP. NO. 511, 92d Cong., 1st Sess. 17, 50 (1971).

24. H.R. REP. NO. 511, 92d Cong., 1st Sess. 69 (remarks of Rep. Foley), 72 (remarks of Rep. Dow) (1971).

25. Chevron Chemical Co. v. Costle, 443 F. Supp. 1024, 1035, 8 ELR 20362, 20367 (N.D. Cal. 1978).

26. S. REP. NO. 838, 92d Cong., 2d Sess. 6, 10, reprinted in 1972 U.S. CODE CONG. & AD. NEWS 3993.

27. S. REP. NO. 970, 92d Cong., 2d Sess. 39, reprinted in 1972 U.S. CODE CONG. & AD. NEWS 4092.

28. Id.

29. S. REP. NO. 838 pt. II, 92d Cong., 2d Sess., reprinted in 1972 U.S. CODE CONG. & AD. NEWS 4023.

30. H.R. CONF. REP. NO. 1540, 92d Cong., 2d Sess., reprinted in 1972 U.S. CODE CONG. & AD. NEWS 4130.

31. See, e.g., Amchem Products, Inc. v. GAF Corp., 391 F. Supp. 124 (N.D. Ga. 1975), vacated and remanded for reconsideration in light of 1975 amendments, 529 F.2d 1297 (5th Cir.), reinstated on reh'g, 422 F. Supp. 340 (N.D. Ga. 1976), aff'd in part, rev'd in part on other grounds, 594 F.2d 470, 9 ELR 20610 (5th Cir.), modified, 602 F.2d 724 (5th Cir. 1979).

32. Pub. L. No. 94-140 § 12, 89 Stat. 751, 755 (1975) [hereinafter cited at 1975 amendments].

33. Mobay Chemical Corp. v. Train, 394 F. Supp. 1342 (W.D. Mo. 1975) (granting preliminary injunction preventing enforcement of EPA's procedures, 38 Fed. Reg. 31862 (1973), against Mobay in application by Zoecon Corp.).

34. Dow Chemical Co. v. Train, 423 F. Supp. 1359, 1367, 7 ELR 20262, 20265 (E.D. Mich. 1976) (granting preliminary injunction against EPA), consent judgment sub nom. Dow Chemical Co. v. Costle, 7 ELR 20591 (E.D. Mich. 1977), summary judgment granted in part, 464 F. Supp. 395 (E.D. Mich. 1978).

35. Chevron Chemical Co. v. Costle, 443 F. Supp. 1024, 1026, 8 ELR 20362, 20365-66 (N.D. Cal. 1978).

36. Id. at 1031-32, 8 ELR at 20365-66; Dow Chemical Co. v. Costle, 464 F. Supp. at 398; Mobay Chemical Corp. v. Costle, 447 F. Supp. 811, 824-27 (W.D. Mo. 1978).

37. 7 U.S.C. § 136h(a), ELR STAT. 42315.

38. Mobay Chemical Corp. v. Costle, 517 F. Supp. at 259; Union Carbide Agricultural Products Co. v. Ruckelshaus, 571 F. Supp. at 119-20, 13 ELR at 20969.

39. Chevron Chemical Co. v. Costle, 641 F.2d at 111, 11 ELR at 20159.

40. Id.

41. See S. 1678, 95th Cong., 1st Sess. (1977), reported in S. REP. NO. 334, 95th Cong., 1st Sess. 129-30 (1977).

42. See H.R. 8681, 95th Cong., 1st Sess. (1977), reported in H.R. REP. NO. 663, 95th Cong., 1st Sess. (1977).

43. Pub. L. No. 396, 92 Stat. 819 (1978) [hereinafter cited at 1978 amendments].

44. See FIFRA § 3(c)(1)(D), 7 U.S.C. § 136a(c)(1)(D), ELR STAT. 42309-10.

45. FIFRA § 3(c)(1)(D)(i), 7 U.S.C. § 136a(c)(1)(D)(i), ELR STAT. 42310.

46. FIFRA § 3(c)(1)(D)(ii), 7 U.S.C. § 136a(c)(1)(D)(ii), ELR STAT. 42310.

47. FIFRA § 3(c)(1)(D)(iii), 7 U.S.C. § 136a(c)(1)(D)(iii), ELR STAT. 42310.

48. FIFRA § 3(c)(1)(D), 7 U.S.C. § 136a(c)(1)(D), ELR STAT. 42309-10. The history of EPA's ill-fated efforts to implement these data submission/citation procedures under the 1972 and 1978 amendments is beyond the scope of this article. In capsule, EPA in 1979 issued regulations that required an applicant to "cite all" of the data in EPA's files that were relevant to consideration of his product. All of these data therefore were potentially subject to the compensation requirements. 44 Fed. Reg. 27945 (1979). The Third Circuit later held that EPA held not followed proper notice-and-comment procedures in promulgating the regulations. Mobay Chemical Corp. v. Gorsuch, 682 F.2d 419, 12 ELR 20776 (3d Cir. 1982). EPA reproposed the regulations, 47 Fed. Reg. 57635 (1982), but the federal District Court for the District of Columbia subsequently invalidated the regulations on the ground that they were inconsistent with the options given to registration applicants by FIFRA. National Agricultural Chemicals Ass'n v. EPA, 554 F. Supp. 1209, 13 ELR 20560 (D.D.C. 1983).

49. See supra note 5 and accompanying text.

50. U.S. CONST. amend. V.

51. Dow Chemical Co. v. Train, 423 F. Supp. 1359, 7 ELR 20262 (E.D. Mich. 1976), consent judgment entered sub nom. Dow Chemical Co. v. Costle, 7 ELR 20591 (E.D. Mich. 1977), summary judgment granted in part, 464 F. Supp. 395 (E.D. Mich. 1978).

52. 423 F. Supp. at 1364, 7 ELR at 20264. This holding was also adopted in the court's decision on motions for summary judgment. Dow Chemical Co. v. Costle, 464 F. Supp. at 399. The Tucker Act, 28 U.S.C. § 1491, provides in pertinent part:

The United States Claims Court shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

See also Union Carbide Agricultural Products Co. v. Costle, 632 F.2d at 1018-19, 10 ELR at 20848-49. Contra Amchem Products, Inc. v. Costle, 481 F. Supp. 195 (S.D.N.Y. 1979) (granting preliminary injunction against EPA use of trade secret research data for the benefit of competitors seeking pesticide registration).

53. Chevron Chemical Co. v. Costle, 499 F. Supp. 732, 11 ELR 20147 (D. Del. 1980), aff'd, 641 F.2d 104, 11 ELR 20156 (3d Cir.), cert. denied, 452 U.S. 961 (1981).,

54. 499 F. Supp. at 737, 11 ELR at 20150.

55. Id. at 740, 11 ELR at 20151.

56. Id. at 741-42, 11 ELR at 20152.

57. Id. at 742-43, 11 ELR at 20152-53.

58. Chevron Chemical Co. v. Costle, 641 F.2d 104, 11 ELR 20156 (3d Cir. 1981), cert. denied, 452 U.S. 961 (1981).

59. Id. at 114, 11 ELR at 20161.

60. Id. at 115, 11 ELR at 20161-62 (citations and footnotes omitted). The criminal statute at 18 U.S.C. § 1905 prohibits any federal employee from disclosing any private trade secrets "in any manner or to any extent not authorized by law."

61. 641 F.2d at 115-16, 11 ELR at 20162 (citations and footnotes omitted).

62. Id. at 116, 11 ELR at 20162.

63. Accord, Mobay Chemical Corp. v. Gorsuch, 682 F.2d 419, 422, 12 ELR 20776, 20778 (3d Cir.), cert. denied, 103 S. Ct. 343 (1982).

64. 519 F. Supp. 966, 11 ELR 20751 (D.D.C. 1981).

65. Id. at 970, 11 ELR at 20752 (footnote omitted). The third issue to which the court alluded was the applicability of the Tucker Act. The court noted, id. n.11, that if it were to address the Tucker Act, it would probably follow the analysis in Chevron Chemical Co. v. Costle, 499 F. Supp. 732, 11 ELR 20147 (D. Del. 1980). However, the court preferred in this instance to address the taking issue first, "because the Tucker Act issue — like the property right issue — may be a closer and more intractable question than the takings matter." 519 F. Supp. at 970 n.11, 11 ELR at 20752 n.11.

66. 519 F. Supp. at 970, 11 ELR at 20753.

67. Id.

68. Id. at 970-71, 11 ELR at 20753 (footnote omitted).

69. Id. at 971, 11 ELR at 20753.

70. Id.

71. Id.

72. Id. at 972, 11 ELR at 20753.

73. Id.

74. Id.

75. 564 F. Supp. 552, 13 ELR 20561 (E.D. Mo. Apr. 19, 1983, amended May 9, 1983).

76. Id. at 562, 13 ELR at 20566 (emphasis added).

77. Id. at 564, 13 ELR at 20567.

78. See supra note 21.

79. 564 F. Supp. at 565, 13 ELR at 20567.

80. Id. at 565-66, 13 ELR at 20568 (citations and footnotes omitted).

81. Id. at 566, 13 ELR at 20568.

82. Id.

83. Id.

84. Id.

85. Id.

86. 564 F. Supp. at 568, 13 ELR at 20569.

87. Id. at 567, 13 ELR at 20568. The intricacies of EPA's data compensation provisions are beyond the scope of this article. Moreover, it is highly unlikely that the district court's holding with respect to the unconstitutionality of the compensation scheme will be raised in the Surpeme Court decision in Monsanto. EPA is not asserting that the FIFRA arbitration scheme is intended to provide constitutional just compensation within the meaning of the Fifth Amendment. Jurisdictional Statement by Appellant at 25, Ruckelshaus v. Monsanto Co., prob. juris. noted, 52 U.S.L.W. 3279 (Oct. 11, 1983), No. 83-196; Brief for the Appellant at 41-44. In light of this position, Monsanto Co. has agreed that there are no other constitutional issues regarding the arbitration scheme properly before the Court and that such issues would not be ripe for adjudication in any event. Brief of Appellee Monsanto Co. at 40 n.56.

The constitutional issues raised by the arbitration scheme's status as an independent statutory entitlement, rather than as just compensation, were, however, directly addressed in Union Carbide Agricultural Products Co. v. Ruckelshaus, 571 F. Supp. 117, 13 ELR 20969 (S.D.N.Y. 1983), decided subsequent to Monsanto. In Union Carbide, the federal district court held that the FIFRA provisions for the determination of statutory compensation are unconstitutional as a violation of Article III of the Constitution (regarding the allocation of federal judicial power) primarily on the basis that the arbitration procedure "commits to arbitrators the power to resolve valuation issues utterly without judicial review." 571 F. Supp. at 124, 13 ELR at 20971. Regardless of the actions of Monsanto, therefore, the independent status of the § 3 arbitration scheme will remain in doubt.

88. See supra text accompanying notes 59-63.

89. Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 123-24, 8 ELR 20528, 20533 (1978). In its brief before the Supreme Court, Monsanto asserts that a balancing test is not appropriate under the Taking Clause. Brief of Appellee Monsanto Co. at 32. Nevertheless, it is difficult to see how the Court can avoid a detailed look at the actual impact of the data use provisions, both on Monsanto and others, in deciding the "taking" issue.

90. See supra text accompanying note 56.

91. Regional Rail Reorganization Act Cases, 419 U.S. 102, 126 (1974) (emphasis in original).

92. 21 U.S.C. §§ 301-392, ELR STAT. 41313-41334.

93. 21 C.F.R. § 431.21.

94. 42 U.S.C. § 262, 58 Stat. 702. This statute is also interpreted by FDA to permit second applicants for a biological license to benefit, free of charge, from safety and effectiveness data submitted by the pioneer developer. See 21 C.F.R. § 601.51. As in the case of antibiotics, the ability of FDA to use biologic data in this manner has never been challenged. In contrast, in the case of new drugs approved after 1962 under § 505 of the FFDCA, 21 U.S.C. § 355, unpublished safety and effectiveness data from one applicant may not be used to approve the identical drug of a second applicant.

95. Described in Notice of Availability of Interim Procedures for Pesicide Registration, 48 Fed. Reg. 32012 (July 13, 1983).