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.1 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.18 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 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). 15 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. "). is government action that deprives the private party of its property right, regardless of whether the government itself acquires or uses the property.21 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 Section 404 statistics and a few 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. 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. CORPS OF ENGINEERS REGULATORY PROGRAM ADMINISTRATION WETLANDS INITIATIVES—A FAIR, FLEXIBLE, AND EFFECTIVE APPROACH Notwithstanding the statistics noted above, the Section 404 program is not perfect from either the environmental protection standpoint or the regulatory burden perspective. There are a few real problems, and improvements can and should be made. The Clinton Administration is using its August 1993 Wetlands Plan as a policy roadmap for making all wetlands programs more fair, flexible, and effective. This 40-point plan emphasizes improving wetlands policy by: • streamlining the wetlands permitting program to eliminate unnecessary regulator burdens; • increasing cooperation with private landowners to protect and restore wetlands; ⚫ basing wetland protection on good science and sound judgement; and • increasing participation by States, Thibes, local governments, and the public in wetlands protection. One criticism of the Section 404 program is that it treats landowners unfairly, particularly the "mom and pop" landowner. It should, however, be clear that the Corps and this Administration strongly support private property rights. The right to own, reasonably use and enjoy private property is vital to our nation's economic strength and to our Constitutional heritage. A central tenet of the Administration's wetlands plan is to ensure that the Section 404 program is administered in a manner that is fair to all landowners and to the general public and the public interest. We have taken action to reduce delays and streamline the process for small landowners. As proposed on March 6, 1995, the Corps will soon issue a new general permit that will allow landowners to build or expand single-family homes in non-tidal wetlands without an individual permit when the total impacts are less than one-half acre. On March 6, 1995, the Corps and the Environmental Protection Agency (EPA) issued guidance to their field offices stating that for the construction of homes, farm buildings, and the expansion of small businesses impacting less than two acres of non-tidal wetlands, alternative sites not owned by the applicant are presumed to be impracticable. The Corps will soon propose for public comment a new program that will allow landowners to appeal a wetlands jurisdictional determination or a permit denial without going to court. In January 1994, the Corps, EPA, and the Fish and Wildlife Service (FWS) signed a memorandum of agreement with the Department of Agriculture's Natural Resources Conservation Service (NRCS) that gives NRCS the lead for wetlands_determinations on agricultural lands for both the Food Security Act and CWA Section 404. Farmers no longer run the risk of getting two different answers from two Federal agencies. Later this year the Corps expects to finalize a program that will allow the government to rely more on private sector wetland consultants. This should free Corps personnel to conduct wetlands determinations more quickly for small landowners, and should reduce the overall time to evaluate applications for larger projects. The Corps, EPA, FWS, NRCS, and the National Marine Fisheries Service are in the process of finalizing guidance on wetlands mitigation banking. When properly implemented, mitigation banking can provide another compensatory mitigation tool that is good for the aquatic environment and that provides landowners additional flexibility in meeting permit requirements. These are a few examples of how this Administration is working to reduce burdens on landowners and to make the program more fair. There are some who believe that all wetlands are the same, and others who believe that we regulate all wetlands with the same rigor. While neither of these notions are true, those misunderstandings have led some to believe that we permit the destruction of too many wetlands, and led others to call for national classification, or ranking, of wetlands. This administration has been unequivocal in stating that all wetlands are not the same, and should not be regulated in the same way. The regulatory response to a proposed project in wetlands should be commensurate with the relative functions and values of the resource and with the nature of the impacts associated with the particular project. For example, if a project involves a low-value wetland resource and has minor impacts, we should not require a rigorous evaluation of a permit application. In the alternative, if moderate to high value wetland resources are involved and the project impacts are substantial, we should require a detailed evaluation. We have emphasized this approach through regulatory guidance, and this is the way the program currently works. Using general permits, which authorize over 80 percent of all Section 404-regulated activities, and individual permits which take into account the specifics of the resource and the development project, we have the flexibility to make sound, common sense decisions based on the project impacts and the risk to the resource. In the past year or so much has been written about the proper role and size of the Federal government. This has been discussed explicitly in the context of wetlands regulation. In the President's Wetlands Plan it is clear that this Administration recognizes fully the importance of developing strong partnerships with state, tribal, and local governments which have wetlands programs. In short, we will not meet our wetlands protection objectives if we rely solely on the Federal government. While we must maintain strong Federal programs, including the Section 404 program, we must work with the states, tribes, and local governments to create a national wetlands program-not just a Federal program. To create a national program we must recognize that there are effective state and local regulatory programs in place. In such cases the Section 404 program should not duplicate the regulatory actions of another level of government. The Federal government should instead work with the state or local government as a partner where each has clearly defined responsibilities and the Federal government maintains responsibility for programmatic evaluation of the state or local program. Existing authorities such as state assumption of the program authorized by EPA pursuant to Section 404(g) and programmatic general permits issued by the Corps provide the necessary vehicles for building this national program. The Corps is currently working with the states to develop programmatic general permit guidance-an approach that shows great promise. The guidance will both encourage programmatic general permits and set the limitations on their use. The basic principle will be that if a state, tribal, or local regulatory program provides the same level of protection as provided by the Federal Section 404 program, and if such protection will be sustained in the future, the Corps should not duplicate such a program. If properly implemented, the environment will be better protected and the regulated public will be spared unnecessary, duplicative levels of regulation. The Corps will then be able to prioritize better its work-focusing on larger projects with potentially greater impacts. Summary EFFECT OF S. 605 ON THE SECTION 404 PROGRAM S. 605 or similar bills would engender unjustified, but nonetheless, huge and virtually unlimited, claims against the Corps Civil Works budget. For the reasons set forth below, the Army would recommend that the President veto S. 605, if passed in its current form, or similar legislation. The potentially immense administrative and liability costs such laws would impose on the Corps budget would drastically affect the Corps' ability to carry on essential civil works functions such as responding to floods and other disasters, and protecting and enhancing the public interest through development and operation of water resources projects for navigation, flood control, and environmental restoration. Payments required by such laws would drain the Corps regulatory funds, making it impossible to continue protecting public health, safety, environmental values, and the overall public interest through administration of the Corps regulatory program (i.e., pursuant to Section 404 of the Clean |