Law & Liberty Blog


Hope for the Dead

Judge Andrew P. Nappolitano

What is the connection between freedom and rising from the dead?

When America was in its infancy and struggling to find a culture and frustrated at governance from Great Britain, the word most frequently uttered in speeches and pamphlets and editorials was not safety or taxes or peace; it was freedom.

Two acts of Parliament broke the bonds with the mother country irreparably. The first was the Stamp Act, which was enforced by British soldiers, who used general search warrants issued by a secret court in London to rummage through the personal possessions of any colonists they chose, ostensibly looking to see whether those colonists had purchased the government's stamps. The second intolerable act was the imposition of a tax to pay for the Church of England, which all adult male property-owning colonists were forced to pay, no matter their religious beliefs.

The Stamp Act assaulted the right to be left alone in the home, and the Church of England tax assaulted the freedom to retain one’s earnings and to choose to support one's own means of worship. The two taxes caused many colonists to realize they needed to secede from England and form their own country in which freedom would be protected by the government, not assaulted by it.

Today, it seems the power of the government continues to expand and the freedom of the individual continues to shrink. The loss of freedom comes in many forms. Sometimes, it is direct and profound, as when the government forces you to buy a health insurance policy for yourself or your employees that pays for contraceptive services, euthanasia and abortion, no matter your core religious beliefs. Sometimes, it is more subtle, like when the government prints money to pay its bills, and as a result, all the money and assets you already have lose much of their value.

Sometimes the government steals freedom without you knowing it, like when NSA agents in defiance of the Constitution they have sworn to uphold read your email and text messages and listen to your phone calls. Sometimes the government’s assaults on freedom are just plain inexplicable, like when the president wins political support by lying repeatedly about keeping your doctor and your health insurance and about the government's not reading your emails or listening to your phone calls.

Freedom is the ability of every person to exercise his own free will, rather than be subject to the will of the government or anyone else. Free will is a characteristic we share in common with God. He created us in His image and likeness. As He is perfectly free, so are we.

When the government takes away our free will, the government steals a gift from God; it violates the natural law; it prevents us from having and utilizing the means to the truth. The moral ability to exercise free will to seek the truth is a natural right that all humans possess, and the government may only morally interfere with the exercise of that right when one affirmatively has given it away by using fraud or force to interfere with the exercise of someone else's natural rights.

We know from the events 2,000 years ago, which Christians commemorate and celebrate this week, that freedom is the essential means to discover and unite with the truth. And to Christians, the personification, the incarnation, the perfect manifestation of truth is Jesus -- who is the Christ, the Son of God and the Son of the Blessed Virgin Mary.

On the first Holy Thursday, Jesus attended a traditional Jewish Passover Seder. Catholics believe that at His last supper, He performed two miracles so that we could stay united to Him. He transformed ordinary bread and wine into His own body, blood, soul and divinity, and He empowered His disciples and their successors to do the same.

On the first Good Friday, the Romans executed Jesus because they were persuaded that by claiming to be the Son of God, He might foment a revolution against them. The revolution He fomented was in the hearts of men and women. The Romans had not heard of a revolution of the heart; nevertheless they feared a revolution that would disrupt their worldly power, and so they condemned Him to death by crucifixion.

Jesus had the freedom to reject this horrific event, but He exercised His freedom so that we might know the truth. The truth He manifested is that His acceptance of the destruction of His body would enable Him to die so that He could rise from the dead. On Easter, three days after He died, that manifestation was complete when He rose from the dead. By doing that, he demonstrated to us that while living we can liberate our souls from the slavery of sin and our free wills from the oppression of the government, and after death we can rise to be with Him.

Easter -- which manifests our own immortality -- is the linchpin of human existence. With it, life is worth living, no matter its costs or pains. Without it, life is meaningless, no matter its fleeting joys or triumphs. Easter has a meaning that is both incomprehensible and simple. It is incomprehensible that a human being had the freedom to rise from the dead. It is simple because that human being was and is God.

Jesus is the hypostatic union: not half-God and half-man, not just a godly good man, but truly and fully God and at the same time truly and fully man. When the Romans killed Jesus, they killed God. When the dead Jesus rose from His tomb, God rose from the dead.

What does Easter mean? Easter means that there is hope for the dead. If there's hope for the dead, there's hope for the living. But, like the colonists who fought the oppression of the king, we the living can only achieve our hopes if we have freedom. And that requires a government that protects freedom, not one that assaults it.

Happy Easter.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution. The most recent is “Theodore and Woodrow: How Two American Presidents Destroyed Constitutional Freedom.” 

Consider This A Warning: The Second Amendment Works

Thomas Warns*

This past week a showdown over grazing fees almost escalated into domestic warfare in Nevada. In a nutshell, Cliven Bundy refused to pay grazing fees to the federal government for the last two decades, which prompted the Bureau of Land Management to attempt to remove “trespass cattle” which they assert were grazing on public lands to the detriment of endangered desert tortoises (Harry Reid also may have been involved somewhere, although it seems unlikely).

bundy ranch.jpg

Unfortunately, the BLM absolutely botched its response; they decided to bring over 200 government officials and private contractors who were armed to the teeth to Clark County in order to confiscate the cattle. Nevada Governor Brian Sandoval immediately spoke out, saying “no cow justifies the atmosphere of intimidation” that the BLM created. Some low points for the BLM included establishing small, remote “First Amendment Areas” for people to protest the seizure, and the tasering of Cliven Bundy’s son. This prompted many small government conservatives and militia members, many of them armed, to rally around the Bundy Ranch, both physically and on the internet.

Fortunately, the Bundy Ranch showdown ended peacefully on Saturday afternoon when calm prevailed and the Bureau of Land Management decided to withdraw, citing “safety concerns.” The BLM then returned the confiscated cattle, but vowed it had not given up the fight to enforce their court order. Whether they try to take the cattle in the dead of night or merely give up the fight has yet to be seen, but the last chapter in this story has yet to be written.

Two conclusions should be established immediately. The first is that Cliven Bundy’s legal argument is incredibly weak. Bundy has claimed that the lands belong to Nevada and not the federal government, and thus the federal government does not have jurisdiction to tax him for grazing on public lands. Unfortunately, his own state’s Constitution betrays him. The Nevada Constitution, which was approved by vote in 1864, disclaims any ownership to “unappropriated public lands” within the state, leaving them to the federal government. Since Cliven Bundy has stated that his family started ranching in the 1880s, it seems clear that, absent other evidence, the land he was ranching on was part of the 81% of Nevada’s land that was left for (and is still owned by) the federal government.  Adverse possession is not an optional, as both statutes and common law have repeatedly reaffirmed that the government may not lose land to adverse possessors.

Of course, to say that his act was illegal is not to say that it couldn’t be “right” in a certain sense of the word. Bundy’s larger complaint was that the federal government owned such substantial tracts of land within Nevada that should belong to the state, a fact that is true of many other Western states. Utah has already tried to take possession of federal land within its boundaries. Hopefully this incident will restart a dialogue about sending the federal land out west to the states; without Bundy Ranch, it would be easy for East Coast urbanites to never think about this policy issue which affects millions (it is easy for East Coast residents to ignore this because it is not an issue for them; for example, less than one percent of New York State’s land is owned by the federal government).

The Second Amendment is not an anachronism in an age of jet planes and tanks: it still works.

Further, this protest brought attention to the Taylor Grazing Act, a relic of the New Deal which created “grazing districts” throughout the West which were managed by a federal bureaucracy, the BLM. Perhaps it is time we rethink that piece of legislation. Maybe the Act was needed during the height of the dustbowl to provide centralized protection of the land from overgrazing by desperate farmers, but the situation has changed considerably in the last 80 years. Cliven Bundy’s wife alleged that the Bundys used to be bordered by many other ranchers, but that over the years mounting grazing fees created a heavy burden, and ultimately all the nearby ranchers but her husband were bought out using the ranchers’ own grazing fees, suggesting that the program is causing serious financial harm to ranchers without bestowing any benefit.

The second conclusion to draw from this is that the Second Amendment is not an anachronism in an age of jet planes and tanks: it still works. Even if you think – with good reason – that what Cliven Bundy did was both illegal and “wrong,” the conduct of the BLM was deplorable. This incident would have never become a national debate if not for the hyper-militarized response of the BLM, which spent $3.1 million in a standoff involving $1 million in unpaid grazing fees and a need to protect a desert tortoise population more at risk from suburban sprawl and habitat destruction than a few hundred cows. America is not a police state, and citizens were justified in protesting the way government officials acted.

Of course, the whole incident shows why a robust Second Amendment was needed. The fact that Bundy and his supporters had guns is the only reason why this standoff ended the way it did instead of like Tiananmen Square. The thuggish BLM tried to force protesters to exercise constitutional rights in tiny First Amendment areas, but the protesters – backed by firearms – refused to cave. Don’t forget that the Bundy’s supporters never fired a shot – even when they were being tasered and attacked by dogs.

America has a long history of individuals who broke the law to stand up to injustice. Civil disobedience unfortunately is called terrorism by those who disagree with the protester's message. 

America has a long history of individuals who broke the law to stand up to injustice. Civil disobedience unfortunately is called terrorism by those who disagree with the protester's message. 

These peaceful protesters joined a long line of Americans whose civil disobedience was patriotic, and it was made possible due to the Second Amendment. It’s no wonder the Southern states moved so quickly to deny freed slaves their Second Amendment rights after the Civil War ended; African Americans were then defenseless when the KKK, lynch mobs, and Jim Crow terrorized them for another century. In that instance, the government could claim African Americans were acting illegally when trying to exercising their rights, but the real terrorists were the government that enabled harm to fall upon the freedmen and their descendants. It is a shame that a large part of the country treats the Second Amendment as some sort of second-class constitutional right, not worth protecting as much as the others. To some, all constitutional rights are equal, but some are more equal than others.

The BLM has stated that the matter is not over, and it seems that at the end of the day, Cliven Bundy will have to remove his cattle from the federal land and/or pay the overdue grazing fees. But those people who stood beside him with their rifles are not “terrorists” as some have suggested. They peacefully expressed their displeasure at a tax they thought was wrong and at a government that abused their rights, a statement that equally fits the Boston Tea Party. The country will not suddenly descend into chaos as armed groups try to subvert every use of government force – only the most serious government overreaction could trigger such a powerful grassroots response. It shows that people are deeply concerned about these issues that hundreds would stand in harm’s way to defend a total stranger, but Americans should always be willing to stand up to a government when it is out of control.

As Dave Mustaine once sang, “it’s still ‘We the People’ right?”

*Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the NYU Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."

The Many Problems With "Equal Pay"

Richard Epstein 

Last week marked the observation of “Equal Pay Day.” That day is meant to draw attention to how a woman who works full time earns “77 cents for every dollar a man earns,” as President Obama has put it. Though a detailed analysis reveals that the claim of a systematic pay gap is spurious, the President wants to enact reforms to decrease the so-called inequality in the labor markets.

The President’s political advisors have clearly made the calculated gamble that his brand of economic populism may help achieve two ends. First, it may divert attention from the still unpopular rollout of the President’s Affordable Care Act. Second, it may rally women voters around the Democrats for the upcoming mid-term elections by putting Republicans in the uncomfortable position of waging a “war against women.” But a dubious economic agenda drives our populist President, whose plans to further regulate the economy will harm the economic prospects of women and men alike.

Bad Diagnosis

The initial mistake of course comes with the President’s perception of economic inequality in labor markets. President Obama states that a woman earns less than a man “even when she’s in the same profession and has the same education.” In so doing, he pays no respect to the principles of supply and demand, which bring the two sides of the market into balance. Those forces make it highly unlikely that a system with so many informed parties will be as seriously out of balance as he claims it is.

Nor does the empirical evidence support the President’s claim that women make less, once efforts are made to control for other variables that influence the outcome. His double use of the word “same” ignores the wide variations within any given job category, and equally wide variations in the education that men and women bring to their work, both within and across the two sexes. For instance, a definition of the medical profession that lumps together pediatricians and neurosurgeons misses huge differences in training and skills. The marketplace accurately reflects the higher returns to certain kinds of work relative to others, and thus gives strong and accurate signals on how both men and women should invest in their educations.

Without exception, more sophisticated studies that seek to control for some of these differences narrow the perceived 77 percent gap. But they do not eliminate it entirely. One common inference is that the persistence of that measurement gap is indicative of some lurking discrimination between the sexes throughout labor markets. Not likely. A far better explanation is that these statistical studies cannot incorporate into their regressions each relevant variable that matters to a skilled manager or recruiter, even after controlling for hours worked or, most critically, years out of the work force. Such issues as a willingness to travel, working overtime in dangerous neighborhoods, making cold calls to prospective customers, handling risk, or responding to hostility in interpersonal relations are likely to be relevant in how much an employee is paid. The effect of any one of these variables could be small, but in aggregate, they really matter. Yet, they are too numerous and too difficult to quantify, to be incorporated into the statistical models that predict unequal pay. So it is just wrong to assume that any unmeasured variation should be attributed to some undocumented form of discrimination.

There is also the key role of marriage. Married woman often cut back on their labor market participation to become the primary caregiver within the family. It is easy to praise, as Frank Bruni did in his recent New York Times Op-Ed, the heroic efforts of individual women to balance the demands of home and workplace. But it is much more important to understand the economic dynamics. These decisions are not made in isolation. They are made jointly by husbands and wives who think that this form of specialization will advance the family’s well-being of which income is only one part.

Defenders of equal pay often draw the wrong inference from this indisputable labor market asymmetry by claiming that women’s contribution in the home goes unrecognized. Not so, especially when the market value of these services are added back to market wages to get a more comprehensive measure of women’s productivity where it will systematically reduce the perceived wage gap. At that point, the total economic contribution of married women with children will creep up, and could well approach the income of single women, who make about 96 percent of the income of men.

The claim that women are playing against a stacked deck is wrong for still other reasons. Labor markets are intensely competitive, so the claim about systematic pay gaps has to assume both that women managers are hostile to women’s economic welfare, and that competitive markets are massively inefficient in matching people with positions. Competition for labor tends to lead to efficient outcomes. Indeed, by the standard account, price discrimination cannot survive in competitive markets, which means that the differentials in wages track differences in performance. Put simply, one danger of the Equal Pay Act is that it could mandate equal wages for unequal work, i.e. for two workers with different productivity.

The claim of systematic discrimination in labor markets also ignores the large number of self-employed women who run their own businesses. Once again, specialization reigns. Women are more likely to work in areas of family and interpersonal relations than in construction or hedge fund management. It is dangerous to disregard this persistent pattern of revealed preferences because the President, or indeed any outsider, knows what’s best for individual men and women. Specialization by occupation and within occupations is a good thing, and increases gains from trade.

Finally, note two important measures of the overall success of women. They now constitute close to 60 percent of college enrollees, and represent an ever-growing fraction of students with advanced degrees. Women alsoweathered the past recession better than men, whether measured by profession, age, or level of education. There are also many affirmative action and diversity programs that give women a leg up in the workplace. No major structural flaws exist that government regulation can fix. And there are always powerful social forces that target perceived areas of injustice.

Unintended Consequences

Our false preoccupation with pay equity is not costless, for it leads to bad labor market regulations that hurt all workers. Employment relationships will only form and endure when the gains from the deal exceed the costs of putting it together. Every time a government regulation imposes some new restriction on the contracting parties, it increases the costs of the deal and reduces the benefits it generates, thereby killing jobs for men and women alike.

Of course, the long-term prospects in labor markets are grim for today’s young adults, the millennial generation. But indignant editorials in the New York Times urging more government action won’t help. These major losses are not just random events. They are driven by unfortunate regulatory choices. The Age Discrimination Act in Employmentprotects people with jobs over 40. How can that not hurt the generation behind them? The community rating requirements under the Affordable Care Act force young people to subsidize their elders. Large transfer payments via Social Security and Medicare do the same. No wonder the economic prospects of millennials are worse than their parents’.

The nonstop effort to turn today’s minimum wage into a living wage has the same effect, especially when the President justifies this initiative in the name of gender equity. His executive order requiring federal contractors pay all workers a minimum of $10.10 is, on average, supposed to raise the pay of women in the bottom quartile by 93 cents an hour, and that of men by only 60 cents. But that ignores the obvious risk that a higher fraction of these vulnerable women are more likely to lose their jobs, given the greater labor market distortions.

Similarly, the President’s executive order forbidding federal contractors from “retaliating” against employers that discuss their compensation with each other is another step in the wrong direction. His naïve view is that these conversations “encourage pay transparency” and allow employees to ferret out violations of the Equal Pay Act. But suppose they suggest that some men are underpaid in a given job category? What then? The truth is, lots of things can happen, not all of them nice. Most private firms prohibit these conversations and for good reason—to protect workers from social pressures to disclose sensitive personal information; to prevent petty jealousies, resentments, and false charges of preferential treatment; and to reduce the leakage of trade secrets to competitive firms. It also gives rise to yet another round of costly regulation from the Department of Labor that will only make matters worse. Why should a President with zero management experience in the private sector be so confident that he knows best?

Men, Women and Families

One common theme that the president raises is that his proposals are good not only for women but also for American families and the economy as a whole. Of course, he is right to say that “when women succeed, America succeeds.” Any overall improvement in labor productivity reverberates across the economy. But the President is blind to the difference between the rising tide that raises all ships, and the dam that makes water flow into one channel and not the other. Market transactions raise all ships by improving levels of productivity. The President’s regulations shrink the size of the pie in the effort to give women a larger share of what remains. But that strategy never works. Increased pay for women is always a blessing—all other things being equal. But that improvement takes on a different hue when it comes at the expense of an overall decline of the income and economic prospects for men.

So now just think of the position of the family when both husband and wife are affected by regulation. The overall pie shrinks, so if the wife gains $10 per week in salary, and the husband loses $12 per week, the change is a net negative, which only gets bigger when the administrative burden is added on to both parties. The losses in individual cases are only magnified when this scheme goes viral. Right now, the President can only act by executive order. But he is actively agitating for the now stymied Paycheck Fairness Act, which will introduce pay equity on a grand scale for all private firms. It is a prescription for the destruction of labor markets. There is no question that we have revved up enforcement of labor market regulation in the past generation, just as the prospects of millennials have tanked. So why double down on failure? Ask Obama, but don’t expect to get a coherent answer. Just more platitudes.

A Government Admission of Wrongdoing

Judge Andrew P. Napolitano*

Last week, National Intelligence Director Gen. James R. Clapper sent a brief letter to Sen. Ron Wyden, D-Ore., a member of the Senate Intelligence Committee, in which he admitted that agents of the National Security Agency (NSA) have been reading innocent Americans’ emails and text messages and listening to digital recordings of their telephone conversations that have been stored in NSA computers, without warrants obtained pursuant to the Constitution. That the NSA is doing this is not newsworthy -- Edward Snowden has told the world of this during the past 10 months. What is newsworthy is that the NSA has admitted this, and those admissions have far-reaching consequences.

Since the Snowden revelations first came to light last June, the NSA has steadfastly denied them. Clapper has denied them. The recently retired head of the NSA, Gen. Keith Alexander, has denied them. Even President Obama has stated repeatedly words to the effect that “no one is reading your emails or listening to your phone calls.”

The official NSA line on this has been that the Foreign Intelligence Surveillance Act (FISA) court has issued general warrants for huge amounts of metadata only, but not content. Metadata consists of identifying markers on emails, text messages and telephone calls. These markers usually identify the computer from which an email or text was sent or received, and the time and date of the transmission, as well as the location of each computer. Telephone metadata is similar. It consists of the telephone numbers used by the callers, the time, date and duration of the call, and the location of each telephone used in the call.

American telecommunications and Internet service providers have given this information to the NSA pursuant to warrants issued by secret FISA court judges. These warrants are profoundly unconstitutional, as they constitute general warrants. General warrants are not obtained by presenting probable cause of crime to judges and identifying the person from whom data is to be seized, as the Constitution requires. Rather, general warrants authorize a government agent to obtain whatever he wants from whomever he wants it.

These general warrants came about through a circuitous route of presidential, congressional and judicial infidelity to the Constitution during the past 35 years. The standard that the government must meet to obtain a warrant from a FISA court judge repeatedly has been lessened from the constitutional requirement of probable cause of crime, to probable cause of being a foreign agent, to probable cause of being a foreign person, to probable cause of talking to a foreign person. From this last category, it was a short jump for NSA lawyers to persuade FISA court judges that they should sign general warrants for all communications of everyone in America because the NSA was not accessing the content of these communications; it was merely storing metadata and then using algorithms to determine who was talking to whom.

This was all done in secret -- so secret that the president would lie about it; so secret that Congress, which supposedly authorized it, was unaware of it; and so secret that the FISA court judges themselves do not have access to their own court records (only the NSA does).

It was to further this public façade that Clapper lied to the Senate Intelligence Committee last year when he replied to a question from Wyden about whether the NSA was collecting massive amounts of data on hundreds of millions of Americans by saying, “No” and then adding, “Not wittingly.” The stated caveat in the NSA façade was a claim that if its agents wanted to review the content of any data the NSA was storing, they identified that data and sought a warrant for it.

This second round of warrants is as unconstitutional as the first round because these warrants, too, are based on NSA whims, not probable cause of crime. Yet, it is this second round of warrants that Clapper’s letter revealed did not always exist.

Snowden, in an act of great personal sacrifice and historic moral courage, directly refuted Clapper by telling reporters that the NSA possessed not just metadata but also content -- meaning the actual emails, text messages and recordings of telephone calls. He later revealed that the NSA also has the content of the telephone bills, bank statements, utility bills and credit card bills of everyone in America.

In his letter to Wyden last week, Clapper not only implicitly acknowledged that Snowden was correct all along, but also that he, Clapper, lied to and materially misled the Senate Intelligence Committee, and that the NSA is in fact reading emails and listening to phone calls without obtaining the second warrant it has been claiming it obtains.

One wonders whether Obama was duped by Clapper when he denied all this, or whether he just lied to the American people as he has done in the past.

One also wonders how the government could do all this with a straight face. This is the same government that unsuccessfully prosecuted former New York Yankees pitcher Roger Clemens twice for lying to a congressional committee about the contents of his urine. Shouldn’t we expect that Clapper be prosecuted for lying to a congressional committee about the most massive government plot in U.S. history to violate the Fourth Amendment? Don’t hold your breath; the president will protect his man.

Yet, Congress could address this independent of a president who declines to prosecute his fellow liars. Congress could impeach Clapper, and the president would be powerless to prevent that. If Congress does that, it would be a great step forward for the rule of law and fidelity to the Constitution. If Congress does nothing, we can safely conclude that it is complicit in these constitutional violations.

If Congress will not impeach an officer of the government when it itself is the victim of his crimes because it fears the political consequences, does it still believe in the Constitution?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution. The most recent is “Theodore and Woodrow: How Two American Presidents Destroyed Constitutional Freedom.” 

"Oligarchs United"? Not So Fast.

Richard Epstein

This past week, in McCutcheon v. Federal Election Commission, a bitterly divided United States Supreme Court struck down yet another portion of the Bipartisan Campaign Reform Act of 2002 (BCRA)—this time, the aggregate limit of $123,200 for contributions by any one individual to all candidates and non-candidate committees in any two-year election cycle. That BCRA provision blocked Shaun McCutcheon from making $1,776 contributions to twelve candidates he favored, because he had already contributed his maximum amount of $33,088 to sixteen candidates for federal office. He challenged the limitation as an abridgement of his constitutional right of freedom of speech, for which he found a receptive audience in five members of the Supreme Court.

The four-member plurality (Chief Justice Roberts, Justices Scalia, Kennedy, and Alito), struck down that aggregate limit, while leaving the limitation on individual contributions untouched, on the grounds that the aggregate limit was not reasonably tailored to prevent the risk of corruption in political elections, which the Court narrowly defined to cover only quid for pro corruption. The four member plurality was joined by Justice Clarence Thomas, who has long insisted that all contribution limits run afoul of the First Amendment.

On the other side, Justice Stephen Breyer, speaking for himself and Justices Ginsburg, Sotomayor, and Kagan, stoutly defended the law as consistent with the basic tenets of popular democracy. Patching together quotations from notable historical luminaries, he insisted that these campaign contribution restrictions were desperately needed to preserve to a well-functioning “‘marketplace of ideas’ [that] seeks to form a public opinion that can and will influence elected representatives.” In his view, these limits secure the "maintenance of the opportunity for free political discussion to the end that government may be responsive to the will of the people.” In this context, the object of the First Amendment is to “facilitate a chain of communication between the people, and those, to whom they have committed the exercise of the powers of government."

At root, Justice Breyer fears that stripping away these aggregate limits will allow rich people to flood the marketplace of ideas, so as to drown out the voices of ordinary people in political elections—despite the increasing ability of all people to make their views known at low-to no-cost through social media devices like Facebook and Twitter.

As I wrote about the Supreme Court’s 2010 decision in Citizens United v. FEC, I have developed a strong aversion to the BCRA on the ground that its ill-advised limitations on campaign contributions will only aggravate the distortions in the political market. It is therefore important to analyze McCutcheon not only as an exercise in First Amendment logic, but also within the context of the larger political economy framework that I think Justice Breyer’s opinion profoundly misunderstands.

Property and Liberty in Tandem

The basic principles of American constitutional law link closely the protection of property and liberty. That point is made powerfully by the text of the Due Process Clause that specifies “no person shall be deprived of life, liberty or property, without due process of law.” The close connection here is not limited to one constitutional amendment, but undergirds our entire constitutional edifice.

At the time of the Founding, political theory sharply distinguished between the democratic and republican forms of government, defending the latter and opposing the former. In a democratic society, popular majorities could have their way on any political issues. In a constitutional republic, the political organs should be organized so that they only deal, as the Latin suggests, with the affairs of the public at large, and not with the private business and social arrangements of its citizens.

In order to limit government power, Republican theory supports the complex array of voting structures and separation of powers designed largely to guard against the risk of confiscation by an alert and restive political group. It is for this reason that the Constitution provides in Article IV, Section 4 that “The United States shall guarantee to every State in this Union a Republican Form of Government.”

Under the Republican worldview, the common phrase “the people” carries two very different meanings. In one sense, as in the Fourth Amendment, the Constitution protects the rights of the people to be free of “unreasonable searches and seizures.” Each citizen is protected against the power of the government to seize his property and search his premises on a whim. But the term “people” in the preamble’s “We the people” carries with it a different and, at times, more ominous interpretation. That phrase now means that we the people acting together can impose our collective will on the dissenters within our midst.

When Justice Breyer refers to his desire to make the government “responsive to the will of the people,” he does not carefully distinguish between these two senses of “people.” To the contrary, he repeatedly posits “the public interest” in “collective speech,” which makes it appear as if there were no independent constitutional constraints on the exercise of the collective will in matters of current political importance. On this view, the purpose of politics is just to allow political majorities to act in the name of the people, no matter what the consequences of their action. Really?

Majoritarian Vices

That majoritarian approach is consistent with the strong and misguided position that Justice Breyer took in his 2005 book Active Liberty: Interpreting Our Democratic Constitution, whose central thesis is that “the Constitution’s primary role is to preserve and encourage . . . citizen participation in shaping government and its laws.” It is rare for a book to take such a wrong turn; it pays scant attention to the constitutional protection for individual rights and thus reveals no appreciation of the major risk of expropriation of wealth and opportunities through collective political action. Unfortunately, it is fair to say that no set of structural protections, at either the state or the federal level, is sufficient to guard against this risk, which increases exponentially when groups can instantly mobilize to target those vulnerable groups and individuals who do not toe the line on some critical political initiative, as with the ill-conceivedcontraceptive mandate of Obamacare.

The Founders added the Bill of Rights to the original Constitution to guard against expropriation and oppression. Unfortunately, the protections of property and religious freedom have been whittled away by a string of judicial decisions that too often insist that any “conceivable” justification for government is sufficient to override explicit constitutional principles.

The political landscape would be completely different today if political majorities were not in a position to regulate both property and religious liberty more or less as they see fit. At this point, a large set of individual rights would not be regarded as the affairs of government, which could not, for example, dictate the various terms that employers must offer to their employees under minimum wage and overtime laws, or require them to negotiate collective bargaining agreements with recognized unions against their will.

These decisions have often been derided by the modern defenders of big government, who, consistent with their own views, have strongly denounced the Court’s decision in McCutcheon. Thus my NYU colleague Burt Neuborne criticized the Roberts opinion in a post entitled Welcome to Oligarchs United,which in my view gets the situation exactly backwards. Neuborne is sharply critical of McCutcheon, which he thinks will entrench the position of the rich against the rest of the population. Empirically, that proposition is overwrought, given that wealthy individuals hardly present a uniform front in national politics. But his errors, I think, go deeper because of the underlying vision of what counts as good and bad constitutional law. More concretely, it is just wrong for Neuborne to equate the Supreme Court that “protected slavery” and “endorsed racial segregation, denied equality to women, and jailed people for their thoughts and associations,” with the Supreme Court that “blocked minimum-wage and maximum-hour legislation.”

Quite simply, no intelligible theory of political economy lumps the protection of contractual freedom into the category of statist and oppressive restrictions on individual liberty. Indeed, it is just at this point that the case in favor of the campaign contribution caps collapses. In a society that has strong protections for property rights, supposed oligarchs have no reason to enter big-time into political activity because their liberties and property would already be amply protected against confiscation by collective action. The simple truth here is that public deliberation is alwaysimproved when these side constraints against government action are respected for candidates all across the political spectrum. The purpose, for example, of the “just compensation” requirements in the Takings Clause is to make sure that political majorities take into account the losses of those individuals whose rights they restrict by onerous rent control, zoning, and landmark preservation laws. By forcing the costs of these programs onto the public budget, government officials and citizens must determine whether the public benefits acquired through regulation are worth the additional taxes that must be raised to keep these constraints in place. The answer is that they often are not.

The point matters in these political cases because it is highly doubtful that so-called oligarchs would make political investments if they knew that they were immune from the risk of confiscation through thinly disguised schemes of regulation and taxation, especially since these same rules would prevent them from seeking subsidies of their own. But right now, with these protections shattered, the dynamic changes on both sides of the great political divide.

As matters now stand, most of the legislation before Congress and the states represents efforts on the part of the progressive movement to retain its chokehold on employment relations and land use, to funnel huge sums of money in favor of subsidies to inefficient forms of wind and solar energy, and to increase the burdens of taxation of the rich in the name of greater income equality. And there is no doubt that these groups can and will take advantage of the relaxation of the political restraints that are placed on their activity.

In this environment, the supposed oligarchs are on the defensive. In the main, unlike unions, they are not seeking massive subsidies. They are trying to resist actions that restrict their own basic property and contract rights. Indeed, there is no question who is winning the debate today, as government action intrudes itself ever more into the life of the public. If I were a progressive, I would surely support all the financial limitations in the BCRA on the ground that they are likely in practice to bite harder on individuals who cannot rely on an army of unpaid foot soldiers to advance their political objectives and are thus forced to enter the political lists to protect rights that should be theirs as a matter of basic constitutional principle.

Back to Freedom of Speech

In light of the current political climate, it makes no sense to defend these various statutory limitations on political activity in the face of an explicit constitutional guarantee of freedom of speech, which presumptively covers individuals who contribute money to candidates who agree with their position. It is clear that this constitutional protection does not extend to bribery or extortion. But the constant effort to broaden the definition of “corruption” so that it covers virtually all form of political activity has the same corrosive effect on the freedom of speech that is found in the fanciful communitarian objectives of land use and labor market regulation that has managed to gut traditional protections of economic liberties and private property.

Justice Breyer inveighs mightily about how various individuals might use clever artifices to “circumvent” legitimate constitutional restrictions, but he ignores the simple point that in dealing with regulations on political speech, the burden remains on the government to show why specific regulations are necessary to deal with demonstrated specific abuses, not with unsubstantiated fears of abuse. It turns the First Amendment upside down to impose any restrictive regulations before demonstrating a breakdown in political processes that well-tailored laws can meaningfully address.

Justice Breyer is barking up the wrong constitutional tree. The real problem is not with the current level of political participation. It is with the dangerous constitutional dynamic whereby the weak constitutional protections of liberty and property make current politics as divisive, bitter, and uninformed as it has become. 


All Your Bitcoin Links Are Belong To Us

On Monday, April 7th, the NYU Chapter of the Federalist Society will be hosting a conference on Digital Currencies and Bitcoin. The debate will be from 4:00PM to 8:00PM in Furman Hall, and feature a Legal Panel and a Business Panel. If you would like to attend, please RSVP here.

In anticipation of the Federalist Society’s conference on digital currency and Bitcoin, the NYU Journal of Law and Liberty is excited to present a roundup of all the links you need to digest before tomorrow’s big conference. Can’t make it? Follow us on Twitter – our handle is @nyujll– as we will be live-tweeting some of the highlights.

Here is a roster of the professionals and academics participating in the conference.

Not sure how bitcoin works? Neither are we, but here is a quick introduction.

Why do millenials and libertarians love Bitcoin?

Can a society succeed using just Bitcoin as its primary currency? Galt’s Gulch (named after the hero in Ayn Rand’s Atlas Shrugged) aims to find out.

Would a “Libertarians Paradise” really be “Hell On Earth”?

Why Salon thinks the libertarian dream of Bitcoin is irretrievably lost.

“Mount Gox” will surely be a topic of discussion, but what was it, and why is it important?

Bitcoin is not only example of crypto-currency (another word for Digital Currency); here is a comparison of the current value of Bitcoin with other crypto-currencies.

What can you actually buy with bitcoin?

Here is what Warren Buffett thinks about Bitcoin (and why he is right).

Finally, interested in becoming a bitcoin user? Click here (at your own risk of course!).

We hope everyone can follow the conference tomorrow.

What if Secrecy Trumps the Constitution?

Judge Andrew P. Napolitano*

What if the National Security Agency (NSA) knows it is violating the Constitution by spying on all Americans without showing a judge probable cause of wrongdoing or identifying the persons it wishes to spy upon, as the Constitution requires? What if this massive spying has come about because the NSA found it too difficult to follow the Constitution?

What if the Constitution was written to keep the government off the people’s backs, but the NSA and the president and some members of Congress have put the NSA not only on our backs, but in our bedrooms, kitchens, telephones and computers? What if when you look at your computer screen, the NSA is looking right back at you?

What if the NSA really thought it could keep the fact that it is spying on all Americans and many others throughout the world secret from American voters? What if Congress enacted laws that actually delegate some congressional powers to elite congressional committees -- one in the Senate and one in the House? What if this delegation of power is unconstitutional because the Constitution gives all legislative powers to Congress as a whole and Congress itself is powerless to give some of its power away to two of its secret committees? What if the members of these elite committees who hear and see secrets from the NSA, the CIA and other federal intelligence agencies are themselves sworn to secrecy?

What if the secrets they hear are so terrifying that some of these members of Congress don’t know what to do about it? What if the secrecy prohibits these congressional committee members from telling anyone what they know and seeking advice about these awful truths? What if they can’t tell a spouse at home, a lawyer in her office, a priest in confessional, a judge when under oath in a courtroom, other members of Congress or the voters who sent them to Congress?

What if this system of secrets, with its promises not to reveal them, has led to a government whose spies have intimidated and terrified some members of Congress? What if one member of Congress -- Sen. Jay Rockefeller, a Democrat from West Virginia -- wrote to then-Vice President Dick Cheney and voiced fears that totalitarianism is creeping into our democracy? What if he wrote that letter in his own hand because he feared he might be prosecuted if he dictated it to a secretary or gave it to his secretary for typing? What if he was terrified to learn what the spies told him because he knew he could not share it with anyone or do anything about it?

What if the NSA’s chief apologist in Congress -- Sen. Dianne Feinstein, a Democrat from California -- took to the only safe place in the world where she could reveal what she learned from the spies and not be prosecuted for violating her oath of secrecy and there revealed a secret? What if that place is the Senate floor, and what if, while there, she revealed that she approved of the NSA spying on all Americans but disapproved of the CIA spying on her staff? What if it is unlawful and unconstitutional for the CIA to spy on anyone in the United States -- whether private citizen, illegal alien or member of a Senate staff?

What if the equality of the branches of government is destroyed when one of them spies on the other? What kind of a president spies on Congress? What kind of members of Congress sit back and let themselves become victims of spying? What if Congress could stop all spying on all Americans by a simple vote? What if Congress could stop the president from spying on its own members with a simple vote? What if Congress is afraid to take these votes?

What if secret government is unaccountable precisely because it is secret? What if the people’s representatives in government have a moral obligation to reveal to their constituents that the president’s spies are spying on all of us, and they -- members of Congress -- have not lifted a finger to stop it? Would we all vote differently if we knew the secrets the government has shared with a select few but kept from the rest of us? What if your own representatives in the House and the Senate are lying to you because of fear of the consequences of revealing secrets?

What if the NSA chief claimed to a congressional committee -- one of those with which he secretly shares secrets -- that all this spying has stopped 57 terror plots? What if the next day he changed that number to three plots? What if he has declined to say what those three plots were? What if a federal judge found that all this spying has not prevented any identifiable plots?

What if all this spying doesn’t work? What if the NSA has too much data about all of us? What if the president knowingly declined to uphold the Constitution and instructed his spies to do the same? What if the NSA is so accustomed to spying on all of us all the time that it lacks the ability to obtain probable cause and to identify the persons upon whom it needs to spy? What if the government’s culture of secrecy and spying has taken on a life of its own? What if even those who started it are afraid to stop it?

What if the NSA missed the shoe bomber, the underwear bomber, the Ft. Hood massacre, the Times Square bomber, the Boston Marathon bombers, the coup in Kiev and the Russian invasion of Ukraine? What if the NSA wasted its time spying on Aunt Tillie in Des Moines and the Pope in Rome and Chancellor Merkel in Berlin, instead of Vladimir Putin in Moscow?

What if secrecy has replaced the rule of law? What if that replacement has left us in the dark about what the government knows and what it is doing? What if few in government believe in transparency? What if few in government believe in the Constitution?

What do we do about it?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution. The most recent is “Theodore and Woodrow: How Two American Presidents Destroyed Constitutional Freedom.

Consider This A Warning: Supreme Court Restores Freedom

Thomas Warns*

Today the Supreme Court issued an opinion in the case McCutcheon v. Federal Election Commission. McCutcheon was challenging a campaign finance law that limited the amount any individual could donate overall to candidates, parties, and PACs at $123,200 per each two year election cycle, as well as a cap on contributions to candidates at $48,600. McCutcheon had donated $1,776 to fifteen candidates from Congress, but could not give the same amount to twelve more people as desired because of the cap on contributions to candidates.

Political contributions count as protected speech.

Political contributions count as protected speech.

The Court sided with McCutcheon in a 5-4 decision that was written by Chief Justice Roberts. The opinion struck down both the overall cap and the cap on contributions to candidates, but kept intact the limitation on donations to an individual candidate which currently stands at $2,600 per election cycle. Justice Thomas agreed with the majority but wrote a separate opinion to say that he would have struck down the entire law.

Following four years after Citizens United, there was no shortage of people claiming the end of free elections was at hand. The truth of the matter is however, that the Supreme Court got this decision right. As Chief Justice Roberts noted (while quoting Buckley v. Valeo), the law attempted to intrude upon a citizen’s ability to exercise one of “the most fundamental First Amendment activities.” Donating money to political campaigns is an exercise of free speech, and a freedom that is available to everyone. Of course some people have more money than others, but that shouldn’t restrict people unduly from exercising their rights to the maximum they are able and willing to exercise it. Should we ban all campaign contributions because the poor man on the corner begging for change has zero dollars to give to a campaign? It seems unfair for Max Weber to be prevented from donating to Hillary Clinton in 2016 because he can contribute more to his candidate than other people can.

Should we really be prevented from expressing ourselves past a certain point because someone else exists that can spend more?
— Thomas Warns

This decision will also have other beneficial side effects. It could help break America away from the two-party system. Currently, the two major political parties are entrenched and can collect enough donations from different people to dominate the electoral landscape. Now a credible third (or fourth) party could emerge since it would be easier for a limited number of people to raise enough money and challenge the establishment.      

 Keeping the limit of $2,600 per candidate per election cycle is defensible, as it hard to imagine a Congressman not feeling beholden to a millionaire that writes him a $10,000,000 check. At least by donating to parties and PACs, there is one layer of remove present, even if it is a flimsy layer at times. Of course, transparent disclosure laws could also effectively deter such uncomfortably large donations.

But think about this in the context of campaign finance restrictions in general: I can walk to the corner and yell “Vote for Rand Paul in 2016” and no one would say that is illegal. I could also hold up a sign saying “Vote for Rand Paul in 2016” on said corner and no one would say it is illegal. I could further buy a billboard on that street, or purchase air time on the radio, or distribute literature supporting Rand Paul with my own dime. I am exercising my freedom of speech, as I believe that Rand Paul will be the best candidate. But if I give money to Rand Paul so that his campaign may get that message out more effectively, at some point I am exceeding a limit and breaking a law. Who gets to set that limit, and why? Should we really be prevented from expressing ourselves past a certain point because someone else exists that can spend more, and might be more influential?

*Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the NYU Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."

Beware of Patent Reformers

Richard Epstein

On Monday, March 31, 2014, the Supreme Court heard oral arguments in Alice Corporation v. CLS Bank International, in which I have signed on to a Friend of the Court Brief prepared by Charles Cooper. The case itself concerns the elaborate system for eliminating the so-called “settlement risk” that arises whenever two parties engage in electronic funds transfers in rapid succession. These transactions are not simultaneous, so banks need a way to determine, when they make an advance at 9:00 AM, that the funds needed to repay that loan will be available later in the day.

The elaborate system-designs and programs put together by the Alice Corporation have allowed for accurate tracking of the “shadow risk,” so that a party can know in advance of transaction failure that it has entered into a deal with a creditworthy partner who can make payment when payment is due. Being able to make these calculations is of vast importance to the entire financial industry. The concrete question in Alice is whether the proposed invention should be protected under the current law. The more general legal question is, “whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.”

This question is a mouthful, and it comes before the Supreme Court because of the total disarray on the question in the Federal Circuit: an en banc proceeding with ten judges produced seven separate opinions that did not reach first principles. Unfortunately, one constant theme in these opinions, ably criticized by Ronald Mann, is to strip away the physical elements in a particular patent in order to reach its abstract essence, which will almost always be found not to deserve patent protection. The Supreme Court has to tidy up this mess. Here is a road map on how that might be done.

The Three Steps to Patent Protection

It is commonly agreed that sound protection of intellectual property is more difficult to achieve than the protection of physical property. Unlike land, patents cannot be marked off by metes and bounds. Unlike animals and movable things, ownership cannot be acquired by taking them into possession. But at the same time, it takes extensive labor and imagination to invent most useful devices. A legal regime that allows individuals to build and to sell the inventions of others without obtaining a license would be a world barren of inventors, because imitators would always be able to sell the device more cheaply than the original inventor.

The question, then, is how to identify the class of inventions and discoveries that should be entitled to patent protection, which entitles the patentee to an exclusive period of twenty years from filing to make or sell the invention. The patent-eligible inventions referred to in the Court’s question is not some gratuitous obscurantism, but an inescapable part of patent law. Patents cover inventions, which must in turn be distinguished from abstract ideas. Yet by the same token all inventions need not be covered. Some could be regarded as so trivial as to not warrant 20 years of exclusive ownership, where they could gum up innovation for everyone else.

None of this is old news. The modern patenting scheme dates back to the 1952 Patent Act, which was, amazingly enough, the work of two-extraordinarily gifted men, Pasquale Joseph Federico, then head of the Patent and Trade Office, and Giles Rich, the leading patent attorney of the day, and later a federal judge on the patent court. That act was passed in response to the widespread view that the Supreme Court’s decisions of the 1940s set too high a threshold on patentability. The response of Federico and Giles was to give the field of patents its first coherent statutory revision since 1836.

Three issues are key: patent eligibility, novelty, and non-obviousness. The first asks whether the proposed claim is of the type that in principle warrants protection. The exact statutory language requires that the original invention, or some improvement thereon, represents some “process, manufacture, machine or composition of matter”, which is widely understood to exclude, at least as a first approximation, abstract ideas, laws of nature and natural substances. Without that exclusion from coverage, each instantiation of any of these three categories would amount to a protected invention that all parties would need to license in order to use. That will not work with, for instance, the Pythagorean theorem, or E = mc2, or the use of plutonium. In these three situations we can make near categorical judgments that the blocking power of a patent will do more harm to innovation than benefit. Innovation in these areas is better supported, for example, by prizes to incentivize innovation—for example, the numerous prizes offered to anyone who proved Fermat’s famous last theorem (no integer greater than 2 can solve the equation an + bn = cn) which, once proved, stays proved.

Nonetheless, it seems clear that this definition was intended to reverse such decisions as the 1948 decision in Funk Brothers Seed Co. v. Kalo Inoculant, in which Kalo had found ways to include in a single preparation of different species of “root-nodule bacteria which do not exert a mutually inhibitive effect on each other.” Its preparation made it unnecessary to sell each inoculant separately. Justice William O. Douglas treated this highly specific bit of intelligence as “no more than the discovery of some of the handiwork of nature,” for which patent protection was denied.

The intention of the 1952 Patent Act was to make sure that efforts to narrow the scope of the patent system like Funk Brothers were no longer the law, which led Federico to say that patent protection “may include anything under the sun that is made by man," a phrase that was used with telling effect by the Supreme Court in the 1980 case of Diamond v. Chakrabarty, when it upheld a patent for a genetically engineered bacterium that could break down crude oil.

Federico and Rich took pains to ensure that every patent eligible device also had to pass two patent-specific tests—steps two and three for any patent inquiry: Section 102’s statutory requirement of “novelty” weeds out those inventions that are not new, because there is no reason to let one person block the use of inventions that are already known. And the devilish requirement under Section 103 of non-obviousness which likewise denies protection to inventions “if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains.” In plain English, any advances that other inventors could make on their own do not advance the ball far enough to merit patent protection.

These Distinctions Applied

It is critical in this case to note that any categorical exclusion at stage one has far more dramatic consequences than a rejection of a particular patent on grounds that it lacks novelty or is obvious, especially in light of the enormous breadth of the Supreme Court’s question. In the former case, no reformulation of the basic patent ideal can cure the initial mistake. In the latter, the next application may succeed even though the prior one has failed.

Alice is a showdown case because it reveals the deep fissures inside the profession over the proper classification of two categories of inventions—software patents and business method patents. On these questions, I think that the correct approach emphatically rejects any categorical exclusion of these two types of inventions from patent protection.

Much professional opinion goes the other way. Thus, in her attack on such expanded protection, Professor Robin Feldman asks why, if the Pythagorean theorem and E = mc2 “are unpatentable, how can a computer program ever be patentable?” The New York Times editorial follows on with a similar complaint that “The Supreme Court should make clear that nobody should be allowed to claim a monopoly over an abstract idea simply by tying it to a computer,” without ever directly answering in the negative the question posed to the Supreme Court by denying that these computer-implemented inventions are ever patentable.

That computer-implemented inventions should in principle be eligible for patent protection comes clear from a side-by-side comparison of the highly specific programs and devices at issue in Alice with the general building blocks of mathematics and the basic sciences. The preclusion effect brought about by this invention, if it meets the tests of novelty and non-obviousness, is small relative to the advances that it makes in a particular area of business risk. Such would clearly not be the case with, for example, Newton’s three laws of motion. And remember the monopoly profits that patents generate, at least in the short-run, may block some sensible uses of the patented technology. But the alternative of delayed innovation generates zero gains for inventors and users alike—a far worse alternative. It is simply another version of Harold Demsetz’s Nirvana fallacy to assume that we can wish major inventions into being in some ideal world, without providing a financial spur.

To rule these devices out of bounds will not only impact the particular device and method in Alice but also upset a full range of current software and business method patents that are in widespread use today. Medical instrumentation will also be at risk given that much of it involves using biological measurements for the basis of devices that provide needed diagnosis and treatment. No matter what one thinks of this particular patent, a single swallow does not make a summer, and the broader step to deny protection should be taken only if there are powerful reasons to believe that even the best method and software patents are on balance a net disadvantage to social progress.

That is necessarily a global judgment that will depend largely on broad range considerations. But whatever one may think of the evocatively named “patent trolls,” the case for this dramatic contraction of the patent system is far from being made. It is of course the case that many companies create patents which they do not use, but only license. But this sensible division of labor means that a firm can enter the overall market for new ideas without committing itself to their manufacture. No one has ever been able to develop a reliable test to distinguish the so-called patent troll from the legitimate inventor, because both have to sue in cases of infringement. Indeed, in Alice the “troll” label cannot apply to Alice Corporation, which has actively used its own technologies.

In principle, it is not possible to come up with a magic bullet that describes patentable devices. But by the same token it is not possible to make a sensible simplification of the patent system by excluding the types of inventions that it has covered since at least the 1980 Chakrabarty decision. The high rate of technological and medical innovation has led to high levels of patenting which the Times, for example, believes will strangle the system. Not so. The high level of patent applications today is not a sign that the system is closing down, but rather that it is working. New patents need not create a “patent thicket.” They could easily provide new pathways that avoid the thickets of old. The old maxim still applies; “If it is not broken, don’t fix it.” Alice should not be the occasion for a major reconfiguration of the patent system, which in all likelihood would do more harm than good.

The Costs Underlying Hobby Lobby

Isaiah Hunter*


The Supreme Court just heard the Hobby Lobby case. The petitioners are required under the ACA (Obamacare) to either: (a) provide their employees health care with certain minimum requirements, which include contraceptive coverage or (b) not offer health care and pay a small fine. The other theoretic possibility is to offer health care and not meet the minimum requirements, but the penalty is exorbitant and therefore not a true option.  

The petitioners argue their faith prohibits them from paying for contraceptive use. They think it unfair that to exercise their religious beliefs, the ACA essentially requires them to pay a tax. They are therefore bringing a First Amendment, as-applied challenge against the ACA.

During Oral Arguments, J. Sotomayor suggested the petitioners could merely pay the tax: “Those employers could choose not to give health insurance and pay not that high a penalty – not that high a tax.” J. Kagan chimed in: “[Petitioners] would pay $2,000 per employee, which is less [than they] probably pay[] to provide insurance to its employees … So there is a choice here.” I think both justices are seriously underestimating this compliance cost.

First, as a general rule taxes are not deductible. This is a tax and not a penalty, as C.J. Roberts wrote in NFIB v. Sebelius. So, the 2,000 dollars employers must shell out per employee is a non-capital, non-deductible expense. This makes the fine more costly for businesses.

Secondly, the very reason why employers offer employees healthcare is that this compensation is tax efficient. Employees need not include healthcare benefits in income, but an employer can still deduct payments for its employees’ healthcare. In comparison, wages are taxable by employees and deductible by businesses. This means employer provided health insurance is tax favored. For an example, pretend there is a single tax rate of 20%. Person X and Person Y both work for Corporation Z. Pre-tax, Person X receives 100 dollars + 90 dollars worth of health care and Person Y receives 200 dollars. Person X, after tax, takes home 80 dollars + 90 dollars of health care for a total of 170 dollars. Person Y takes home 160 dollars. So, even though Person Y received more money pre-tax, the exclusion of health-care compensation from taxable income means Person X took home more money after-tax. The corporation is indifferent between a dollar of compensation and a dollar of health care because they can deduct either. However, if corporations offer healthcare, then they will not need to spend as much money on employee’s wages, because healthcare compensation is more tax efficient.

How does this relate to Hobby Lobby? J. Kagan suggested that petitioners pay the tax and provide greater compensation that would allow petitioners’ employees to buy their own healthcare. However, as shown above, this would raise the total money petitioner spent on compensation because they would no longer being spending the money in a tax efficient manner.

So, what do my two points tell us about Hobby Lobby? Well, it would be more costly for petitioner to not offer health care and pay the tax than J. Kagan suggests. Whether that should alter the case’s outcome, I am unsure. However, I do think it illustrates two broader points.

(1) It is really a bad idea to have certain tax-favored forms of compensation and (2) maybe the Court should have treated the ACA tax as a penalty. If I am correct, then it will be very costly for firms to forgo offering the required healthcare. In a recent paper, Mr. Cooter and Mr. Siegel offer a heuristic for defining a fine as either a tax or a penalty. In short, taxes diminish behavior but not enough to destroy revenue, whereas penalties prohibit behavior and therefore do not raise significant revenue. Once more, if I am correct, then the fine will be costly enough that it likely prohibits behavior and does little to raise revenue. Therefore, under Cooter and Siegel’s analysis the ACA tax is a penalty. This reading of the fine would make the ACA unconstitutional under C.J. Roberts’ opinion. 

*Isaiah Hunter is a J.D. candidate at New York University School of Law, class of 2014, and is the Senior Articles Editor of the Journal of Law & Liberty.