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Instead of moving 100 1.ilile Compion, they just visae.

And instead of enjoying the birds, flowers. gentle breezes and the hope of a peaceful reluge“ that they described in one letter, they are left with bittemess.

"What has happened to us is that DEM strung us out until the legal costs are greater than the vialue of the property," says Mrs. Williams “How does a citizen protect hornself from a governinent agency that doesn't tell the truth. has deep pockets funded by the public. in can string you out forever? They are the king. they are the einperor."

but one bill would allow huilding within 10 feet.

Excha yew abown 32 employees in DEM's Division of Wetlinds process GARI to 7(X) applications to build near wetlands. Because their rulings can amount to a red light against building, their determinations can spell the difference between big money and a worthless piece of property

The debate over protectin: wetlanda has reached the highest level of state government.

In December, it is hearing on proposed new wetlands regulations. u. Gov. Robert A. Weygand and Joseph R. Paolino Jr., who at the time was director of the state Department of Economic Development, led critics opposed to further tightening of the state's wetlands regulations.

Afer some minor changes. DEM cacted the new rules.

But when Governor Sundlun fired DEM Director Louise Durfee last March, environmentalist were concerned that he was caving in to builders who thought she was enforcing wetlands lows 100 strictly. Sundlun quickly pledged that he wouldn't tamper with the new wetlands rules.

DEM changes training The consequences of the debate over wetlands become startlingly real when you step on the loc where the Williamses just ripped qui their foundution and septic system.

He wppears to be very wet land. The ground is 100 socky 10 cross without boots. Skunk cabbage and curtais grow right up to the edge of the foundation.

As Lovise Williams supervised efforts to lew out the last vestiges of a house on her property, she couldn's hold back her anger.

She and her husband. both corporate executives, are used to Testimony of Brian Bishop

doing things righe. she said. They talked to the local building official. hired iwo local engineers and dealt regularly with DEM on their new septic system

"DEM keeps saying we should have known there were wellands." she says. “But I'm not an engineer or an architect or a lawyer or a botanist. That's why we got professional people. This just isn't righe. If you own 5 acres in the United States, you have the right to live on it."

Louise Williams insists that DEM's nepric systein inspectors visited her property several times and should have alerted her to the wetlands.

DEM officials now concede in would have been better if the inspectors sounded the alarm. But septic inspectors at the time focused just on septic systems, and were not trained to look at other problems. DEM 'now is providing broader training

Catherine Robinson Hall, the lawyer representing DEM wetlands regulators, says Louise Williams neglected 10 mention that DEM, early on. advised her to consult DEM for a verification of the location of wetlands on the property. She never did, Hall said.

Dean Albro. chief of DEM'S wetlands section. says that if the Williams case was at all marginal. DEM would have reached compromise. But the land, he said. is saturaled. Cattails grew out of the foundation after it was poured, he said.

The Williamses went through protracted hearings and administrative and legal appeals - that led ultimately to rejection by the Rhode Island Supreme Court The couple

live

a condominium in Concord. Mass.

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PREPARED STATEMENT OF ROBERT J. CYNKAR AND F. EDWIN FROELICH On December 8, 1994, President Clinton signed the Uruguay Round Agreements Act (“URAA ”) implementing the obligations of the United States under the General Agreement on Trade and Tariffs (“GATT ”).1 The URAA conformed United States patent law to the international standards agreed to under GATT. As a result, all patents in effect on June 8, 1995 had their terms changed to the longer of 17 years from the date of grant or 20 years from date on which the application was filed.2 This change extended the patent terms of scores of existing patents, including at least 13 pharmaceutical patents.3 A few members of Congress now have proposed to change federal law to take away these patent term extensions for pharmaceutical products. These legislative proposals, if enacted, would directly implicate the Takings Clause of the Fifth Amendment to the Constitution.5

The debate over whether to repeal these patent term extensions is the most recent manifestation of the inherent tensions between the interests of those pharmaceutical companies that bear the costs of researching and marketing pioneer drugs and those companies that are able to market cheaper, generic versions of those drugs because they have not borne those initial research and development costs. More specifically, the proposed legislation is an outgrowth of the policy debate and compromises that produced the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Act”). Regardless of the public policy goals offered by proponents as justification for their proposals to repeal the patent term extensions, under long-established judicial precedent, the rights of existing patent holders are a form of property protected under the Constitution. Any taking of those rights by the federal government would entitle those property holders to compensation from the government under the Fifth Amendment.

Patent rights have a somewhat unique status under American law. Though a variety of intangible interests are protected as property under the Constitution, patent rights have perhaps the longest pedigree of unambiguous judicial recognition as property. This long history of recognizing and protecting the property rights embodied in a patent undoubtedly is due in some part to the fact that, unlike other intangible property rights, the Constitution explicitly authorizes Congress to secure patent rights.9 A far more important reason for this unwavering protection for patent rights in American jurisprudence, however, is the inherent legal nature of a patent right. As one court succinctly put it, “The patent right, solely that of excluding others, is the fundamental element of all human rights called 'property.” 10

For purposes of the proposed retroactive reduction of pharmaceutical patent terms, a patent has two essential attributes: exclusive rights for the patent holder, and a defined time period for those rights. 11 As Justice William O. Douglas ex

8

1 Pub. L. No. 103_465, 108 Stat. 4809 (Dec. 8, 1994).
2 Pub. L. No. 103–465, 8532(a), 108 Stat. 4809, 4983–85 (amending 35 U.S.C. $ 154(c)).

3 We recognize that the claim has been made that the URAA's patent term extensions do not fully apply in the context of pharmaceutical patents. However, given the unanimous ruling to the contrary in DuPont Merck Pharmaceutical Co. v. Bristol-Myers Squibb Co., 62 F.3d 1397 (Fed. Cir. 1995), and the similar conclusion of the Food and Drug Administration, FDA Response to Petition of Glaxo, Inc., Docket No. 95P-0061/CPI (May 25, 1995), we have assumed for our analysis that this claim is not well-founded and that the URAA fully applies in the context of pharmaceutical patents.

4 See e.g., The Consumer Access to Prescription Drugs Act of 1995, S. 1191, 104th Cong., 1st Sess. (August 11, 1995).

5 The Takings Clause provides: '[N]or shall private property be taken for public use, without just compensation.”

6 Pub. L. No. 98–417, 98 Stat. 1585 (1984).

7 See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 10034 (1984) (recognizing a trade secret as a property right protected by the Constitution).

See, e.g., De La Verne Refrigerating Machine Co. v. Featherstone, 147 U.S. 209, 222 (1893) (“The privileges granted by letters patent are plainly an instance of an incorporeal kind of personal property

*"). 9 The Constitution expressly authorizes Congress "[t]o promote the Progress of Science and useful Ants, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” U.S. Const. art. 1, 88, cl. 8.

10 Nickola v. Peterson, 580 F.2d 898, 914 n. 25 (6th Cir. 1978). See also Carl Schenck, A.G. v. Nortron Corp., 713 F.2d 782, 786 n. 3 (Fed. Cir. 1983) (“The patent right is but the right to exclude others, the very definition of 'property.").

1135 U.S.C. § 154(a)(1) as amended by Pub. L. 103–465. A patent consists of

the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States, and, if the invention is a process, of the right to exlude others from using, offering for sale or selling throughout the United States, or importing into the United States, products made by the process, referring to the specification for the particulars thereof.

*

plained, a patent "gives the patentee or his assignee the 'exclusive right to make, use, and vend the invention or discovery' for a limited period.” 12 Thus, legislation affecting either the exclusive use of a product to which a patent holder is entitled, or the time period during which the patent holder is entitled to that exclusive use, affects core elements of the property right represented by a patent.13

To be sure, all patent rights are creatures of federal statute. But the fact that patent rights are in a sense a function of congressional discretion embodied in a statute does not mean that Congress has the freedom to change those rights once they are vested in particular patent holders. As the Supreme Court long ago pointed out, “when the government) grants a patent the grantee is entitled to it as a matter of right, and does not receive it, as was originally supposed to be the case in England, as a matter of grace and favor.” 14 As a result, Congress does have broad discretion to legislate on the subject of patents so long as “they do not take away the rights of property in existing patents.” 15 Indeed, the Supreme Court has explicitly held that a repeal of a patent statute “can have no effect to impair the right of property then existing in a patentee, or his assignee. * * *” 16

The proposed repeal of the URAA's patent term extensions with respect to pharmaceuticals that is, a reduction in the patent term to which existing patent holders are currently entitled-would clearly deprive the patent holders of their property rights in those extensions.17 Accordingly, such legislation would trigger the Fifth Amendment guarantee that the property holders receive just compensation. 13 As a result, the federal government would be required to put each patent holder in as good a financial position as they would have been if the patent term extensions had not been taken. 19

In conclusion, given the unambiguous status of patent rights as property, the Supreme Court has long recognized that protections for private property provided in the Fifth Amendment fully apply to patents even thought those patent rights are initially created through federal statute 20 Should legislation be enacted that directly or indirectly takes the patent term extensions from the current patent holders, those patent holders would be entitled to fill compensation from the federal government for that property loss. Full compensation would be required as long as it is government action that deprives the private party of its property right, regardless of whether the government itself acquires or uses the property.21

12 Transparent-Wrap Machine Corp. v Stokes & Smith Co., 329 U.S. 637, 643 (1947). See also United States v. Dribilier Condenser Corp., 289 U.S. 178, 186–87 (1933) (explaining that a patent holder is given “exclusive enjoyment” of an invention for a period, “but upon expiration of that period, the knowledge of that invention inures to the people, who are thus enabled without restriction to practice it and profit by its use ”).

13 It is not uncommon for an intangible property interest to be limited to a certain period so that the time period is an aspect of the protected property right. For example, in Choate v. Trapp, 224 U.S. 665 (1912), land was allofted to the individual members of certain Indian tribes by land patents that provided that the land should be nontaxable for a limited time. When Congress tried to subject these lands to taxation before that period had expired, the Supreme Court held that Congress could not “lessen any of the rights of property which had been vested in the individual Indian by prior laws Such rights are protected from repeal by the provisions of the Fifth Amendment." Id. at 678.

14 James v. Campbell, 104 U.S. 356, 358 (1882).

16 McClurg v. Kingsland, 42 U.S. 202, 206 (1843). See also 60 Am. Jur. 2d Patents $7 (1987) (“[T]he repeal of patent laws cannot impair existing patent rights. ").

16 McClurg v. Kingsland, 42 U.S. at 206.

17 Any change to federal law that deprives the patent holders' of their rights in the patent extensions, regardless of how those rights are deprived, would trigger the protections of the Fifth Amendment. Therefore, the legal analysis is the same regardless of whether Congress were to take away the patent term extension rights by repealing the relevant provisions of the URAA, redefining terms in the URAA, amending the Hatch-Waxman Act, or making some other change in federal law.

18 The Takings Clause of the Fifth Amendment provides: “[N]or shall private property be taken for public use, without just compensation." U.S. Const. amend. V.

19 See, e.g., United States v. Virginia Electric & Power Co., 365 U.S. 624, 633 (1961). It is important to note that the courts, not Congress, have the exclusive responsibility for determining what is just compensation in any particular case. Congress may not even set rules for the courts to use in determining compensation. See Monongahela Nav. Co. v. United States, 148 U.S. 312, 327(1893), Baltimore & O. R. Co. v. United States, 298 U.S. 349, 368 (1936), Miller v. United States, 620 F.2d 812, 837 (Ct. Cl. 1980).

20 James v. Campbeli, 104 U.S at 358; Hollister v. Benedict & Burnham Mfg. Co., 113 U.S. 59, 67 (1885) (observing that the “right of the patentee” is secured “by the constitutional guarantee which prohibits the taking of private property for public use without compensation"); Transparent-Wrap Machine Corp. v Stokes & Smith Co., 329 U.S. at 643 (A patent right is accorded "the same dignity as any other property. ").

PREPARED STATEMENT OF MICHAEL L. Davis, CHIEF, REGULATORY BRANCH, U.S.

ARMY CORPS OF ENGINEERS MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE: Thank you for the opportunity to provide the Administration's views regarding the effect of wetlands protection programs on the rights of private property owners and the effects that so-called "takings” bills would have on these same programs if enacted as law. I am Michael Davis, Chief of the Army Corps of Engineers Regulatory Branch, which has primary responsibility for the administration of the Clean Water Act Section 404 program. Section 404 is the primary Federal regulatory program for wetlands protection and will be the focus of my testimony today,

To say that the protection of wetlands through regulation has engendered considerable controversy in the past few years may be one of the few points of common ground between those that believe that the Section 404 program is no more than a Federal rubber stamp allowing the destruction of wetlands and those that suggest that the program tramples on the rights of private property owners. Opinions about the program too often ignore the facts, but instead are based on anecdote. This has led to legislative proposals such as H.R. 925 and S. 605 (takings bills) and H.R. 961 S. 851 (wetlands bills). We do not have to create a dichotomy between property rights and environmental protection. The Section 404 program has been successful in balancing the interests of all property owners—allowing reasonable development while protecting our Nation's aquatic resources.

When deciding whether changes to a particular program are needed or desirable, it is important to first understand how a program actually performs. In this case, how does the Section 404 program affect landowners? Before discussing the problems associated with S. 605 and similar takings bills such as H.R. 925, I will highlight recent ion 404 statistics and a ew of the wetlands initiatives currently being implemented by the Administration. More detailed information will be provided in an upcoming Subcommittee hearing dealing specffically with wetlands.

SECTION 404 STATISTICS-HOW THE PROGRAM WORKS

Permits

As noted in Figures 1 and 2, in Fiscal Year 1994 over 48,000 landowners asked the Corps for a Section 404 permit to discharge dredged or fill material into the waters of the United States, including wetlands. Over 80 percent received authorization under a general permit in an average time of 16 days. Less than 10 percent were subjected to the more detailed individual permit evaluation, where the average time was 127 days. Less than one percent of the 48,000 applications were denied. It may be that in a few cases the Corps took too long to evaluate an application and perhaps subjected landowners to an unnecessarily lengthy evaluation process. But these cases are very rare compared to the ones that go forward in a timely manner with minimal regulatory burdens.

As a case is made that generally the program is fair and working well from a landowner's perspective, some continue to criticize the Corps for issuing too many permits. What these individuals fail to recognize is that the Corps has been very successful in reducing wetlands impacts and adverse effects on other landowners, through the regulatory evaluation and conditioning process, including the general permit process. Most applicants are willing to avoid, minimize, and mitigate for project impacts. Through effective application of the environmental criteria and the public interest review, the Corps is successful in striking the correct balance between protection of the overall public interest and reasonable development of private property.

21 United States v. General Motors Corp., 323 U.S. 373, 378 (1945), quoted in Ruckelshaus v. Monsanto Co., 467 U.S. at 1004–5.

CORPS OF ENGINEERS REGULATORY PROGRAM

FY 1994 - 404 APPLICATIONS - TYPE OF DECISION

Lottor o Pormission 0.8%

Standard 7.8%

Denial 0.7%

Withdrawn 8.7%

General Peoni: 82.0%

TOTAL NUMBER EVALUATED: GENERAL PERMIT 39019. STANDARD PERMIT 3760 LETTER OF PERMISSION 374. WITHORAWN 4184 DENIAL 358

Figure 1.

CORPS OF ENGINEERS REGULATORY PROGRAM

FY 1994.404 APPUCANONS - AVERAGE EVALUATION CAYS

Avg Daya

200

150

100

50

0
GP
SP
LOP

DENTAL TOTAL. 104
AVG DAYS 16

12

162
TOTAL NUMBER EVALUATED: GENERAL PERMIT (GP) 30019, STANDARD
PERMIT (SP) 3760. LETTER OF PERMISSION (LOP 374, WITH ORAWN 4184 (NO
DATA AVAILABLE FOR AVG DAYS EVALUATED). DENUL 358

Figure 2.

Enforcement

Much has been said about a few highly publicized Section 404 wetland enforcement cases. The reality is that only approximately one percent of all Section 404 enforcement actions result in any kind of civil or criminal judicial action by the Federal Government. As indicated in Figure 3, the vast majority of violations are resolved by after-the-fact permits and voluntary actions by the landowner. Only in extreme cases does the Government find it necessary to pursue litigation.

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