267 F. 3d 45 - Philip Morris Inc v. Thomas F Reilly Attorney General of Howard

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, Jr., U.S. District Judge]

William W. Porter, Assistant Attorney General, with whom Thomas A. Barnico, Assistant Attorney General, and Thomas F. Reilly, Attorney General, were on brief, for appellants.

Douglas N. Letter, Appellate Litigation Counsel, with whom Stuart E. Schiffer, Deputy Assistant Attorney General, and Donald K. Stern, United States Attorney, were on brief for the United States, amicus curiae.

John D. Echeverria on brief for Environmental Defense, Consumer Federation of America, Calvert Group, Ltd., OMB Watch, Working Group on Community Right to Know and Atlantic States Legal Foundation, amici curiae.

Bonnie I. Robin-Vergeer, David C. Vladeck, Public Citizen Litigation Group, Matthew L. Myers, and National Center for Tobacco -Free Kids, on brief for Public Citizen, Inc., National Center for Tobacco-Free Kids, American Cancer Society, American College of Cardiology Massachusetts Chapter, American College of Chest Physicians, American College of Physicians-American Society of Internal Medicine, American Heart Association, American Lung Association, American Medical Association, American Public Health Association, American School Health Association, American Thoracic Society, Massachusetts Medical Society, and The National Association of Local Boards of Health, amici curiae.

Henry C. Dinger, with whom Henry C. Dinger, P.C., Cerise Lim-Epstein, Goodwin, Procter LLP, Clausen Ely, Jr., Patricia A. Barald, Covington & Burling, Richard M. Zielinski, Robert D. Ryan, and Hill & Barlow were on brief, for Philip Morris Incorporated, and Lorillard Tobacco Company, appellees.

John L. Oberdorfer, with whom Patton Boggs LLP, A. Hugh Scott, Choate, Hall & Stewart, Peter J. McKenna, Eric S. Sarner, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief, for Brown & Williamson Tobacco Corp., Conwood Company, L.P., National Tobacco Company, L.P., The Pinkerton Tobacco Company, Swisher International, Inc., and U.S. Smokeless Tobacco Company, appellees.

John H. Henn, Foley, Hoag & Eliot, John B. Connarton, Jr., Marcia E. Harris, and Connarton, Wood & Callahan on brief, for Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company, appellees.

Daniel J. Popeo, Richard A. Samp and Washington Legal Foundation, on brief for Washington Legal Foundation, amicus curiae.

Before Selya, Circuit Judge, Schwarzer,* Senior District Judge, and Saris,** District Judge.

SCHWARZER, Senior District Judge.

We must decide the Constitutional validity of a Massachusetts statute requiring tobacco companies marketing their products in the Commonwealth to disclose for each brand the identity of each added ingredient in order of weight, measure or count--information the companies treat as trade secrets. The district court held the statute to violate the Fifth and Fourteenth Amendments by effecting an uncompensated taking, the Due Process Clause, and the Commerce Clause, and entered a permanent injunction. We have jurisdiction over this appeal and reverse.

Plaintiffs-appellees are manufacturers of cigarettes and smokeless tobacco (the Manufacturers).1 Since the late 1970s, when consumers began demanding lower tar and nicotine levels, the Manufacturers have increased the number of additives, other than tobacco, in their products, ostensibly to offset the lost flavor and taste. Today the Manufacturers report using approximately 700 additives, many of which are the focus of public health officials' concern. The Manufacturers assert that these additives, besides improving taste, flavor and aroma, serve as solvents, processing aids, and pH modifiers, and also fulfill other chemical functions. Each brand contains a combination of ingredients that substantially contributes to its distinctiveness and thus its competitive success. As such a formula gives a manufacturer a competitive advantage over other manufacturers who cannot, given the current state of technology, mimic it, the Manufacturers have invested many millions of dollars in creating their distinctive blends and take extensive precautions to protect the identity of the ingredients from disclosure.

Federal law requires the Manufacturers to submit to the Department of Health and Human Services (DHHS) an aggregate list of ingredients used in cigarettes and smokeless tobacco, without identification of the relevant manufacturer or brand or disclosure of quantities.2 Thus, although the lists compiled under the federal statutes are voluminous, they do not identify the ingredients (or the amounts) used in any particular brand nor do they enable public health experts to research how these ingredients might impact health when combined in particular amounts with others. See E.R. at 516 (Letter from David Satcher, M.D., Ph.D., Director of Centers for Disease Control, to Congress ("Many of the approximately 700 ingredients added to tobacco could be causes of diseases or potential adverse health effects, if a sufficiently high dose is ingested. . . . [W]e do not know what potentially harmful byproducts may be produced when tobacco additives are burned alone or in combination, as they are in cigarettes.")). In 1996, responding to what it perceived as this very problem, the Massachusetts legislature enacted the Massachusetts Tobacco Ingredients and Nicotine Yield Act (the Disclosure Act), the law at issue here. Mass. Gen. Laws ch. 94, § 307B (2000).3

The Disclosure Act requires each manufacturer to provide the Massachusetts Department of Public Health (DPH) with an annual report listing, for each brand, "the identity of any added constituent . . . in descending order according to weight, measure, or numerical count."4 The Disclosure Act further provides that both the brand's ingredient list and nicotine yield rating (the estimated amount of nicotine an average consumer would ingest when using the product) "shall" become a public record if two conditions are met. First, DPH must determine that "there is a reasonable scientific basis for concluding that the availability of such information could reduce risks to public health." See Mass. Regs. Code tit. 105, §§ 660.200(A)-(C). Second, the Massachusetts Attorney General must advise DPH that the public release of the information would not constitute an unconstitutional taking of property. Id. 105, §§ 660.200(D)-(E). The regulations require DPH to give the manufacturer sixty days' written notice of the information to be disclosed if the Attorney General decides that disclosure would not be a taking. Id. § 660.200(E). The manufacturer may then cease sales in Massachusetts or remove the product from the Massachusetts market in order to reformulate it without the constituent(s) identified as problematic by DPH. Id. § 660.200(F). Under a 1999 amendment to the regulations, all information provided to DPH is to remain confidential unless and until: (1) the manufacturer notifies DPH in writing that it does not consider the additive information it has submitted to be confidential; (2) sixty days has elapsed since DPH notified the manufacturer of the information to be disclosed and no complaint has been filed in a court of competent jurisdiction challenging disclosure on the grounds that it would make public a trade secret; (3) disclosure is authorized by a court of competent jurisdiction and the time for appeal has elapsed; or (4) disclosure is authorized by agreement of the parties. Id. § 660.200(G).

The Disclosure Act will enable DPH to study additives and the potential synergistic effects of certain ingredients in particular brands to determine whether they present health risks. If the requirements for public disclosure are met, DPH will be able to inform consumers whether a particular brand contains ingredients it has determined to be associated with adverse health effects, including enhanced nicotine delivery. In particular, it will be able to inform consumers whether the designation of several brands as "light" or "ultra light" (based upon estimates of low tar and nicotine delivery under the Federal Trade Commission (FTC) machine testing method) is misleading. See 61 Fed. Reg. 44,970-79, 974 (Aug. 28, 1996) (noting that the Food and Drug Administration has found that "the actual nicotine delivery to the smoker from some brands may be higher than the FTC yield because of the addition of ammonia or similar compounds to increase free nicotine"); see also 61 Fed. Reg. 45,108-16 (Aug. 28, 1996) (detailing similar manipulation of nicotine delivery in smokeless tobacco). Even in the absence of public disclosure, DPH's study of additive safety could provide valuable information contributing to public health.

Texas has also enacted legislation requiring brand-specific reporting of ingredients.5 See Tex. Health & Safety Code Ann. §§ 161.351-.355 (1999). The Texas statute obligates the Manufacturers to report the same information required by the Disclosure Act, but, like the federal statutes which require the Secretary of DHHS to treat the submitted information as "trade secret or confidential information," see 15 U.S.C. § 1335a(b)(2)(A); 15 U.S.C. § 4403(b)(2)(A), the Texas statute provides explicit protection for trade secrets. See Tex. Health & Safety Code Ann. § 161.354(d) (1999). It is the absence of such protection in the Disclosure Act, and the consequences that may ensue, that impel the Manufacturers' challenge.

The Manufacturers initially filed this action in the fall of 1996. In separate suits which were later consolidated, the cigarette and smokeless tobacco companies claimed that the statute was preempted by federal law and that it ran afoul of the Takings Clause, the Commerce Clause, and the Due Process Clause. On February 7, 1997, the district court held that the Disclosure Act was not preempted by either the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. §§ 1331-41, or the Comprehensive Smokeless Tobacco Health Education Act of 1986, 15 U.S.C. §§ 4401-08. After granting interlocutory review, this court affirmed. Philip Morris, Inc. v. Harshbarger ("Philip Morris I"), 122 F.3d 58 (1st Cir. 1997).

In September 1997, the Manufacturers moved for a preliminary injunction to prevent enforcement of the Disclosure Act's ingredient-reporting requirements. In December 1997, the district court, finding that they were likely to succeed on the merits of their taking claim and that they faced irreparable harm, enjoined the Commonwealth from enforcing these provisions. On interlocutory appeal, we once again affirmed. Philip Morris, Inc. v. Harshbarger ("Philip Morris II"), 159 F.3d 670 (1st Cir. 1998).

In February 1998, all parties filed summary judgment motions, and on September 7, 2000, the district court granted the Manufacturers' motions and denied the Commonwealth's. Finding that the ingredient-reporting provisions of the Disclosure Act would effect an uncompensated taking of the Manufacturers' trade secrets in violation of the Fifth Amendment, would impose an undue burden on interstate commerce in violation of the Commerce Clause, and would deny the Manufacturers due process by depriving them of a meaningful opportunity to argue against publication of their trade secrets prior to public release, the court permanently enjoined the Commonwealth from enforcing those provisions of the Disclosure Act.6 The Commonwealth timely filed this appeal, we have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse.

The Commonwealth first contends that this case is not ripe for review. Relying on Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), it argues that regulatory taking claims are not ripe until the government agency charged with implementing the challenged law has made a final decision about the application of the law to the property in question. Because DPH has not determined whether or to what extent to publicly release the ingredient lists, it argues, there has been no final decision with regard to disclosure of the Manufacturers' trade secrets and thus preenforcement review is not warranted.

In ruling on ripeness, the district court focused on the statute. With regard to the first condition to disclosure--that DPH determine that "there is a reasonable scientific basis for concluding that the availability of such information could reduce risks to public health"--the court found this threshold so low that an affirmative answer was all but a foregone conclusion. With regard to the second--that the Attorney General advise that disclosure would not constitute an unconstitutional taking--the court found that, given the Attorney General's position in this litigation, there was no question as to what his advice would be. Thus, the court concluded, there was no need for further "ripening" of the issues or factual development.

The point of the ripeness inquiry is primarily "to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements." Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967). We apply a two-part test to assess ripeness. See Stern v. United States District Court for the District of Mass., 214 F.3d 4, 10 (1st Cir. 2000). First, we must determine whether the issue presented is fit for judicial review--"an inquiry that 'typically involves subsidiary queries concerning finality, definiteness, and the extent to which resolution of the challenge depends on facts that may not yet be sufficiently developed.'" Id. (quoting Ernst & Young v. Depositors Econ. Prot. Corp., 45 F.3d 530, 535 (1st Cir. 1995)). Second, we must evaluate the extent to which passing on the issue will impose hardship--"an inquiry that 'typically turns upon whether the challenged action creates a "direct and immediate" dilemma for the parties.'" Id. (quoting W.R. Grace & Co. v. EPA, 959 F.2d 360, 364 (1st Cir. 1992) (citation omitted)).

As to the first prong, the Commonwealth argues that the district court erred in treating disclosure as a foregone conclusion. We disagree. The Disclosure Act's accompanying regulations define the terms "could reduce the risks to public health" to mean "that knowledge about an added constituent could result in reduced risk of adverse health effects associated with tobacco use, including but not limited to nicotine addiction and adverse health effects associated with exposure to environmental tobacco smoke." Mass. Regs. Code tit. 105, § 660.003. We agree with the district court that, given this low threshold, it is likely that at least with respect to some ingredients or combination of ingredients, DPH would find that there is a reasonable scientific basis to conclude that disclosure could reduce health risks, and hence that a recommendation in favor of disclosure is a probability. As for the Attorney General's resolution of the taking issue, here, too, we agree with the district court that, given his position in this litigation, it is predictable once the DPH makes the requisite determination based on reasonable scientific evidence. See Abbott Labs., 387 U.S. at 151-52.

The Commonwealth argues that because a 1999 amendment to the regulations would require a stay of public disclosure if the Manufacturers filed a complaint, see Mass. Regs. Code tit. 105, § 660.200(g)(2), disclosure is not inevitable. Whether this amendment will be effective has yet to be determined by the state courts. However, the Disclosure Act itself states that ingredient information "shall be" public records after DPH and the Attorney General have performed their respective tasks, and as a public record, its production and disclosure could be compelled, notwithstanding a claim to trade secret protection, by anyone requesting it.7 Moreover, the Manufacturers' taking claim is not limited to public disclosure by DPH. They contend that the required submission of ingredient information itself impairs their trade secrets because DPH has failed to adopt adequate security procedures to protect the information's confidentiality. Since their claim also turns on the submission without adequate security procedures (i.e., satisfactory encryption technology and fingerprint readers) and not simply on the public disclosure of ingredients, the sixty-day stay provision, even if valid, is not wholly dispositive. See United States v. Geophysical Corp. of Alaska, 732 F.2d 693, 698 (9th Cir. 1984).

The Commonwealth further argues that under the Disclosure Act, DPH may release information about ingredients that are not trade secrets. Of course, as the Manufacturers point out, DPH does not need the Disclosure Act to publish information in the public domain. The Manufacturers, moreover, dispute that DPH could make such tailored disclosures without risk to trade secrets because they claim each ingredient in any particular brand alone to be a trade secret. In any event, even assuming that DPH could make ingredient disclosures that contain no secrets, this is not a case like Williamson County because there is "no question here about how the regulations at issue [apply] to the particular [property] at issue." Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725, 739 (1997). Both sides moved for summary judgment and no claim is made that further administrative proceedings are contemplated before the Disclosure Act is applied to the Manufacturers. See Abbott Labs., 387 U.S. at 149. Whether the required disclosures encompass trade secrets and whether they constitute takings are questions of law ripe for adjudication. Knowing the exact nature and character of the property that may become implicated or the exact economic impact will not change the constitutional inquiry. No further factual development is shown to be necessary, particularly considering that the Manufacturers' claim rests not only on the ultimate disclosure by DPH but also on the adverse consequences of having to submit trade secret information to it without security precautions.

This brings us to the second ripeness prong--the hardship faced by the Manufacturers if decision is delayed. Delay would put the Manufacturers on the "horns of a dilemma." Stern, 214 F.3d at 11. It would force the Manufacturers to choose between abandoning the Massachusetts market altogether or submitting trade secrets to DPH and risking their diminution or destruction. We conclude that, given "the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration," Abbott Labs., 387 U.S. at 149, the claims are ripe for review. See Suitum, 520 U.S. at 743-44 ("'[W]here a regulation requires an immediate and significant change in the plaintiffs' conduct of their affairs with serious penalties attached to noncompliance,' hardship has been demonstrated.") (citation omitted).

The taking issue came before us in Philip Morris II in the context of the Commonwealth's appeal from the entry of a preliminary injunction against enforcement of the Act. In affirming the injunction, we held that the Commonwealth's arguments did not "satisf[y] its weighty burden of demonstrating the district court committed a clear error of law or an abuse of discretion [in granting the preliminary injunction]." See Philip Morris II, 159 F.3d at 680. We made it clear that we did "not rule definitively on the point," that our statements were of a "probable outcome[]," and that we "cannot entirely dismiss the Commonwealth's argument." Id.

We now have before us the appeal from the summary judgment in favor of the Manufacturers, which we review de novo, Euromotion, Inc. v. BMW of N. Am., Inc., 136 F.3d 866, 869 (1st Cir. 1998), and we consider the issue with the benefit of additional briefing, argument, study and reflection.

In its summary judgment ruling, the district court held that by compelling public disclosure of trade secrets, the Disclosure Act will deprive the Manufacturers of their property interest in the trade secrets, resulting in a taking for which the Constitution requires that just compensation be made. In doing so, it relied on a line of cases addressing the validity of land use regulations, beginning with Agins v. City of Tiburon, 447 U.S. 255 (1980), and on its interpretation of the decision in Ruckelshaus v. Monsanto Co., 467 U.S. 986, which it held not to support the validity of the Disclosure Act. The district court's analysis reflects the two prongs of takings jurisprudence: per se (or categorical) takings and regulatory takings. Government action categorically violates the Takings Clause if it results in the permanent physical occupation of property or if it denies the owner all economically beneficial use of his property. See Lucas v. S. C. Coastal Council, 505 U.S. 1003, 1015 (1992). In these instances, known as per se takings, just compensation is required, no matter how minor the invasion or how great the public purpose served by the regulation. Id. In contrast, in noncategorical regulatory takings cases, courts must engage in an ad hoc, factual inquiry to determine whether the government regulation goes too far. Id.; see also Penn. Coal Co. v. Mahon, 260 U.S. 393, 415 (1922) ("The general rule at least is that while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.").

The Commonwealth contends that taking cases addressing land use regulations are inapposite. We agree. In Lucas, for example, the Court distinguished its taking analysis of a land use regulation from that of the government's exercise of its power to regulate, without compensation, the sale of goods in commerce. The Court said:

It seems to us that the property owner necessarily expects the uses of his property to be restricted, from time to time, by various measures newly enacted by the State in legitimate exercise of its police powers; "[a]s long recognized, some values are enjoyed under an implied limitation and must yield to the police power." And in the case of personal property, by reason of the State's traditionally high degree of control over commercial dealings, he ought to be aware of the possibility that new regulation might even render his property economically worthless (at least if the property's only economically productive use is sale or manufacture for sale). In the case of land, however we think the notion pressed by the Council that title is somehow held subject to the "implied limitation" that the State may subsequently eliminate all economically valuable use is inconsistent with the historical compact recorded in the Takings Clause that has become part of our constitutional culture.

505 U.S. 1027-28 (citations omitted). See also Dolan v. City of Tigard, 512 U.S. 374, 396 (1994) ("Cities have long engaged in the commendable task of land use planning, made necessary by increasing urbanization. . . . The city's goals of reducing flooding hazards and traffic congestion, . . . are laudable, but there are outer limits to how this may be done."); Nollan v. Cal. Coastal Comm'n, 483 U.S. 825, 831-32 (1987) ("[W]here governmental action results in '[a] permanent physical occupation' of the property, by the government itself or by others, 'our cases uniformly have found a taking to the extent of the occupation' . . . . We think a 'permanent physical occupation' has occurred, for purposes of that rule, where individuals are given a permanent and continuous right to pass to and fro, so that the real property may continuously be traversed . . . .") (citation omitted).

The essential rationale of these cases is "to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Nollan, 483 U.S. at 836 n.4 (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)). See also Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 433 (1982) (ordinance requiring property owners to provide space for cable television connections a taking). Because the Manufacturers are not asked to bear a burden that should instead be borne by Massachusetts citizens, this rationale has no relevance to the Disclosure Act.

The other type of categorical taking occurs where the government denies all economically beneficial or productive use of the property. See Lucas, 505 U.S. at 1015. While a complete seizure of personal property may amount to a categorical taking, see, e.g., Armstrong, 364 U.S. at 46 (seizure of boats on which plaintiff held mechanics lien a taking); Nixon v. United States, 978 F.2d 1269, 1284 (D.C. Cir. 1992) (seizure of former President's papers a taking), we cannot conclude, under the reasoning of Lucas, that the regulation of personal property which may be destructive of the value of trade secret information can be regarded as such a taking. Rather, the Disclosure Act establishes a regulatory scheme conditioning the ability to sell tobacco products in Massachusetts on the reporting for potential public disclosure of trade secret information, deemed by the legislature to serve the interest of public health. Thus, in our view, the Disclosure Act does not result in a categorical taking. See Yee v. City of Escondido, 503 U.S. 519, 527 (1992) (noting the distinction between "regulatory taking cases" and cases of "physical takings"). Instead, we find instructive the Supreme Court's frequent observation that "whether a particular restriction will be rendered invalid by the government's failure to pay for any [resulting] losses proximately caused by it depends largely 'upon the particular circumstances [in that] case'"--that is, on "essentially ad hoc, factual inquiries." Penn Cent. Trans. Co. v. City of New York, 438 U.S. 104, 124 (1978) (citation omitted). We therefore turn to consideration of Monsanto, the controlling authority on regulatory takings.

Monsanto involved a taking challenge to several provisions of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. §§ 136-136y (2001), which, when first enacted in 1947, was primarily a labeling and registration statute. Monsanto, 467 U.S. at 991. FIFRA required all pesticides sold in interstate or foreign commerce for use within the United States to be registered with the Secretary of Agriculture and appropriately labeled. Id. It also empowered the Secretary to require applicants for registration to submit testing data, including pesticide formulae and data on a pesticide's health, safety, and environmental impact.8 Id. The first version of FIFRA, in effect from 1947 to 1972, specifically prohibited public disclosure of any formula information, but was silent as to disclosure of health and safety data submitted by manufacturers with applications for registration. Id. In 1972, due to "mounting public concern about the safety of pesticides and their effect on the environment," Congress amended FIFRA's statutory scheme to provide for more comprehensive regulation. Id. It specifically prohibited the Environmental Protection Agency (EPA) from publicly disclosing any health, safety, and environmental data submitted by manufacturers which, both in its judgment and the submitting manufacturer's, contained or related to "trade secrets or commercial or financial information."9 Id. at 992. The third version, adopted in 1978, "provide[d] for disclosure of all health, safety, and environmental data . . ., notwithstanding the prohibition against disclosure of trade secrets" contained elsewhere in the statute. Id. at 995-96. The provision did not authorize disclosure of information that would reveal "manufacturing or quality control processes" or the identity or percentage quantity of deliberately added inert ingredients unless the EPA "first determined that the disclosure is necessary to protect against an unreasonable risk of injury to health or the environment."10 Id. at 996. A separate subsection established a criminal penalty for wrongful disclosure of confidential or trade secret information by a government employee or contractor. Id. at 997.

Monsanto contended that the use or disclosure of any health, safety, and environmental information containing trade secrets submitted during any of the three periods constituted a regulatory taking. Id. at 998-99. The Court acknowledged that to the extent that Monsanto had an interest in its health, safety, and environmental data cognizable as a trade-secret property right under state law, that property right was protected by the Takings Clause. Id. at 1003-04. It identified three factors to be taken into account in determining whether government action has gone beyond regulation and effects a taking: the character of the government action, its economic impact, and its interference with reasonable investment-backed expectations. Id. at 1005.11 It found the force of the last of the three factors "so overwhelming" as to be dispositive. Id. The Court then analyzed each of the three periods of the statutory scheme to determine whether Monsanto had a reasonable investment-backed expectation during the operation of any of the three versions. We examine the Court's analysis in detail because it is dispositive of our case.

Stating that a reasonable investment-backed expectation must be more than a "unilateral expectation or an abstract need," id., the Court first held that with respect to data submitted by Monsanto after 1978 (the third period):

Monsanto could not have had a reasonable, investment-backed expectation that EPA would keep the data confidential beyond the limits prescribed in the amended statute itself. Monsanto was on notice of the manner in which EPA was authorized to use and disclose any data turned over to it by an applicant for registration. . . . If Monsanto chose to submit the requisite data in order to receive a registration, it can hardly argue that its reasonable investment-backed expectations are disturbed when EPA acts to use or disclose the data in a manner that was authorized by law at the time of the submission.

Id. at 1006-07. The Manufacturers argue that the determining factor in this portion of the court's holding was not that the company had notice that its data might be disclosed but that it received compensating benefits for permitting the data to be used by the EPA. Their argument not only lacks textual support but also flies in the face of the plain language of the Court's opinion. The Manufacturers look for support in a footnote in the Nollan opinion which contains a passing reference to Monsanto, stating that there "we found merely that the Takings Clause was not violated by giving effect to the Government's announcement that application for 'the right to [the] valuable Government benefit' of obtaining registration of an insecticide would confer upon the Government a license to use and disclose the trade secrets contained in the application." Nollan, 483 U.S. at 833 n.2 (citation omitted). This passage is somewhat misleading because the words it quotes are not those of the Monsanto Court but rather those of the appellee Monsanto. In its full context, the Court's statement is as follows:

Monsanto argues that the statute's requirement that a submitter give up its property interest in the data constitutes placing an unconstitutional condition on the right to a valuable Government benefit. See Brief for Appellee 29. But Monsanto has not challenged the ability of the Federal Government to regulate the marketing and use of pesticides. Nor could Monsanto successfully make such a challenge, for such restrictions are the burdens we all must bear in exchange for "'the advantage of living and doing business in a civilized community.'" This is particularly true in an area, such as pesticide sale and use, that has long been the source of public concern and the subject of government regulation. That Monsanto is willing to bear this burden in exchange for the ability to market pesticides in this country is evidenced by the fact that it has continued to expand its research and development and to submit data to EPA despite the enactment of the 1978 amendments to FIFRA.12 Thus as long as Monsanto is aware of the conditions under which the data are submitted, and the conditions are rationally related to a legitimate Government interest, a voluntary submission of data by an applicant in exchange for the economic advantages of a registration can hardly be called a taking. See Corn Products Refining Co. v. Eddy, 249 U.S. 427, 431-432, 63 L. Ed. 689, 39 S.Ct. 325 (1919) ("The right of a manufacturer to maintain secrecy as to his compounds and processes must be held subject to the right of the State, in the exercise of its police power and in promotion of fair dealing, to require that the nature of the product be fairly set forth").

Id. 1007-08 (some citations omitted).

It is difficult to imagine a more authoritative and compelling statement in support of the validity of the Disclosure Act. The "benefit" Monsanto received in exchange for the submission of data, "the ability to market pesticides in this country," is no different from the benefit the Manufacturers receive for submission of their data, viz. the ability to market tobacco products in Massachusetts.13 Under Monsanto, the Commonwealth's power to regulate the marketing of tobacco products is beyond argument, particularly given that they have "long been the source of public concern and the subject of government regulation." Id. at 1007. Thus, the contention that the Commonwealth cannot condition the "right to continue to sell a legal item of commerce [i.e., tobacco products]" on disclosure of trade secret information will not wash.

The Court's citation of Corn Products Co. v. Eddy, 249 U.S. 427, a decision whose age has not staled its authority, underlines the sweep of the Monsanto holding.14 In that case, the Court upheld a Kansas criminal statute requiring sellers and dealers of corn syrup to state on each can sold in the state the percentage of each ingredient of which the syrup was composed. Plaintiff argued that because its brand of syrup was made with a secret formula, requiring disclosure on the label would constitute a taking of property without due process of law. The Court rejected the argument, stating:

[I]t is too plain for argument that a manufacturer . . . has no constitutional right to sell goods without giving to the purchaser fair information of what it is that is being sold. The right of a manufacturer to maintain secrecy as to his compounds and processes must be held subject to the right of the state, in the exercise of its police power . . ., to require that the nature of the product be fairly set forth.

Id. at 431;15 see also Andrus v. Allard, 444 U.S. 51, 65 (1979) (prohibition of sale of eagle feathers not a taking because "government regulation--by definition-- involves the adjustment of rights for the public good" and "[o]ften this adjustment curtails some potential for the use or economic exploitation of private property"); Nat'l Fertilizer Ass'n v. Bradley, 301 U.S. 178, 181 (1937) (following Corn Prods., holding requirement to disclose fertilizer ingredients claimed to be trade secrets not a taking); Westinghouse Elec. Corp. v. United States Nuclear Regulatory Comm'n, 555 F.2d 82, 95 (3d Cir. 1977) ("A voluntary submission of information by an applicant seeking the economic advantages of a license can hardly be called a taking."); Petrolite Corp. v. EPA, 519 F. Supp. 966, 972-73 (D.D.C. 1981). Given the Commonwealth's indisputably rational concern regarding the health effects of tobacco additives,16 no less can be said with respect to the Manufacturers here.

We find further support for our conclusion in the Court's treatment of the pre-1972 period, when FIFRA gave the EPA no authority to disclose data submitted by Monsanto and the only prohibition against disclosure of trade secrets was found in the general Trade Secrets Act, 18 U.S.C. § 1905.17 The Court held that "the Trade Secrets Act is not a guarantee of confidentiality to submitters of data, and, absent an express promise, Monsanto had no reasonable, investment-backed expectation that its information would remain inviolate in the hands of EPA." Monsanto, 467 U.S. at 1008. Thus, in the case of information submitted during the pre-1972 scheme, the Court also found no taking. Certainly this conclusion cannot be rested on the receipt of any valuable Government benefits, for the pre-1972 scheme offered Monsanto none in exchange for submitting its information. And the generalized, nonspecific trade secret protection under the Trade Secrets Act is indistinguishable from that offered by Massachusetts law.18

In contrast, under the statutory scheme in effect in the 1972-78 period, Monsanto had an opportunity to protect its trade secrets from disclosure by designating them as trade secrets when submitted. The statute gave Monsanto explicit assurance that the EPA was prohibited from disclosing publicly any data submitted by an applicant if both the applicant and the EPA determined they were trade secrets. The Court held that

with respect to trade secrets submitted under the statutory regime in force [during the 1972-78 period], the Federal Government had explicitly guaranteed to Monsanto and other registration applicants an extensive measure of confidentiality and exclusive use. This explicit governmental guarantee formed the basis of a reasonable investment-backed expectation.

Id. at 1011.

Thus, the Court concluded that only the use or disclosure of data submitted by Monsanto during the 1972-78 period, designated on submission as trade secrets and used or disclosed in "conflict[] with the explicit assurance of confidentiality or exclusive use contained in the statute," effected a taking; disclosure of data submitted during the pre-1972 or post-1978 period did not. Id. at 1013. This analysis leaves no room to argue that Massachusetts' general statutory and common law protections of trade secrets create a reasonable, investment-backed expectation. See, e.g., Jet Spray Cooler, Inc. v. Crampton, 282 N.E.2d 921, 925 (Mass. 1972); Mass. Gen. Laws ch. 4 § 7, cl. 26(g) (exempting from protection trade secrets submitted as required by law).19 Those protections do not constitute "explicit assurance of confidentiality" binding on DPH with respect to the submission of data. If they were sufficient, the Monsanto Court would necessarily have found such an expectation with respect to the data submitted prior to 1972.

In addition to this statutory exemption, the property interest in trade secrets, and its dimensions, may be changed prospectively to address health and safety concerns. See Gen. Chemical Corp. v. Dep't of Envtl. Quality Eng'g, 19 Mass. App. Ct. 287, 291 (1985) ("We may assume that the legislature, in its regulation of hazardous waste industries, might prospectively deprive industries of a property right in the confidentiality of certain classes of records, even though they contain matter previously regarded as trade secrets); see generally restatement (third) of Unfair competition § 40, cmt. c (1995) (commenting that a privilege to disclose trade secrets is likely to be recognized for "information that is relevant to public health or safety . . ."). Further, it is still an open question of state law "what rights a submitter of information to a governmental entity may have to restrain disclosure of exempt information by that entity." Id. at 292-292 n.3 (quoting Globe Newspaper Co. v. Boston Ret. Bd., 388 Mass. 427, 442 n.24 (1983)).

Accordingly, we conclude that the Disclosure Act, requiring Manufacturers who market tobacco products in Massachusetts to report for potential public disclosure the constituents for each brand in order of weight, measure or numerical count--information the Manufacturers treat as a trade secrets--is a valid exercise of the police power20 and, in the absence of explicit guarantees of confidentiality from the Commonwealth, does not effect an unconstitutional taking.21

The district court found the Disclosure Act to offend the Dormant Commerce Clause on two grounds. First, the court concluded, its practical effect would be to alter relationships in the market for tobacco products outside Massachussetts by depriving Manufacturers of the competitive advantage they would otherwise have in other markets by reason of their trade secrets. See Healy v. The Beer Inst., 491 U.S. 324, 339 (1989). Second, by conditioning the right to sell tobacco products on the surrender of valuable trade secrets, the Disclosure Act imposes a burden on commerce that exceeds its putative local benefits. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

The Commerce Clause states: "The Congress shall have Power . . . To regulate Commerce . . . among the several States. . . ." U.S. Const. Art. I, § 8 cl. 3. This affirmative grant of authority to Congress also encompasses an implicit "dormant" limitation on the authority of the states to enact legislation affecting interstate commerce. See Healy, 491 U.S. at 326. At the same time, the Supreme Court has long recognized that "in the absence of conflicting legislation by Congress, there is a residuum of power in the state to make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it."22 So. Pac. Co. v. Arizona, ex rel. Sullivan, 325 U.S. 761, 767 (1945). While that "residuum" is particularly strong when a state acts in the interest of health and consumer protection, a finding that it has acted to further these matters of legitimate concern does not automatically end the inquiry. See Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 350 (1977).

We have noted before that the prohibitions imposed upon state regulation by the Dormant Commerce Clause fall into three general categories. See Pharm. Research and Mfrs. of Am. v. Concannon, 249 F.3d 66, 79 (1st Cir. 2001). First, a state statute which has an "extraterritorial reach," whether intended or not, is a per se violation of the Clause. Id. Thus, when a state statute regulates commerce occurring wholly outside the state's borders or when it has a practical effect of requiring out-of-state conduct to be carried on according to in-state terms, it will be invalid. Id. Second, if a statute discriminates against out-of-state commerce, or when its effect is to favor in-state economic interests over out-of-state interests, it will be held invalid unless the state can "show that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." Or. Waste Sys., Inc. v. Dep't of Envtl. Quality of Or., 511 U.S. 93, 100-01 (1994) (alteration and internal quotation marks omitted). Lastly, we apply a lower level of scrutiny when the state statute does not discriminate but has incidental effects on interstate commerce. Concannon, 249 F.3d at 80. "Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike, 397 U.S. at 142.

The Manufacturers first argue that to require public disclosure of commercially important trade secrets negates the protection afforded by every other state. But the cases principally relied on do not support a finding of extraterritorial regulation. Those cases involved a particularized regulatory scheme--so-called price affirmation--requiring out-of-state shippers to affirm that their posted in-state prices for products are no higher than those in the bordering states. Healy, 491 U.S. at 325; see also Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573 (1986); Baldwin v. G.A.F. Seelig, 294 U.S. 511, 519 (1935). In Healy, the Court struck down a Connecticut requirement that out-of-state beer shippers affirm that their posted prices in Connecticut were no higher than their lowest prices in any border state. 491 U.S. at 329. The Court found the statute to have extraterritorial effect by "preventing brewers from undertaking competitive pricing [out-of-state] based on prevailing market conditions . . . [and] requir[ing] out-of-state shippers to forgo the implementation of competitive-pricing schemes in out-of-state markets because those pricing decisions are imported by statute into the Connecticut market regardless of local competitive conditions." Id. at 338-39.

We find Healy and the other cases on which the Manufacturers rely to be inapposite. The reasoning underlying those decisions--all of which involved price controls, price affirmation, or price tying schemes--is wholly inapplicable to the Disclosure Act. A price control, affirmation or tying scheme restricts the advantage of interstate sellers in local markets by extending a state's control over prices across state lines, viz. to lower prices out-of-state, a shipper must lower its prices in the regulating state as well. See Healy, 491 U.S. at 326; Brown-Forman, 476 U.S. at 582; Baldwin, 294 U.S. 519; see also Concannon, 249 F.3d at 81. The Disclosure Act (aside from having nothing to do with prices) does not purport to regulate across state lines, nor is it an attempt at economic protectionism by the Commonwealth; its out-of-state effect is merely incidental to an in-state (non-price) regulatory scheme and any resulting loss of competitive advantage is unrelated to interstate commerce.

Decisions involving other interstate transactions also help to illumine the principle of extraterritoriality and its inapplicability here. Thus, in Nat'l Solid Wastes Mgmt. Ass'n v. Meyer, 63 F.3d 652 (7th Cir. 1995), the Seventh Circuit Court of Appeals struck down a Wisconsin statute conditioning the use of Wisconsin landfills by non-Wisconsin waste generators on their home communities' adoption and enforcement of Wisconsin recycling standards, finding that "the Wisconsin statute seeks to force Wisconsin's judgment with respect to solid waste recycling on communities in its sister states 'at the pain of an absolute ban on the flow of interstate commerce.'" Id. at 660 (quoting Baldwin, 294 U.S. at 524). See also Fort Gratiot Sanitary Landfill, Inc. v. Mich. Dep't of Natural Res., 504 U.S. 353 (1992) (striking down waste import restriction); compare Cotto Waxo Co. v. Williams, 46 F.3d 790, 794 (8th Cir. 1995) (upholding statute prohibiting import into Minnesota of petroleum-based sweeping compounds, the court stated, "Clearly, the Act has affected Cotto Waxo's participation in interstate commerce. Nevertheless, the Act itself is indifferent to sales occurring out-of-state."). The Disclosure Act does not require that out-of-state commerce in tobacco products be conducted according to in-state terms. It imposes no mandates or restrictions on other states. It simply requires that the Manufacturers, should they chose to do business in Massachusetts, provide additional ingredient information to the Commonwealth's health authorities. This may eventually impact the profits of some Manufacturers, but "[s]imply because the manufacturers' profits might be negatively affected by the [statute], however, does not necessarily mean that the [statute] is regulating those profits." Concannon, 249 F.3d at 82.

The Manufacturers' reliance on BMW of North America v. Gore, 517 U.S. 559 (1996), is also misplaced. Gore was a due process clause case, not a commerce clause case. It involved an Alabama punitive damage award against a national car distributor, BMW, whose policy of not informing dealers of minor pre-delivery damage was challenged by an Alabama customer. In the Supreme Court, Gore argued that the large punitive damage award was necessary to induce BMW to change a nationwide disclosure policy that, even if found unlawful in Alabama, was lawful in a number of states. The Court held that while Alabama could inflict penalties on those who transgress its laws, in the interest of protecting its consumers, it does not have the power to punish BMW for conduct that was lawful where it occurred and had no impact on Alabama or its residents. Id. at 572. Thus, Alabama could "not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors' lawful conduct in other States." Id. at 572 (emphasis added).

The Disclosure Act bears no resemblance to the judgment imposed in Gore. First, the Commonwealth can hardly be deemed to be instituting "economic penalties" along the lines of those described in BMW. See S.D. Meyers, Inc. v. City and County of San Francisco, 253 F.3d 461, 2001 WL 664233 *8 (9th Cir.(Cal.)). The Disclosure Act, by providing for disclosure, may economically harm the Manufacturers, but it does not impose a "legislatively authorized fine." BMW, 517 U.S. at 571. Second, even if we accept the Manufacturers' proposition, nothing in the record indicates, nor do the Manufacturers seriously contend, that the Commonwealth intends to affect national tobacco policy. Rather, it aims to protect its own consumers and, presumably, through future savings in medical expenses should the education effort reduce tobacco use, its economy. BMW, 517 U.S. at 571. This surely does not offend the principles of comity and state sovereignty referred to in BMW. Moreover, even if the due process analysis were relevant in this context, we find Osborn v. Ozlin, 310 U.S. 53 (1940), more to the point:

But the question is not whether what Virginia has done will restrict appellants' freedom of action outside Virginia by subjecting the exercise of such freedom to financial burdens. The mere fact that state action may have repercussions beyond state lines is of no judicial significance so long as the action is not within that domain which the Constitution forbids.

Id. at 62.

The district court also held the Disclosure Act to fail the Pike balancing test. 397 U.S. at 142. The court held the burden imposed by the Disclosure Act to be excessive, finding that there was "good reason to think" that much, if not all, of the intended benefit of the Disclosure Act--promoting public health by increasing the information available to consumers about ingredients in tobacco products--could be achieved by disclosure requirements, such as the aggregate ingredient list compiled under the federal statutes, which are tailored to avoid the loss of trade secrets.23

Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.

Id. Here, the Disclosure Act regulates evenhandedly to effectuate a legitimate local public interest--to protect the health and safety of the Commonwealth's citizens by investigating and possibly disclosing the additives in the products they use--and its effects on interstate commerce are only incidental. Thus, the question is one of degree: whether the burden it imposes compared to the putative local benefits is clearly excessive.

As we said in Concannon, "[a]rguably, the only burden imposed on interstate commerce by the . . . Act is its possible effects on the profits of the individual manufacturers." 249 F.3d at 84. This is not sufficient to rise to a Commerce Clause burden because the Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations. Id. (citing Instructional Sys., Inc., v. Computer Curriculum Corp., 35 F.3d 813, 827 (3d Cir. 1994) and Exxon Corp. v. Governor of Md., 437 U.S. 117, 127-28 (1978)); cf. Minn. v. Clover Leaf Creamery, 449 U.S. 456, 474 (1981) ("A non-discriminatory regulation serving substantial state purposes is not invalid simply because it causes some business to shift from a predominantly out-of-state industry to a predominantly in-state industry."); Corn Prods., 249 U.S. at 431 ("[I]t is too plain for argument that a manufacturer . . . has no constitutional right to sell goods without giving to the purchaser fair information of what it is that is being sold"); Savage v. Jones, 225 U.S. 501, 539 (1912) ("The state has determined that it is necessary in order to secure proper protection . . . that purchasers of the described feeding stuffs should be suitably informed of what they are buying and has made reasonable provision for disclosure of ingredients by certificate and label, and for inspection and analysis."); Mfrs. Ass'n of Tri-County v. Knepper, 623 F. Supp., 1066, 1069 (M.D. Pa. 1985) (upholding Pennsylvania law requiring manufacturers and suppliers of chemicals to bear the burden of required disclosure of hazardous chemicals employed in the workplace, even though the right to withhold identity of a certain chemical as a trade secret is curtailed), aff'd in part and rev'd on other grounds, 801 F.2d 130, 134 (3d Cir. 1986).

Turning then to the question of local benefits, we think-given the low level of scrutiny applicable, see Concannon, 249 F.3d at 83-that there is substantial reason to expect that public disclosure of potentially harmful ingredients in tobacco products will benefit the Massachusetts public.24 The Supreme Court has only recently reiterated that "tobacco use, particularly among children and adolescents, poses perhaps the single most significant threat to public health in the United States." Lorillard Tobacco Co. v. Reilly, 121 S.Ct. 2404, 2430 (2001) (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 161 (2000)); see also Fort Gratiot Sanitary Landfill, 504 U.S. at 366 n.6 ("For Commerce Clause purposes, we have long recognized a difference between economic protectionism, on the one hand, and health and safety regulation, on the other."). Moreover, smokers are highly responsive to information about health risks. See Nat'l Paint & Coatings Ass'n v. City of Chicago, 45 F.3d 1124, 1128 (7th Cir. 1995) (citing W. Kip Viscusi, Smoking: Making the Risky Decision (1992)).

It is quite true, as the district court said, that "loss of trade secrets is not central to the achievement of the purpose of the statute," but informing consumers of the potentially harmful ingredients to which they would be exposed by smoking a particular brand of cigarettes surely is. Thus, the aggregate reporting required by the federal schemes, lumping together some 700 ingredients without indication which are found in which brand, would certainly not achieve "the hoped-for benefit" of the statute.25 This is so even though, as the court explained, "consumers already have the ability to compare brands on the basis of the most notoriously harmful aspects of every brand, such as nicotine and tar." The aim of the Disclosure Act is educating Massachusetts consumers and helping them to choose less harmful brands, taking into account not only advertised nicotine and tar ratings but also the synergistic effects of various additives, such as those enhancing the delivery of "free" nicotine to the consumer (thus making deceptive the "light" and "ultra light" labels on many brands). Without brand-specific ingredient lists, researchers do not know which combinations to test and are left to guess which additives might co-exist in certain formulas on the market; like the Manufacturers' competitors, they cannot reverse engineer a formula and thus any health research they conduct is difficult and at best inexact.26 Brand-specific information in order of magnitude would enable DPH to use its resources most efficiently by targeting the most popular brands, focusing on those ingredients present in the highest quantity to serve the Act's purpose of providing information to consumers about the health risks of particular brands.

In short, disclosure under the Disclosure Act will put consumers in a better position to know if their brand contains harmful additives, and to assess the health risks involved. Because we find that no less burdensome alternative has been shown to effect the Commonwealth's goal "as well," Pike, 397 U.S. at 142, we hold that the Disclosure Act does not violate the Dormant Commerce Clause. See Kassel v. Consol. Freightways Corp., 450 U.S. 662, 679 (1981) (Brennan, J., concurring) (stating that courts should refrain from attempting to "second-guess the empirical judgments of lawmakers concerning the utility of legislation").

The judgment of the district court is reversed.

SELYA, Circuit Judge (concurring in part and dissenting in part).

This is a difficult case, made more so by the danger that smoking presents to public health. My colleagues have grappled with it, and I share their view on two of the questions before us. First, the issues are ripe for determination. Second, the Act does not offend the Commerce Clause (in my judgment, it would be strange to hold that the Act unduly burdened commerce in trade secrets when there is no evidence that the trade secrets in dispute here are, or have been, traded or sold in commerce).

The majority's resolution of the Takings Clause is another matter. In holding that the Commonwealth may use its police power to defeat the Manufacturers' takings claim, the majority sacrifices bedrock principles of individual property rights in order to uphold a creative, but at best marginally effective, response to a public health problem. Whatever one's personal feelings about smoking and the manufacturers of cigarettes and other tobacco products -- and I am no great fan of either -- the Constitution compels a state to compensate these manufacturers whenever it unabashedly takes their property for public use. In turning a deaf ear to this constitutional compulsion, I fear that they have fallen into an ancient trap. See East India Co. v. Paul, 13 Eng. Rep. 811, 821 (P.C. 1849) (Campbell, L.J.) (admonishing that "it is the duty of all Courts of Justice to take care, for the general good of the community, that hard cases do not make bad law"). Because the majority's holding allows states to ransack the trade secrets of virtually any business without providing even minimal recompense, I respectfully dissent.

Before proceeding to address the takings issue, I think it is useful to narrow my differences with my colleagues. We agree that information provided to DPH under the Act inevitably will be disclosed to the public, and that such information will include valuable trade secrets, susceptible to destruction if so exposed. With this in mind, I believe that this court's prior opinion in Philip Morris, Inc. v. Harshbarger, 159 F.3d 670 (1st Cir. 1998) (Philip Morris II), provides the correct interpretation and application of the Takings Clause vis-a-vis the Manufacturers' trade secrets. As that opinion explains, the Supreme Court's multifaceted decision in Monsanto requires that the government provide a benefit of real value to a private party whenever the government divulges that party's trade secrets (and, thus, takes its property). See id. at 676.

Rather than repastinating this well-ploughed ground, I think that my time (and the reader's) is better spent elaborating upon what I perceive to be the three major errors in the majority's analysis of this issue: (1) the failure to acknowledge the full extent of the Manufacturers' property interest in their trade secrets; (2) the restriction of the per se takings doctrine to real property interests; and (3) the conclusion, under the regulatory takings doctrine, that the Act comports with the teachings of Monsanto.

In my view, the majority starts off on the wrong foot: my colleagues do not properly distinguish the Manufacturers' property interest in their trade secrets from the Manufacturers' property interest in their tobacco products. Massachusetts law long has protected trade secrets as property. See Jet Spray Cooler, Inc. v. Crampton, 385 N.E.2d 1349, 1354-55 & n.8 (Mass. 1979) (detailing the extensive historical case law and statutory protections of trade secrets in Massachusetts). Such a trade secret -- one that has achieved the status of a property interest under state law -- is, in and of itself, property for the purposes of the Takings Clause. See Monsanto, 467 U.S. at 1003-04. Hence, the Takings Clause should apply to such trade secrets independent of the holders' property rights in the products that embody them.

That seems fairly straightforward. It seems equally straightforward that the extent of the holder's interest in a trade secret typically is defined by the extent to which the holder protects that interest from disclosure to others. Id. at 1002. These verities, coupled with the majority's concession that the Act may well result in revealing the Manufacturers' trade secrets to the public, ante at 53-54, point unerringly to the conclusion that the Commonwealth, by making such revelations, will drain all economic value from the Manufacturers' property interest.

It is most curious, then, that the majority writes around this rather blatant deprivation of a recognized property interest, treating the Manufacturers' interest in their trade secrets as a sort of quasi-interest, protected only to the extent that tobacco products are protected. To this end, the majority characterizes the Act as "a regulatory scheme conditioning the ability to sell tobacco products in Massachusetts on the reporting for potential public disclosure of trade secret information, deemed by the legislature to serve the interest of public health," ante at 56, and declares that "the Manufacturers have no cognizable property right in their brand-specific ingredient information in the face of state health and safety regulatory authority," id. at 32 n.21. Under the majority's interpretation, the property interest in a trade secret lasts only until the state determines that it will regulate the product in which the trade secret is incorporated.

I cannot accede to this resupinate reasoning. Property interests are fashioned, and their contours etched, by state law. See Bd. of Regents v. Roth, 408 U.S. 564, 577 (1972). Under Massachusetts law, companies have interests in their trade secrets quite apart from their interests in the products to which those secrets relate, see Jet Spray, 385 Mass. at 166 n.8, and federal courts are obliged to follow this line of authority in determining whether the destruction of trade secrets constitutes a taking. Consequently, we must analyze a state's enforced disclosure of a trade secret without regard to the product in which that trade secret is embodied. When my colleagues note that the Manufacturers are regulated in other areas of their business and then treat that fact as dispositive of the takings claim, they act entirely without support in the reported cases and, in the bargain, violate a fundamental postulate of Takings Clause jurisprudence: that "a sovereign, by ipse dixit, may not transform private property into public property without compensation." Monsanto, 467 U.S. at 1012 (citation and internal punctuation omitted). And this extraordinary attempt to carve out a judge-made exception for cases in which a trade secret relates to a regulated product is bad policy as well as bad law: given that virtually every sector of life is subject to government regulation, the majority's holding would permit a state to violate the trade secrets of nearly every legitimate business without providing compensation so long as the state is acting under its police power.

Aligning the analytic framework in what I believe to be the proper fashion has important consequences. To the extent that a property interest in a trade secret is independent from the holder's property interest in its tobacco products, the Act is patently an expropriation of the former interest and requires compensation under the Takings Clause. See Lane v. Commonwealth, 517 N.E.2d 1281, 1283 (Mass. 1988) ("The idea that agents of the government could properly seize and use property of a citizen without legislative or common law authority and without compensation is unacceptable. The likely unconstitutionality of such an uncompensated act is obvious.").

The majority's next error lies in its modest view of per se takings jurisprudence. Under the per se takings doctrine, as I understand it, government action is "compensable without case-specific inquiry into the public interest advanced in support of the restraint." Lucas v. S.C. Coastal Council, 505 U.S. 1003, 1015 (1992). The doctrine applies whenever the government either effects a "permanent physical occupation" of a property, Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 441 102 S.Ct. 3164 (1982), or establishes a rule (as, say, by enacting a law or promulgating a regulation) that deprives the property of all economically viable use, Lucas, 505 U.S. at 1027. Because the majority now holds -- mistakenly, in my view -- that the per se takings doctrine does not apply to the confiscation of the Manufacturers' trade secrets, ante at 56-57, I discuss the matter here.1

In holding that the Act does not effect a per se taking, the majority rejects the Loretto branch of the per se takings doctrine, declaring that this case does not fit within the supposedly essential rationale of physical invasion cases: that an individual should not bear a public burden alone when that burden should be borne by the public as a whole. Ante at 56. My colleagues then reject the Lucas branch of the doctrine by repeating their original mistake: they see the deprivation of the Manufacturers' trade secrets as part of a larger picture involving the regulation of tobacco. Consistent with this approach, my colleagues read Lucas narrowly and limit per se takings under that doctrinal branch to claims involving land use regulations in contradistinction to claims arising out of "the government's exercise of its power to regulate, without compensation, the sale of goods in commerce." Ante at 55-56.

I take the position opposite to the majority. Even though state law defines the boundaries of property, "a State may not sidestep the Takings Clause by disavowing traditional property interests long recognized under state law." Phillips v. Wash. Legal Found., 524 U.S. 156, 167 (1998). Here, then, we must analyze the per se takings doctrine in light of the long-recognized property interest imbued in trade secrets under Massachusetts law. That analysis indicates to me that the public disclosure of the Manufacturers' trade secrets likely constitutes a per se taking under both the Loretto and Lucas strands of the doctrine. On the one hand, the government has taken the valuable property of a business (i.e., its trade secrets) and converted that property to public use, much like an enforced permanent easement that works a physical occupation of a tract of land. See Nollan v. Cal. Coastal Comm'n, 483 U.S. 825, 831 (1987). On the other hand, the Act may be seen as a means of exhibiting the Manufacturers' trade secrets to the public at large and draining them of their inherent value, in the same way that an overly intrusive land use regulation may deprive a parcel of real property of all economically viable use. I discuss each of these scenarios in turn.

1. Permanent occupation. In Loretto, the Court made clear the distinctions between a permanent occupation, a transient invasion, and a regulation that restricts the use of property. 458 U.S. at 430. It first distinguished a permanent occupation from a temporary one on the ground that, in the former case, no balancing test was needed; rather, the occupation, in and of itself, triggered the right to compensation. Id. at 432. The Court then distinguished a permanent occupation from a regulation restricting property use on the ground that, in the former situation, "the government does not simply take a single 'strand' from the 'bundle' of property rights: it chops through the bundle, taking a slice of every strand." Id. at 435. Critical to this last analysis is the right to exclude others from the property, "traditionally . . . considered one of the most treasured strands in an owner's bundle of property rights." Id.

The public disclosure of a closely held trade secret is much like a permanent occupation. The disclosure is irreversible and the information thereafter is shared by all. Even though the Loretto Court routinely placed the adjective "physical" next to the term "occupation," there is no logical rationale as to why such an occupation must be corporeal. Given that the relevant definition of property is found in an independent source of law -- in this case, the Massachusetts law of property -- a nonphysical occupation of nonphysical property should demand compensation just as much as a physical occupation of physical property. The property owner's right to exclude others -- the critical aspect of most property rights, and of crucial importance here -- has dissolved just as completely in the one case as in the other.

Although the case law on this point admittedly is sparse, I find Nixon v. United States, 978 F.2d 1269 (D.C. Cir. 1992), instructive. There, the court of appeals held that the government's taking of presidential papers constituted a per se taking. Id. at 1284-87. In so holding, the court rejected the argument that the per se takings doctrine applied only to the physical occupation of real property:

[T]he Government's inference that the per se doctrine must be limited to real property is without basis in the law, and we see no reason to give it one. One may be just as permanently and completely dispossessed of personal property as of real property. Any distinction along these lines would be purely artificial.

Id. at 1285. The court then proceeded to find a taking, stressing President Nixon's loss of his "paramount property right" -- the right to exclude others from his papers. See id. at 1286-87.

The same rationale applies here. Even if the Act does not grant the Commonwealth exclusive control of the confiscated information, it nonetheless deprives the Manufacturers of the right to exclude others. Much like the landowner who is compelled to grant an unwanted easement, the Manufacturers still will have access to their hard-won property, but will be forced to share that property with the public (including their competitors). As such, the Act effects a permanent occupation and the Manufacturers must be compensated.

2. Destruction of all economically viable use. Since the intrinsic value of a trade secret mounts in direct proportion to the extent that it is secret, the Act also works a per se taking by displaying trade secrets to the public at large and thus depriving the Manufacturers of the entire economic value of their property. Under the applicable precedents, the Commonwealth "may resist compensation only if the logically antecedent inquiry into the nature of the owner's estate shows that the proscribed use interests were not part of [what he owned]." Lucas, 505 U.S. at 1027. Given that the states have a traditionally high degree of control over commercial dealings, a state may regulate the sale of personal property even though its only economically productive use is its sale and the regulation makes the property worthless. Id. at 1027-28. A good example of this phenomenon is the right to regulate the sale of narcotics or particular types of weapons. Apart from restrictions on sale, however, the justification for other limitations that deprive the property of all economic value must be found within the parameters of the property interest or within the background principles of the state's property law. See id. at 1029-30.

I believe that in limiting Lucas and its progeny to land use cases, the majority has adopted an overly literal view. While Lucas, Dolan, and Nollan all involved land use regulations, there is no reason to think that their teachings pertain only to real property.2 As said, state law defines property interests for purposes of the Takings Clause. Webb's Fabulous Pharms., Inc. v. Beckwith, 449 U.S. 155, 161 (1980). Thus, since Massachusetts defines a trade secret as property, common sense suggests that Lucas should apply. Indeed, the Lucas Court's avowed deference to background principles of state property law in determining whether the state has effected a total taking makes this conclusion nearly irresistible. Whether one looks at a taking of land or a taking of some other form of property, the critical question -- leaving aside the sale of personal property -- is whether the challenged regulation prohibits a productive use that previously was permissible under relevant principles of state property law. See Lucas, 505 U.S. at 1029-30. As such, Lucas speaks to the character of the governmental action, not the character of the affected property.

Under the Lucas branch of the per se takings doctrine, the Act fails. The Manufacturers own the trade secrets. Their property interest in the embodied data is irretrievably lost once the secrets are disclosed to others. See Monsanto, 467 U.S. at 1011. That being so, the background principles of Massachusetts property law compel the conclusion that the government cannot destroy all economically valuable uses of the Manufacturers' trade secrets without providing compensation. After all, Massachusetts law traditionally has protected such secrets from invasion by outside parties, and there is no historical precedent for making an exception here. See Lane, 517 N.E.2d at 1282-83. Thus, if we are to pass on whether the Act effects a per se taking under the Lucas branch of the doctrine, we must answer in the affirmative.

I turn now to the majority's third major mistake. In Philip Morris II, we stated that "the Commonwealth's unilateral announcement that the privilege of continuing to do business in Massachusetts henceforth will entail the yielding of a tobacco company's trade secrets cannot, in itself, establish a benefit sufficient to support a voluntary exchange within the Monsanto paradigm." 159 F.3d at 677. The majority now backtracks on this pronouncement, offering three reasons for doing so. In my judgment, none of these reasons warrant such resipiscence.

First, the majority cites language from Monsanto purportedly establishing that the right to sell tobacco products within Massachusetts is a "benefit." Ante at 59-60. Placing this argument into perspective requires an understanding of the tripartite structure of the Monsanto opinion. In the period before 1972, Monsanto and other pesticide manufacturers submitted trade secrets to federal authorities without any expectation that they would be kept secret. When the Environmental Protection Agency (EPA) revealed this data, there was no taking. Monsanto, 467 U.S. at 1013. In the period between 1972 and 1978, the EPA gave explicit assurances that it would not disclose the submitted trade secrets. Failure to keep this pledge, the Court held, would result in an unconstitutional taking unless the affected manufacturers were adequately compensated for the loss in market value engendered by the EPA's disclosure. Id. at 1013-14. In the period after 1978, the EPA in fact compensated the pesticide manufacturers for disclosure of their trade secrets, and the Court held that this arrangement did not effect an unconstitutional taking because the compensation was just. Id. at 1007-08.

The majority, in a somewhat misleading fashion, quotes language applicable to the third Monsanto period and deems it dispositive: "as long as Monsanto is aware of the conditions under which the data are submitted, and the conditions are rationally related to a legitimate Government interest, a voluntary submission of data by an applicant in exchange for the economic advantages of a registration can hardly be called a taking." Ante at 59 (quoting Monsanto, 467 U.S. at 1007). Starting from this premise, the majority concludes that the "benefit" which Monsanto received in exchange for the submission of data -- the ability to market pesticides in this country -- is no different from the "benefit" that the Manufacturers receive under the Act, namely, "the ability to market tobacco products in Massachusetts." Ante at 59.

This is a quantum leap, unjustified either in law or in logic. I think that we had it right the first time, when we stated that:

[T]he 1972-78 period presents the closest, most persuasive analogy to the situation created by Section 307B. The FIFRA scheme then in effect provided specific protections for trade secret information -- and the Court determined that pesticide registrants might reasonably rely on these protections. The statutory and common law protections for trade secret information in place in the Commonwealth create a very similar prophylaxis and thus form the basis for a reasonable expectation of continued confidentiality.

Philip Morris II, 159 F.3d at 678 (citation omitted). In the period after 1978, by contrast, the EPA provided compensation to pesticide manufacturers in the form of exclusive use rights to the data for ten years and compensation from later applicants for the next five years. Though the benefit was limited in scope and duration, Monsanto at least received something over and above the status quo: exclusive use rights and enforced compensation from competitors may not seem like much in the abstract, but they were more than what the pesticide manufacturers had before 1978.3

The majority attempts to draw a parallel here, visualizing the Commonwealth as conferring a benefit on the Manufacturers when it allows them to continue selling tobacco products in Massachusetts. This creates a false dichotomy. As we have said, the privilege of continuing to conduct one's business "simply is not analogous, either in kind or in degree, to the benefit that effected the exchange and extinguished the takings claim in Monsanto." Philip Morris II, 159 F.3d at 677. Because the Act does not offer the Manufacturers anything more than what they already have, it does not afford due compensation for a taking of valuable property rights. Id. at 678. We would not permit a valuable parcel of land to be taken at a zero valuation simply because the sovereign promised to let the owner use it in common with the general public. It follows inexorably that we should not permit the sovereign to take trade secrets at a zero valuation, publicly disclose them, and pay no compensation.

The second pillar on which the majority's Monsanto analysis rests is the holding in Corn Products Refining Company v. Eddy, 249 U.S. 427, 431-32 (1919), that a property right in a trade secret is subject to the state's police power.4 Ante at 60-61. The majority touts Corn Products as "a decision whose age has not staled its authority," and proclaims that it "underlines the sweep of the Monsanto holding." Ante at 60.

I beg to differ. If Corn Products has not completely staled, there is at least some mildew around the edges. In the eighty-two years since the publication of that opinion, Takings Clause and trade secret jurisprudence has developed in ways not foreseen by the Corn Products Court. As part of this progression, Monsanto substantially limited the breadth of Corn Products, citing it only in the context of the third period (i.e., after the EPA fully compensated the pesticide manufacturers for the taking). Monsanto, 467 U.S. at 1007-08. Had Corn Products been able to carry the weight attributed to it by the majority, then the EPA would not have been forced to compensate Monsanto for divulging trade secrets in the second period (1972-1978). To my mind, the portion of Corn Products cited in Monsanto and by the majority here -- one paragraph in all -- now stands only for the proposition that the state is free to use its police power to force a manufacturer to list product ingredients on the label so long as the state has compensated the manufacturer for the forced disclosure of any trade secrets. There is no such compensation here and, accordingly, Corn Products is inapposite.5

Finally, the majority analogizes the Act to the pre-1972 regulatory scheme in Monsanto, presuming that the "nonspecific trade secret protection under the [federal] Trade Secrets Act is indistinguishable from that offered by Massachusetts law." Ante at 60-61. The majority reasons that because the Act does not provide assurances to the Manufacturers that the trade secrets will be protected, the Commonwealth does not have to compensate them.6 Ante at 61-62. Accordingly, the Act "is a valid exercise of the police power and, in the absence of explicit guarantees of confidentiality from the Commonwealth, does not effect an unconstitutional taking." Id.

This rationale is alarming. As I understand the majority, any time the state chooses to deprive a corporation of a trade secret without compensation, its safest course, constitutionally speaking, will be to do so without offering the slightest assurance that the trade secret will remain confidential. This view of the law is wholly unsupported by Monsanto: in the period before 1972, the pesticide manufacturers were on notice that their trade secrets would not be kept confidential because the EPA engaged in the widespread practice of using data submitted by one pesticide manufacturer in evaluating the application of a subsequent applicant.7 Monsanto, 467 U.S. at 1009-10 & n.14. Thus, this portion of the Monsanto opinion stands for the proposition that a party does not have a reasonable expectation that a trade secret will remain in the bosom of the lodge when the government has been disclosing the information all along. That is not the situation here.

The majority's reasoning on this point has a second fault: it presumes that courts measure the reasonable investment-backed expectation of an aggrieved party at the time the state promulgates a regulation that effects a taking. True to this presumption, the majority analyzes the reasonable investment-backed expectation here only after the Act has been passed, and accordingly, finds that there is no such expectation. I believe, however, that we should follow the Second Circuit's lead and hold that "the critical time for considering investment-backed expectations is the time a property is acquired, not the time the challenged regulation is enacted." Meriden Trust & Safe Deposit Co. v. FDIC, 62 F.3d 449, 454 (2d Cir. 1995). One sound reason for adhering to this view is that the majority's contrary interpretation robs the concept of "reasonable investment-backed expectation" of any meaning; if a reasonable investment-backed expectation only commences when the challenged regulation comes into play, then such expectations are always subject to the whims of the state. If this prong of the regulatory taking inquiry is to have any import, the court must examine the reasonable investment-backed expectations at the time that the investment is backed.

Pulling these threads together, I think it is perspicuous that the Act dashes the Manufacturers reasonable investment-backed expectations. Much like the pesticide manufacturers in Monsanto during the 1972-1978 period, the Manufacturers invested millions of dollars in developing ingredient combinations whilst relying on the trade secret protections embedded in Massachusetts law. Nothing in the Commonwealth's practice or in its jurisprudence gave them reason to suspect that the Commonwealth would later demand the revelation of the fruits of their labor for the public good.

The short of it is that the Manufacturers have gone to great lengths to keep their secrets and have done so without any reason to expect governmental interference, much less government-enforced dissemination of that confidential information. Yet the Commonwealth is on the brink of taking those secrets, without offering in return anything above what the Manufacturers already have. I would find this to be a regulatory taking.8

I do not dispute that tobacco products are hazardous to health, or that the Commonwealth may regulate tobacco products, or that the Commonwealth may legislate with respect to the trade secrets of the Manufacturers, or even that the Commonwealth has the power under the Constitution to seize the trade secrets and then disclose them to the public at large in exact detail. Should it choose this course, however, the Commonwealth must accord the Manufacturers' property interests the same respect that it would show to the property interests of any other legitimate person, firm, or corporation. To that end, the Commonwealth must provide adequate compensation to the Manufacturers for the trade secrets that it destroys. Because the Act and this court's opinion permit the Commonwealth to shirk this obligation, I respectfully dissent.