Saturday, May 17, 2014

The Guardian of Every Other Right: Part III

"Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries." – Ayn Rand, 1963*

As a final note on James W. Ely, Jr.'s chapter, "The Development of Property Rights," where we left off in Part II of this review, something should be said about the status of intellectual property and patents. Ely wrote:

Patent and copyright law also raised important issues of property rights and community interests during the antebellum period. The Constitution authorized Congress to grant limited monopolies to inventors and authors for the purpose of encouraging technology and literary production. In 1790 Congress passed legislation securing both copyrights and patents. Under these acts, copyrights lasted for a renewable term of fourteen years from the date of publication. Patents, granted on application for novel and useful inventions had a duration not exceeding fourteen years. once copyrights and patents expired, the work fell into the public domain. (Italics mine; p. 81)

Ely does not discuss the status of trademarks, however.

The Supreme Court's first ruling on the law of intellectual property was Wheaton v. Peters (1834). Concluding that there was no common law copyright, the Court held that a statutory copyright could be obtained only by strict compliance with the terms of the 1790 act. Reflecting the Jacksonian hostility to monopolies, the Wheaton decision established that copyright protection was designed to benefit the public and was therefore confined to the narrow limits set by Congress. (Italics mine; p. 81)

Ironically, Wheaton v. Peters concerned the status of copies of the Supreme Court's deliberations as recorded and managed by a Court reporter, Henry Wheaton. Supreme carries the opinion of Court:

In the eighth section of the first article of the Constitution of the United States it is declared that Congress shall have the power "to promote the progress of science and the useful arts by securing, for a limited time, to authors and inventors the exclusive right to their respective writings and inventions."

The word "secure," as used in the Constitution, could not mean the protection of an acknowledged legal right. It refers to inventors as well as authors, and it has never been pretended by anyone either in this country or in England that an inventor has a perpetual right at common law to sell the thing invented.

Henry Wheaton had filed a copyright claim to the Court's reports, and transferred publication rights to another person, while renewing the copyright for himself for another fourteen years. In the meantime, his successor as Court clerk, Richard Peters, published an abridged version of Wheaton's 24-volume work. While Peters's six-volume abridged version was based on Wheaton's work, Wheaton was not paid anything from the sales of Peters's version, which was a financial success. Procedural details governed the outcome of the case, as well, concerning whether or not Wheaton and others had complied with the terms of the 1790 law. My point here is that it was the "public" that was deferred to as the prime beneficiary of intellectual property, not the creator, not the individual who had a first claim to his intellectual or patented idea. This theme governed Court decisions well into the 20th century. The opinion stated:

That every man is entitled to the fruits of his own labor must be admitted, but he can enjoy them only, except by statutory provision, under the rules of property, which regulate society and which define the rights of things in general.

We now move on the post-Civil War "Gilded Age and the Challenge of Industrialization." This era saw the initial disintegration of any protection of property rights, which would reach a climax with the debut of President Franklin D. Roosevelt's New Deal in the 1930's.

Ely begins this chapter with:

American society experienced sweeping changes in the latter part of the nineteenth century. The Civil War destroyed slavery as a form of property and altered the balance of power between the federal government and the states. Industrialization and the growth of large-scale corporate enterprise transformed economic life, and Americans struggled to adjust to the new economic and social order. Prevailing constitutional thought stressed property rights and limitations on legitimate government authority….Armed with the due process clause of the Fourteenth Amendment, the Supreme Court emerged as a champion of economic liberty….This set the stage for a clash with those who favored greater regulatory intervention in the market. Concomitantly, the justices afforded greater protection to property owners by broadening the reach of the takings clause of the Fifth Amendment, and they invoked the commerce clause to strike down state interference with interstate commerce. (p. 83)

There were premonitory exceptions to the Court's "prevailing constitutional thought." Citing again the passage of the first income tax law in 1861, and the Legal Tender Act of 1862, which declared that the federal government's paper money notes were "legal tender for all debts and the payment of taxes," Ely writes:

Further, in 1864 Congress organized the national banking system and established a uniform currency of national banknotes. A year later Congress placed a heavy tax on state banknotes, effectively driving them out of circulation as currency. (p. 85)

Ely continues in another paragraph:

Also significant was the decision in Veazie Bank v. Fenno (1869), in which the Supreme Court affirmed the power of Congress to tax the notes of state banks [state government issued currency]. Stressing the importance of securing a uniform currency, the Court refused to scrutinize the motives of Congress in levying such a prohibitive tax. Thus, Veazie Bank established that Congress could use its taxing power to regulate or even eliminate particular economic activities. (Clarifying brackets mine; p. 85)

Ely does not mention any instances of the Court in any period questioning the power of any government, federal or state, to create banks. While government-created banks were deemed "economic activities," they were not per se private enterprises or private property. Establishing banks was not one of Congress's original enumerated powers. He does discuss, albeit briefly, the assumed powers of Congress to monopolize currency and establish a "uniform national currency."

In a grain elevator case in 1877, Munn v. Illinois, the Court upheld an Illinois statute "that set the rate for storing grain in Chicago elevators."

The elevator managers assailed this measure as both a deprivation of property without due process and an impermissible regulation of interstate commerce by a state.

Upholding the Illinois law, the Supreme Court again adopted a deferential attitude toward state authority to control the use of private property. Speaking for the Court, Chief Justice Morrison R. Waite ruled that "when private property is devoted to public use, it is subject to public regulation." Whether this public interest doctrine applied to a particular enterprise was considered a matter for legislative judgment. Although recognizing that the property owner "clothed with a public interest" was entitled to reasonable compensation, Waite further declared that the determination of such compensation was a legislative task, not a judicial one. The only protection of property owners against legislative abuse was resort to the political process. (pp. 87-88)

Another justice dissented with the majority opinion, "warning that under the Munn rationale, "'all property and all business in the State are held at the mercy of its legislature.'"

Stating that grain storage was a private business, he maintained that the due process clause afforded substantive protection to owners in their right to use and derive income from property. (p. 88)

Developing his theme of the clash between legislative aegis to control property, with the "public" present in the Court as an amorphous but mute amicus curiƦ  ("friend of the court"),  and liberty in the form of private property, Ely mentions two 19th century theorists who expostulated on the perils of legislative powers, Thomas M. Cooley and Christopher G. Tiedeman.

Cooley and Tiedeman gave impetus to the widespread acceptance of a constitutionalism grounded in economic liberty. Such advocates shared a deep aversion to state-sanctioned monopoly and viewed with suspicion most governmental intervention into the market economy.  Consistent with the Jacksonian heritage, they insisted that the government could not legitimately aid one class or group against another. Attorneys for corporate enterprise were quick to urge this position on the Supreme Court. They repeatedly contended that regulatory statutes exceeded legislative authority and particularly attacked laws seeking to redistribute wealth patterns.

The fundamental concerns of laissez-faire proponents, however, went beyond the entrenchment of economic privilege. They saw a close connection between economic liberty and the protection of personal freedom against government authority. (p. 89)

Still, as the nineteenth century drew to a close, the Supreme Court (as well as federal district and appellate courts) gradually shifted from a broad "eight-lane highway" approach to defending property rights to interpreting such protection in the alleys and byways of procedural niceties, constitutional protocols, and sheer funk of not wanting to tangle with state laws or even buck "populist" sentiment.  Fundamentals established by the Founders began to be forgotten or dismissed as "old fashioned" and harking back to different social and economic circumstances that no longer applied to rights. Ely writes, concerning the takings clause or eminent domain to benefit a private party:

In the important case of Missouri Pacific Railway Company v. Nebraska (1896) the Court [ruled] that the taking of property for the private use of another violated the due process clause of the Fourteenth Amendment. Nonetheless, both federal and state courts tended to defer to legislative findings that a particular appropriation of property was for a public use. This attitude helped erode the "public use" limitation as a check on the exercise of eminent domain. (p. 94)

In another case:

At the same time, the Supreme Court was cool toward the claim that [state] regulations limiting the use of property represented and unconstitutional taking without compensation. A Kansas law, for instance, prohibited the manufacture or sale of liquor and ordered the destruction of liquor already in stock. By preventing the use of breweries for their intended purpose, the statute drastically reduced the value of land and equipment to the owners. Stressing that this legislation did not disturb the owners' use of property for lawful activities, the Court in Mugler v. Kansas (1887) stated that a "prohibition simply upon the use of property for purposes that are declared by valid legislation, to be injurious to the health, morals, and safety of the community, cannot in any sense, be deemed a taking or an appropriation of property for the public benefit." In a dissenting opinion…Justice Field refused to concede that the legislature could limit the use of land without compensation and found that the destruction of liquor and brewing utensils "crossed the line which separates regulation from confiscation." (Italics mine; pp. 94-95)

If a state legislature deemed a certain "economic activity" as unlawful, the Court increasingly refused to question the moral propriety or validity of such a judgment. As for relying on the due process clause as protection of property, Ely notes:

…[D]uring the late nineteenth century the contract clause was gradually eclipsed by economic due process as the primary constitutional safeguard of property and business interests. Several factors explain the declining importance of the contract clause. By its terms the contract clause applied solely to the states and afforded no protection from federal regulation. (Italics mine; pp. 95-96)

Ely leaves the Gilded Age behind by giving us a few examples of the growing judicial myopia of the Court.

For the most part there was no federal legislation governing business activities, and the Supreme Court had difficulty formulating a standard by which to determine the extent of allowable state regulation of interstate commerce….Taking a step away from Munn, the Supreme Court held in Wabash, St. Louis & Pacific Railway vs. Illinois (1886) that state regulation of interstate rates invaded federal power under the commerce clause. The Court reasoned that "this species of regulation is one which must be, if established at all, of a general and national character, and cannot be safely and wisely limited to local rules and local regulations."

In response, Congress passed the Interstate Commerce Act (1887), the first major affirmative exercise of federal regulatory authority under the commerce clause….Using the model of existing state regulations, the act also created the Interstate Commerce Commission (ICC), with the power to conduct hearings and issue orders to halt practices violating the statute….Whatever its shortcomings, the ICC was the first federal regulatory agency and heralded the rise of the administrative state during the twentieth century. (p. 100)

Capturing the hesitation and doubt that was beginning to hamstring the Supreme Court, Ely writes:

As Congress began gingerly to regulate interstate commerce, the Supreme Court adopted a restrictive conception of commerce and thereby limited the reach of Congress under the commerce clause. In Kidd v. Pearson (1888) the justices concluded that a state could prevent the manufacture of liquor for shipment to other states. Distinguishing between commerce and production, the Court defined commerce as trade and transportation. Under this interpretation, on the states could regulate manufacturing, mining, and agriculture. Although the distinction between commerce and production was later attacked as artificial, it preserved extensive state control over business and was broadly consistent with the constitutional scheme granting only enumerated powers to Congress. [!!!] (Exclamation marks mine; p. 101)

Ely hadn’t forgotten another unenumerated power of Congress.

The full implications of Kidd became evident in cases dealing with antitrust policy. Widespread public concern about monopolistic practices and market domination by a handful of corporations led to passage of the Sherman Antitrust Act of 1890, which declared illegal every contract or combination in restraint of trade among the states. At issue in United States v. E.C. Knight Co. (1895) was an effort by the government to dissolve a combination that controlled over 90 percent of the sugar refining in the country and was thus able to control the price of sugar. Speaking for the Court, Chief Justice Fuller famously asserted: "Commerce succeeds to manufacture, and is not part of it….The fact that an article is manufactured for export to another State does not of itself make it an article of interstate commerce." Because the refining of sugar was manufacturing rather than trade among the states, such activity could not be governed by the Sherman Act. (p. 101)

This is winning a victory on the enemy's terms. "Restraint of trade," as a strictly defined term, logically conjures up scenarios of criminals employing force or extortion to compel men to be fettered vassals and patrons of a successful corporation. Ely ends the chapter with the observation:

The Gilded Age marked an important watershed in U.S. constitutional history….The justices tended to strike down redistributive or class legislation but found that most exercises of [state] police power passed muster. The Court never sought to impose a strict laissez-faire ideology. (p. 104)

Part IV (and the last Part) of this review will track the rise of Progressivism and the debut of Roosevelt's New Deal, and how these developments affected the fading wisdom of the Supreme Court.

The Guardian of Every Other Right: A Constitutional History of Property Rights, by James W. Ely, Jr .. New York: Oxford University Press, 2007. 216 pp.

*From "For the New Intellectual," in For the New Intellectual: The Philosophy of Ayn Rand, by Ayn Rand. New York: Signet, 1963. 224 pp.

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