Amicus Brief — Ruckelshaus v. Monsanto Co.

Office - Sumems fac

prem Court, U.S,

FILED

FAN 19 {g

No. 83-196 MA

EVAS,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

WILLIAM D. RUCKELSHAUS, ADMINISTRATOR, UNITED

STATES ENVIRONMENTAL PROTECTION AGENCY,

Appellant,

Vv.

MONSANTO COMPANY,

Appellee.

On Appeal From The United States District

Court For The Eastern District Of Missouri

BRIEF FOR STAUFFER CHEMICAL

COMPANY AS AMICUS CURIAE

IN SUPPORT OF AFFIRMANCE

LAWRENCE S. EBNER*

Davip I. BooKSPAN

McKEnNA, CONNER & CUNEO

1575 Eye Street, N.W.

Washington, D.C. 20005

Counsel for Stauffer Chemical Company

Of Counsel: *Counsel of Record

JOHN T. Ronan, III

ANDREW F. FINK

JOHN W. BEHAN

Law Department

Stauffer Chemical Company

Westport, CT 06881

January 19, 1984

—

PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C, (202) vas

i

TABLE OF CONTENTS

Page

SAREE OP BIO akc cb vireo svacdvssscencieeaes ii

INTEREST AND POSITION OF THE AMICUS .........0e000: 1

BUUANT OP ARQUUNE 6 iviciccicd vc cuacseueedicnween 3

BD tli siknvida 60 Sh send 0neaxeseus nese. 5

I. THE Court SHOULD Not CONSIDER WHETHER

FIFRA Provipes A STANDARD FOR COMPENSATION 5

A. The Question Of Whether FIFRA Provides A

Standard Is Not Presented, Or Is At Most A

PURGES BOONE c's veevivestadannoeeaetin 5

B. Jurisprudence Dictates That The Court Not

Consider The Question Of A FIFRA Compen-

OUI TE bcc ck ud icacosdssnc ieee 6

C. PPG Is a er Hw To Interject A Compensa-

tion Standard Issue Into This Case ......... 7

II. FIFRA Does Not EstTaB.tisH A STANDARD FOR Com-

PREMATION Sick ccdicccnss débeddces sien 8

A. The Statute And Its Legislative History .... 8

B. The Legislative History Cited By PPG Is To

Statutes Which Either No Longer Exist Or

Never Were Enacted .....cccccccccccccces 12

C. PPG's Citations To Cost-Sharing Are Con-

tradicted By Other Statements In FIFRA’s

LOUIVG THOU cue cnscasudses casabece 13

D. PPG’s Cost-Sharing Standard Is Inconsistent

With Other Mandatory Licensing Schemes .. 15

E. PPG’s Version Of Cost-Sharing Does Not Re-

flect The True Costs Incurred By Pesticide In-

WVORIED 6 hoc ki csseccsdhassvenehuceuene 17

CHUCRRIUE oon wv bxbi-vsccnedceneaeentsceeeeee 19

ii

TABLE OF AUTHORITIES

CASES: Page

Associated Teachers of Huntington, Inc. v. Board of

Education, 33 N.Y.2d 229, 306 N.E.2d 791 (1973) 11

Ciba-Geigy Corp. v. Farmland Industries, Inc., FIFRA

Comp. Dkt. Nos. 33, 34 & 41 (Aug. 19, 1980) .... 14

Enterprise Manufacturing Co. v. Shakespeare Co., 141

Cy MND 6 clewsnbsapespaceseales sr 16

Everett v. Brown, 120 Misc. 349, 198 N. Y.S. 462 (Sup. Ct.

IU deh stu ben chase derek ecthivecs ¥édee ll

Fukaya Trading Co. v. Eastern Marine Corp., 322 F.

SE MEM EM BOER) cevesccccvvessevecees 10

Golden v. Zwickler, 394 U.S. 103 (1969) ............. 6

Marcy Lee “9g! Co. v. Cortley Fabrics Co.,

CA, EOD sevesscccnecscseseccns 10

Monsanto Co. v. Acting Administrator, EPA, 564 F.

an 552 (E.D. Mo.), prob. juris. noted, 104 S. Ct.

Se i a aaiis wing Wb ie hie ae 5

Park Construction Co. v. Independent School District

Be Ee Oe OE UP CREED ciccccocevccscsces 10

PPG Industries, Inc. v. Stauffer Chemical Co., No. 83-

1941 (D.D.C. filed July 7, 1983) ............0000- 2,7

Riverboat Casino, Inc. v. Local Joint Executive Board,

ee CE A, BEE) occiccccnvindisveccses 10

Singer z Flying Tiger Line Inc., 652 F.2d 1349 (9th Cir. -

South Carolina v. Katzenbach, 383 U.S. 301 (1966) ... 6

Union Carbide Agricultural Products Co. v. Ruckel-

shaus, 571 F. “—_ 117 (S.D.N.Y. 1983), appeal

MD. cccsvevasdeveussuanieus eS

United States v. 564.54 Acres of Land, 441 U.S. 506

oT ie Oe da ean 16

United States v. National Lead Co., 332 U.S. 319(1947) 16

United States v. Raines, 362 U.S. 17 (1960) ......... 6

University Computing Co. v. Lykes-Youngstown Corp.,

504 F2d ENE TEs SPPUE toss sencntevesdiaues 16

Table of Authorities Continued

Page

University of Alaska v. Modern Construction, Inc., 522

Ae MEGANE GED 5 sdccccecccusecsessedess ll

Vitro Corp. of America v. Hall Chemical Co., 292 F.2d

eee SG (EE ole os tae a bibw'saschaceonweabtee 16

Wilko v. Swan, 346 U.S. 427 (1953) .............0055 10

STATUTES:

Atomic Energy Act, 42 U.S.C. § 2183 (1976) ......... 16

Clean Air Act, 42 U.S.C. § 7608 (Supp. V 1981) ...... 16

Federal Environmental Pesticide Control Act of 1972,

Pub. L. No. 92-516, 86 Stat. 973 ...........c000. 9, 12

Federal Insecticide, Fungicide, and Rodenticide Act

Section 3(c)(1)(D), 7 U.S.C. § 136a(¢e)(1)(D) (1982) .. 9

Section 3(¢)(1)(D)(i), 7 U.S.C. § 136a(¢e)(1)(D)(i) (1982) 12

P ibsbadeevesve yen bhbeeshceoasastends. passim

Section 3(¢)(2)(D), 7 U.S.C. § 136a(c)(2)(D) (1982) .. 12

Section 3(c)(7), 7 U.S.C. § 136a(c)(7) (1982) ........ 12

Federal Pesticide Act of 1978, Pub. L. No. 95-396, 92

eae aS aT pa ER eh Eg Ee 8, 12

Insecticide, Fungicide and Rodenticide Act, Pub. L. No.

ee ee NE OU OED ode a Une eicadceecs 9, 12

Plant Variety Protection Act, 7 U.S.C. § 2404

SE ds Beit ek et Mae how uk bs Ue cha ba eos 16

Trading With The Enemy Act, 50 U.S.C. app. § 10(1976) 16

LEGISLATIVE MATERIALS:

H.R. Conf. Rep. No. 1540, 92d Cong., 2d Sess. (1972),

reprinted in 1972 U.S. Code Cong. & Ad. News 399315

H.R. Rep. No. 497, 94th Cong., Ist Sess. (1975) ..... 12

S. Rep. No. 334, 95th Cong., Ist Sess. (1977) ........ 13

iv

Table of Authorities Continued

Page

H.R. Rep. No. 343 (Part I), 95th Cong., lst Sess. (1977),

reprinted in 1978 U.S. Code Cong. & Ad. News 1966 10

H.R. Rep. No. 663, 95th Cong., 1st Sess. (1977), re-

printed in 1978 U.S. Code Cong. & Ad. News 1966 14

S. Rep. No. 551, 97th Cong., 2d Sess. (1982) ....... 14, 15

H.R. Rep. No. 566, 97th Cong., 2d Sess. (1982) ...... 14

MISCELLANEOUS:

ae ee NO ic anc edccccee nes 2,11

re er rrr ll

ee NEED soc vaccebovuvise ne cedeeses 15

In re Stauffer Chemical Co. v. PPG Industries, Inc.,

Dkt. No. 16 199 077 82 FIFRA (Amer. Arb. Assoc.

OU OI, I aa a cer oe mn A ee ig

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1983

No. 83-196

WILLIAM D. RUCKELSHAUS, ADMINISTRATOR, UNITED

STATES ENVIRONMENTAL PROTECTION AGENCY,

Appellant,

Ve

MONSANTO COMPANY,

Appellee.

On Appeal From The United States District

Court For The Eastern District Of Missouri

BRIEF FOR STAUFFER CHEMICAL

COMPANY AS AMICUS CURIAE

Having obtained the written consent of both parties,

Stauffer Chemical Company (“Stauffer”) is submitting

this brief as amicus curiae. The brief supports the posi-

tion of the appellee, Monsanto Company, regarding the

constitutionality of section 3(c)(1)(D)(ii) of the Federal

Insecticide, Fungicide, and Rodenticide Act (“FIFRA”),

7 U.S.C. § 136a(¢)(1)(D)(ii) (1982).

INTEREST AND POSITION OF THE AMICUS

Stauffer has a unique and critical interest in this case.

It is the only pesticide manufacturer which has initiated

binding arbitration and received a compensation award

under FIFRA § 3(c)(1)(D)(ii}—one of the two statutory

2

provisions under review. The Stauffer arbitration was

conducted in the Spring of 1983,' and an award was ren-

dered on June 29, 1983.* In July 1983, PPG Industries,

Inc. (“PPG”), the respondent in the arbitration, con-

tested the award by filing an action in the United States

District Court for the District of Columbia. PPG Indus-

tries, Inc. v. Stauffer Chemical Co., No. 83-1941 (D.D.C.

filed July 7, 1983).* Now, PPG has submitted an amicus

' In re Stauffer Chemical Co. v. PPG Industries, Inc., Dkt. No. 16

199 077 82 FIFRA (Amer. Arb. Assoc. June 29, 1983).

*The arbitration award represents compensation from PPG for

using Stauffer’s research data to obtain commercially valuable “me-

too” pesticide registrations. Section 3(c)(1)(D)(ii) of FIFRA autho-

rizes EPA to grant such me-too registrations on the basis of another

company’s data, but only if the me-too registrant first offers and

agrees to compensate the original data submitter for use of the data.

The statute provides that the amount of compensation is to be deter-

mined by the parties themselves, and if they cannot agree, through

binding arbitration before private arbitrators under the auspices of

the Federal Mediation and Conciliation Service (“FMCS”).

PPG and Stauffer failed to agree on the amount of compensation

due. Accordingly, on April 20, 1982, Stauffer initiated binding

arbitration. See 29 C.F.R. pt. 1440 (1983). A panel of three arbitra-

tors was appointed. The ensuing hearing (in which PPG advocated an

award of token compensation) extended over a three-month period,

included testimony from approximately twenty-five witnesses,

generated a transcript of 2700 pages, and produced a voluminous

documentary record. In a twenty-four page decision, the arbitrators

awarded Stauffer an initial lump sum payment of $1,465,000, plus

quarterly running compensation payments based on PPG's “me-too”

pesticide sales over the next ten years.

* Under the terms of the award, PPG was to have paid the initial

lump sum to Stauffer by July 28, 1983. Instead, PPG filed its action

seeking to vacate the award. Upon PPG’s motion, the district court

has ordered the arbitration award to be held in abeyance pending

disposition of the action. The Government has moved to hold the

action itself in abeyance, but PPG opposes that motion and has moved

for summary judgment.

3

brief for the purpose of interjecting into this appeal the

same arguments against the award which it has raised,

and which still are pending, in its district court action.

Through its amicus brief, PPG seeks to undermine Stauf-

fer’s award by preempting the district court and short-

circuiting the judicial process. Stauffer has a compelling

need, therefore, to alert the Court to PPG’s objectives.

In its district court action, PPG is attacking the arbitra-

tion award by alleging that the panel of three arbitrators

is guilty of “misconduct” because they supposedly applied

the wrong standard for compensation. PPG argues that

FIFRA § 3(c)(1)(D)(ii) limits compensation to a share of ~-

certain narrow out-of-pocket testing costs. This is the

very same argument to which PPG has devoted virtually —

its entire amicus brief.

Stauffer submits that the question of whether FIFRA

provides a standard for compensation is not presented by

this case, or is at most a peripheral issue which the Court

should not address. The issue of whether there is a stand-

ard will be presented squarely in Union Carbide Agricul-

tural Products Co. v. Ruckelshaus, 571 F. Supp. 117

(S.D.N.Y. 1983), appeal noticed Dec. 21, 1983. Furth-

ermore, PPG has raised in its own district court action the

contention that Congress intended “cost-sharing” to be

the standard. Should the Court nevertheless choose to

address the question here, Stauffer’s position is that the

statute does not provide a standard for compensation.

SUMMARY OF ARGUMENT

The question presented in this case is whether

FIFRA’s use of data provision, § 3(c)(1)(D)(ii), effects an

unconstitutional taking of property. Both the Govern-

ment and Monsanto agree that if there is a taking, the

statute fails to provide, and was not intended to provide,

4

just compensation. As a result, the Court need not reach

and should not consider the question of whether Congress

provided a standard in FIFRA which affords just com-

pensation.

PPG has filed an amicus brief for the purpose of in-

terjecting the compensation standard question into this

case. PPG’s fundamental objective is to avoid paying

compensation to Stauffer under the award rendered in

the only FIFRA arbitration completed to date. PPG

hopes to undermine that award by prompting the Court

to acknowledge a narrow “cost-sharing” standard, which

would in effect overrule the arbitrators and limit Stauf-

fer’s compensation to a nominal amount.

The Court should not address in any manner the ques-

tion of a standard for compensation. Not only is the issue

absent from or peripheral to this case, any comment by

the Court could preempt the district court and hamstring

the parties in the action filed by PPG to challenge the

Stauffer award. Furthermore, the issue of whether

FIFRA provides a standard for compensation will be

presented squarely in Union Carbide Agricultural Prod-

ucts Co. v. Ruckelshaus, 571 F. Supp. 117 (S.D.N.Y.

1983), appeal noticed Dec. 21, 1983.‘

If the Court nevertheless should choose to consider the

question, Stauffer’s position is that there is no standard

for compensation in FIFRA. Neither the statutory lan-

guage nor the legislative history specifies a method for

private arbitrators to follow in making an award. Furth-

ermore, congressional statements contradict PPG’s con-

tention that Congress intended compensation to be lim-

ited to a share of certain out-of-pocket testing costs.

Indeed, mandatory licensing schemes such as FIFRA

‘Stauffer is one of the plaintiffs in the Union Carbide case.

5

§ 3(c)(1)(D)(ii) commonly base compensation on value re-

ceived, rather than on cost-sharing. Moreover, even

under a cost-sharing approach, there are substantial re-

search costs which PPG’s standard fails to take into ac-

count.

ARGUMENT

I. THE COURT SHOULD NOT CONSIDER WHETHER

FIFRA PROVIDES A STANDARD FOR COMPENSA-

TION

A. The Question Of Whether FIFRA Provides A Standard

Is Not Presented, Or Is At Most A Peripheral Issue

Both parties in this case agree that the issue before the

Court is whether FIFRA § 3(c)(1)(D)(ii) effects an uncon-

stitutional taking of property. If there is a taking, there is

no dispute as to whether the FIFRA arbitration proce-

dure provides “just compensation.” The Government

admits that it does not. See Appellant’s Jurisdictional

Statement at 25 (“the intra-industry compensation

scheme was not meant to provide Monsanto ‘just compen-

sation’ within the meaning of the Fifth Amend-

ment... .”); Appellant’s Brief at 41 (“the statute pro-

vides some measure of compensation under the data con-

sideration provisions . . . the Tucker Act . . . provides

Monsanto the means to obtain whatever additional just

compensation is due for any ‘taking.’”). Neither the

Government nor Monsanto contends that FIFRA pro-

vides, or was intended to provide, just compensation. As

a result, the Court has no reason to decide whether there

is a standard in FIFRA providing just compensation,

much less what the standard is if there is one.

Even if the parties disagreed about the lack of just

compensation, the issue would be peripheral to this case.

The district court in Monsanto Co. v. Acting Administra-

tor, EPA, 564 F. Supp. 552 (E.D. Mo.), prob. juris.

6

noted, 1048S. Ct. 230 (1983), gave the question only curso-

ry treatment as an off-shoot of its taking analysis. Jd. at

566-67. Furthermore, the court found that FIFRA fails to

provide just compensation not only because the statute is

vague, but also because there is no provision for judicial

review of arbitration awards. Jd. Thus, the question of

whether FIFRA provides a standard for compensation

was ancillary to the district court’s analysis.

B. Jurisprudence Dictates That The Court Not Consider

The Question Of A FIFRA Compensation Standard

As explained above, the issue of whether FIFRA pro-

vides a standard for compensation is absent from, or at

most, peripheral to this case. Sound jurisprudence dic-

tates, therefore, that the Court not rule on the question:

This Court, as is the case with all federal courts,

“has no jurisdiction to pronounce any statute, either

of a State or of the United States, void, because

irreconcilable with the Constitution, except as it is

called upon to adjudge the legal rights of litigants in

actual controversies. In the exercise of that Jurisdic-

tion, it is bound by two rules, to which it has rigidly

adhered, one, never to anticipate a question of con-

stitutional law in advance of the necessity of decid-

ing it; the other never to formulate a rule of con-

stitutional law broader than is required by the pre-

cise facts to which it is to be applied.” Liverpool, New

York & Philadelphia S.S. Co. v. Commissioners of

a —_ 113 U.S. 33, 39, 5S. Ct. 352, 355, 28 L.

United States v. Raines, 362 U.S. 17, 21-22 (1960) (em-

phasis added). See also Golden v. Zwickler, 394 U.S. 103,

110 (1969) (“The constitutional question. . . must be pre-

sented in the context of a specific live grievance.”); South

Carolina v. Katzenbach, 383 U.S. 301, 316-17 (1966) (“At

7

the outset, we emphasize that only some of the many

portions of the Act are properly before us. . . . Judicial

review of these [other] sections must await subsequent

litigation.”).

The question of whether Congress intended to provide

a standard for compensation will be presented to the

Court in Union Carbide Agricultural Products Co. v.

Ruckelshaus, 571 F. Supp. 117 (S.D.N.Y. 1983), appeal

noticed Dec. 21, 1983. The same question also is pending

in PPG’s district court action challenging the Stauffer

arbitration award. This question is a point of vigorous

contention. Any comment by the Court, no matter how

incidental, would preempt the district court and ham-

string the parties currently litigating the issue. Further-

more, inasmuch as the issue already is on its way up to the

Court in Union Carbide, the Court should await a full

record and thorough briefing from the parties involved

before addressing the question.

C. PPG Is Attempting To Interject A Compensation

Standard Issue Into This Case

In its amicus brief, PPG concedes “that the question of

the constitutionality of the arbitration provision is not

ripe for review in this case, and therefore should not be

decided by the Court.” PPG Amicus Brief at 2 (emphasis

added). Yet, PPG’s brief is devoted to the contention that

the statute is constitutional only if a narrow “cost-

sharing” standard for compensation is read into it.

Not coincidentally, this is exactly the same argument

that PPG is propounding in its district court action chal-

lenging the Stauffer arbitration award. See PPG Indus-

5The question of whether Congress provided a standard is in-

herent in PPG’s contention that cost-sharing is the standard, and also

is raised by Stauffer’s counterclaim for declaratory judgment.

8

tries, Inc. v. Stauffer Chemical Co., No. 83-1941 (D.D.C.

filed July 7, 1983).° Thus, as an amicus curiae, PPG is

attempting to bootstrap its district court argument up to

the Supreme Court, and thereby preempt the district

court.

II. FIFRA DOES NOT ESTABLISH A STANDARD FOR

COMPENSATION

A. The Statute And Its Legislative History

Compensation under FIFRA is controlled by

§ 3(c)(1)(D)(ii), as enacted by the Federal Pesticide Act of

1978, Pub. L. No. 95-396, 92 Stat. 819. See 7 U.S.C.

§ 136a(c)(1)(D)(ii) (1982). It is noteworthy that PPG in its

amicus brief has started its argument with legislative

history and not with the statute.

Section 3(c)(1)(D)(ii) does not specify a method for

determining compensation. The statute states only that

the original data submitter has “the right to compensa-

tion for the [me-too registrant’s] use of the data.” Under

the statute, a me-too applicant must make “an offer to

compensate the original data submitter.” Further, “(t]he

terms and amount of compensation may be fixed by

agreement between the original data submitter and the

applicant, or, failing such agreement, binding arbitra-

tion. . . .” The arbitrators are given complete discretion

by the statute to award compensation as they deem ap-

propriate under the facts and circumstances of each case.

* Although PPG’s Complaint alleges that FIFRA § 3(c)(1)(D)(ii) is

unconstitutional, PPG has filed a Motion for Summary Judgment

which presents the same argument set forth in its amicus brief.

According to PPG, the only way the statute can be upheld is to

dovetail onto it a provision for judicial review of arbitration awards,

and to construe the statute as specifying a narrow cost-sharing

standard for compensation.

9

To underscore the arbitrators’ discretion, § 3(¢)(1)(D)(ii)

states that their determination “shall be final and con-

clusive, and no official or court . . . shall have power or

jurisdiction to review any such findings and determina-

“tion, except for fraud, misrepresentation, or other mis-

conduct.” 7 U.S.C. § 136a(¢)(1)(D)(ii) (1982).

It is significant that the current version of FIFRA,

which reflects major congressional changes enacted in

1978, is even more obtuse on compensation than was its

immediate predecessor, the 1975 FIFRA. The 1975 (and

1972) versions of FIFRA § 3(c)(1)(D) provided that the

me-too applicant must have “offered to pay reasonable

compensation for producing the test data to be relied

upon.” Pub. L. No. 94-140, 89 Stat. 751, 755 (1975); Pub.

L. No. 92-516, 86 Stat. 973, 980 (1972). Congress added

even more flexibility to the statute with the 1978 provi-

sion, which pointedly omits the word “reasonable” and

the phrase “for producing the test data to be relied upon.”

Instead, the 1978 statute merely provides “compensation

for the use of the data.”

During the congressional hearings which preceded

enactment of the 1978 amendments to FIFRA, EPA

Administrator Douglas Costle acknowledged that the

* Additionally, other parts of the statute corroborate the con-

clusion that FIFRA § 3(c)(1)(D)(ii) does not establish a standard for

compensation, much less a cost-sharing standard. Cost-sharing is

expressly mentioned in § 3(c)(2)(B) of FIFRA as an optional proce-

dure for registrants who voluntarily agree to jointly develop addi-

tional data requested by EPA on a prospective basis. See

§ 3(c)(2)(B)(iii), 7 U.S.C. § 136a(¢)(2)(B)(iii) (1982). Section

3(c)(1)(D\ii) provides for mandatory licensing of data previously

generated by others. The fact that cost-sharing was expressly refer-

enced in § 3(c)(2)(B), but not in § 3(c)(1)(D)ii), supports the con-

clusion that Congress did not intend cost-sharing to be the standard

for compensation under § 3(¢)(1)(D)(ii).

10

statute provides no standard for compensation. He rec-

ommended that Congress establish “a uniform but equita-

ble compensation formula” and “make more explicit what

factors it [Congress] feels are pertinent in determining

reasonable compensation.” H.R. Rep. No. 343 (Part 1),

95th Cong., lst Sess. 8 (1977), reprinted in 1978 U.S.

Code Cong. & Ad. News 1966, 1974.

Congress rejected the EPA Administrator’s recom-

mendation and declined to establish a statutory standard

for compensation. Instead, Congress adopted the 1978

provision which transferred responsibility for determin-

ing compensation from EPA to private arbitrators.

The fact that Congress vested private arbitrators with

the responsibility for determining compensation under

§ 3(c)(1)(D)(ii) is strong evidence that Congress intended

not to provide a statutory standard. It is well-settled that

arbitrators are expected to “fashion the law to fit the facts

before them.” Marcy Lee Manufacturing Co. v. Cortley

Fabrics Co., 354 F.2d 42, 43 (2d Cir. 1965). Arbitrators

are “expected to decide matters in dispute according to

those principles of equity and good conscience which, in

their opinion, will do justice between the parties.” Park

Construction Co. v. Independent School District No. 32,

11 N.W.2d 649, 652 (Minn. 1943). Arbitrators’ decisions

are not restrained by a “strait jacket of precedent,” and

must be made on a case-by-case basis. Singer v. Flying

Tiger Line Inc., 652 F.2d 1349, 1356 (9th Cir. 1981) (citing

Diamond v. Terminal Railway Alabama State Docks,

421 F.2d 228, 234 (5th Cir. 1970). See also Wilko v. Swan,

346 U.S. 427, 436 (1953); Riverboat Casino, Inc. v. Local

Joint Executive Board, 578 F.2d 250, 251 (9th Cir. 1978)

(“strict adherence to stare decisis would impair the flex-

ibility of the arbitral process”); Fukaya Trading Co. v.

Eastern Marine Corp., 322 F. Supp. 278, 283 (E.D. La.

11

1971) (“arbitrators may base their decision on principles

of justice and equity”); Everett v. Brown, 120 Misc. 349,

351, 198 N.Y.S. 462 (Sup. Ct. 1923) (“(t]o require an

arbitrator to follow the fixed rules of law ... would

operate to defeat the object of the proceeding. . . . [The

arbitrators] are free to adopt such a course as they deem

best adapted to bring about a just decision in the matters

in controversy”); University of Alaska v. Modern Con-

struction, Inc., 522 P.2d 1132, 1140 (Alaska 1974); Asso-

ciated Teachers of Huntington, Inc. v. Board of Educa-

tion, 33 N. Y.2d 229, 235, 306 N.E.2d 791 (1973) (arbitra-

tor’s “duty is to reach a just result regardless of the

technicalities”); 5 Am. Jur. 2d Arbitration and Award

§ 140; 6 C.J.S. Arbitration § 60.

Further evidence of the lack of a statutory standard for

compensation was provided by the Federal Mediation and

Conciliation Service (“FMCS”), which FIFRA vests with

the responsibility for administering data compensation

arbitrations. In promulgating rules of procedure, FMCS

determined that the statute does not establish a substan-

tive standard for awarding compensation. FMCS stated:

FMCS does not propose to promulgate substantive

standards for the arbitration of FIFRA disputes.

Indeed, review of the statute, legislative history and

background of the data Nr mag problem illus-

trates the difficulty of establishing a comprehensive

set of substantive standards. The statutory scheme

of FIFRA provides that the arbitrators will deter-

mine the standards on a case-by-case basis, and

prior decisions may be used for guidance in further

disputes.

45 Fed. Reg. 28,105, 28,107 (1980) (emphasis added). See

29 C.F.R. pt. 1440 (1983).

12

B. The Legislative History Cited By PPG Is To Statutes

Which Either No Longer Exist Or Never Were Enacted

In its amicus brief, PPG has exhaustively reviewed

selected portions of FIFRA’s legislative history. See PPG

Amicus Brief at 6-11. It is crucially significant to note,

however, that, with a single exception, al/ of the excerpts

cited by PPG relate to pre-1978 versions of FIFRA,

which are not at issue here. In the Federal Pesticide Act

of 1978, Congress recast the use of data and data compen-

sation provisions ef FIFRA.* Thus, the pre-1978 legisla-

tive history discussed by PPG is largely irrelevant.’

*The 1978 changes to the compensation provision were part of a

major overhaul of FIFRA’s registration provisions. Among the other

major changes incorporated by the Federal Pesticide Act of 1978

were a new provision granting ten years of exclusive use in research

data for post-1978 chemicals (§ 3(c)(1)(D)(i)); a new compensation

clause providing fifteen years of compensation for both pre- and

post-1978 chemicals, with disputes resolved through arbitration

(§ 3(¢)(1)(D)(ii)); a clause providing applicants with two optional

methods of supporting their registrations: either by supplying their

own test data or alternatively by citing data that had been previously

submitted or that appeared in the public literature (§ 3(c)(1)(D)

Preamble); an exemption of formulator-type businesses from some

compensation requirements (§ 3(c)(2)(D)); a provision making trade

secret research data available for mandatory licensing to imitators

(§ 3(¢)(1)(D)(ii)); an authorization for EPA to request additional re-

search data from registrants after registration, with registrants

having the option of developing the new studies either alone or jointly

(§ 3(c)(2)(B)); and authorization for EPA to grant conditional

registration of pesticides, in addition to full registration (§ 3(¢)(7)).

*There are additional defects with PPG's references to the 1972

and 1975 legislative histories of FIFRA. For example, PPG has

quoted an excerpt from the legislative history of the 1975 FIFRA

that purports to favor cost-sharing as the basis for compensation.

H.R. Rep. No. 497, 94th Cong., Ist Sess. 65 (1975). This statement is

not the report of the committee and reflects nothing more than the

individual opinions of the three members who expressed their dis-

senting or additional views.

13

PPG’s sole reference to the legislative history of the

1978 FIFRA is to a version of the bill which never was

enacted. S. Rep. No. 334, 95th Cong., lst Sess. 4, 31

(1977). Although this report of the Senate Committee on

Agriculture, Nutrition, and Forestry does mention cost-

sharing, the bill reported by that committee was changed

substantially in conference. This report is irrelevant be-

cause it does not illuminate the statute which was

enacted. No cost-sharing requirement or any other stand-

ard for compensation was adopted by Congress or in-

cluded in the statute.

C. PPG's Citations To Cost-Sharing Are Contradicted By

Other Statements In FIFRA’s Legislative History

The legislative history of FIFRA’s data compensation

provision contains numerous contradictory statements.

In its amicus brief, PPG cites several references to “cost-

sharing,” but omits the many congressional statements

which are inconsistent with PPG’s narrow cost-sharing

standard.

PPG’s standard is limited to a discrete group of out-of-

pocket testing costs. This narrow cost-sharing formula

does not take into account the tremendous value received

by a me-too registrant who saves substantial time and

money by relying upon another company’s data. Nor does

it take into account the level of innovation and effort that

a company has put into a pesticide’s development, or the

need to provide incentives for pesticide research and

development. The 1977 and 1982 reports of the House and

Senate Agriculture Committees, however, indicate that

these and similar factors are pertinent to compensation,

and that compensation should be substantial, not the

nominal amount which results from PPGQ’s self-serving

standard. These congressional committees stated that

compensation should:

14

(i) Encourage pesticide research and development.

H.R. Rep. No. 663, 95th Cong., lst Sess. 17 (1977),

reprinted in 1978 U.S. Code Cong. & Ad. News 1966,

1990 (“encourage greater research for safe and effective

pesticides”); id. at 18 (“assure the continued research and

development of new pesticides”); S. Rep. No. 551, 97th

Cong., 2d Sess. 9 (1982) (“provide effective economic

incentives for companies to engage in expensive and risk-

laden research programs to develop pesticides”).

(ii) Protect proprietary rights in data. S. Rep. No.

551, supra, at 9 (“protect the proprietary rights of reg-

istrants in research data”). See also H.R. Rep. No. 663,

supra, at 18.

(iii) Provide for recovery of research investments.

H.R. Rep. No. 566, 97th Cong., 2d Sess. 77 (1982) (to

enable the registrant “to protect and recover its in-

vestment”); S. Rep. No. 551, supra, at 13 (“providing an

adequate return to data developers for the value of their

research”).

(iv) Reward innovative research. S. Rep. No. 551,

supra, at 9-10 (“rewarding innovative research efforts”).

(v) Make compensation more meaningful and equi-

table. S. Rep. No. 551, supra, at 9 (“make compensation

more meaningful and equitable than under prior law”).

PPG’s constricted cost-sharing standard accomplishes

none of the above. Taken as a whole, therefore, FIFRA’s

legislative history does not make a case for cost-sharing."

‘© PPG also relies upon the decision of an EPA administrative law

judge under the pre-1978 version of the statute. Ciba-Geigy Corp. v.

Farmland Industries, Inc., FIFRA Comp. Dkt. Nos. 33, 34 & 41

(Aug. 19, 1980) (see PPG Amicus Brief at 12-13). The EPA judge

based compensation on cost-sharing. This was the only compensation

15

D. PPG's Cost-Sharing Standard Is Inconsistent With

Other Mandatory Licensing Schemes

PPG’s cost-sharing standard is inconsistent with the

fact that FIFRA § 3(c)(1)(D)(ii) is a mandatory licensing

provision. The compensation formula advocated by PPG

is based on the innovator’s out-of-pocket testing costs,

not on the true value received by a me-too registrant who

uses the innovator’s research data to obtain me-too

registrations. Yet, Congress and the courts have based

compensation in other mandatory licensing schemes on

the value of the rights received by the licensee.

The fact that § 3(c)(1)(D)(ii) is a form of mandatory

licensing cannot reasonably be disputed.'' FIFRA autho-

rizes a pesticide applicant to use data “without the per-

mission of the original data submitter.” Section

3(c)(1)(D)(ii). Congress has acknowledged that the

FIFRA use of data provision represents “mandatory

licensing of test data.” H.R. Conf. Rep. No. 1540, 92d

Cong., 2d Sess. 31 (1972), reprinted in 1972 U.S. Code

Cong. & Ad. News 3993, 4130. Likewise, the Federal

Mediation and Conciliation Service has described the use

of data provision as a “mandatory data licensing scheme.”

45 Fed. Reg. 55,395 (1980).

None of the other federal statutes which establish

mandatory licensing bases compensation on costs in-

case to have been decided when, in 1982, the Senate conducted

oversight hearings on FIFRA’s compensation provisions. The Sen-

ate Agriculture Committee’s oversight report, in what had to have

been a reference to the Ciba-Geigy case, stated that “data compensa-

tion has not been effective thus far.” S. Rep. No. 551, supra, at 9.

Thus, at least by implication, the members of the oversight commit-

tee, many of whom drafted the 1978 version of the statute, expressed

dissatisfaction with cost-sharing.

' Indeed, PPG does not dispute this fact.

16

curred by the involuntary licensor. Instead, compensa-

tion is based on the value of the rights received by the

licensee. For example, several federal statutes impose

mandatory licensing of property interests in return for

payment of a “reasonable royalty” to the licensor. The

Atomic Energy Act, 42 U.S.C. § 2183 (1976), authorizes

the mandatory licensing of patents relating to atomic

energy; the Plant Variety Protection Act, 7 U.S.C.

§ 2404 (1982), authorizes the mandatory licensing of

federally protected plant varieties; and the Trading With

The Enemy Act, 50 U.S.C. app. § 10 (1976), authorizes

the mandatory licensing of certain intellectual property

rights during time of war." In each case, the involuntary

licensor is required to be compensated with a reasonable

royalty for the use of the licensed property interests."

' The Clean Air Act, 42 U.S.C. § 7608 (Supp. V 1981), establishes

a similar scheme for the mandatory licensing of certain pollution

control patents “on such reasonable terms and conditions as the court

. .. May determine.”

'S A reasonable royalty requires payment based on the value of the

right that is licensed. Vitro Corp. of America v. Hall Chemical Co.,

292 F.2d 678, 683 (6th Cir. 1961); Enterprise Mfg. Co. v.

Shakespeare Co., 141 F.2d 916, 920 (6th Cir. 1944). Stated another

way:

[A] reasonable royalty is simply that amount which the trier of

facts estimates a person desiring to use a patent right would be

willing to pay for its use and a patent owner desiring to license

the patent would be willing to accept.

University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d

518, 537 n.31 (5th Cir. 1974). See also 35 U.S.C. § 284 (1976) (patent

infringement compensated by reasonable royalty for hypothetical

patent license); United States v. 564.54 Acres of Land, 441 U.S. 506,

511 (1979) (compensation to be paid in eminent domain cases is to be

commensurate with fair market value of right taken measured by

“what a willing buyer would pay in cash to a willing seller”); United

States v. National Lead Co., 332 U.S. 319, 349 (1947) (remedy for

antitrust violation arising from patent misuse is involuntary license

in return for reasonable royalty based upon value of rights licensed).

17

Thus, these other mandatory licensing schemes do not

base compensation on cost-sharing. It is highly unlikely,

therefore, that Congress, without explanation, would

have made an exception for FIFRA and provided a cost-

sharing standard for compensation.

E. PPG's Version Of Cost-Sharing Does Not Reflect The

True Costs Incurred By Pesticide Innovators

In its amicus brief, PPG argues that Congress in-

tended to limit FIFRA compensation to a portion of the

direct costs of producing test data necessary for registra-

tion. See PPG Amicus Brief at 7. Although PPG does not

elaborate on what specific costs it believes are compens-

- able, PPG’s view apparently is the same narrow one that

it advocated during the arbitration.

Even if Congress had intended cost-sharing to be the

standard, it is unreasonable to assume that it would have

limited compensable costs in the manner suggested by

PPG. PPG’s miserly approach to cost-sharing is to ex-

clude all but a handful of the true costs incurred by

innovators in registering a pesticide for the first time.

Pesticide innovators like Stauffer spend millions of dol-

lars in conducting the studies and generating the many

types of safety and efficacy data required for registration.

These are among the regulatory research costs which

innovators bear alone. Me-too registrants like PPG avoid

such costs by relying upon another company’s data.

Furthermore, pesticide innovators normally need five

years or longer to generate government-required

registration data and to undergo regulatory review be-

fore obtaining the initial registration for a new product.

Because FIFRA makes it unlawful to sell a pesticide

which is not registered, five or more years of sales and

18

profits are lost while the required data are being de-

veloped and approved. These very substantial lost profits

from regulatory delays also are costs of performing

government-required research. They are as real and rec-

ognizable as toxicologists’ salaries and laboratory rents.

Me-too registrants avoid these costs by entering the mar-

ket quickly through use of another company’s data.

PPG’s “cost-sharing” standard excludes most out-of-

pocket regulatory research costs and all costs due to

regulatory delays. The result is token compensation

which makes no economic sense. Congress clearly would

not have intended to provide for cost-sharing by exclud-

ing the bulk of costs actually incurred by the innovator in

producing the data necessary for registration.

19

CONCLUSION

For the foregoing reasons, the Court should not con-

sider the question of whether FIFRA establishes a stand-

ard for compensation. Should the Court choose to address

this issue, the Court should find that Congress did not

provide a standard.

Respectfully submitted,

LAWRENCE 8S. EBNER*

DAVID I. BOOKSPAN

MCKENNA, CONNER & CUNEO

1575 Eye Street, N.W.

Washington, D.C. 20005

(202) 789-7500

Counsel for Stauffer Chemical Company

*Counsel of Record

Of Counsel:

JOHN T. Ronan, III

ANDREW F., FINK

JOHN W. BEHAN

Law Department

Stauffer Chemical Company

Westport, CT 06881

January 19, 1984