Datasets:

raminass

/

paragraphs

like 0

Justice Rehnquist

dissenting

Lawrence County v. Lead-Deadwood School Dist.

https://www.courtlistener.com/opinion/111297/lawrence-county-v-lead-deadwood-school-dist/

In this Court unanimously described the "settled doctrines of this Court" with respect to States, on the one hand, and counties and other municipal corporations within them, on the other: "Municipal corporations are political subdivisions of the State, created as convenient agencies for exercising such of the governmental powers of the State as may be entrusted to them. For the purpose of executing these *271 powers properly and efficiently they usually are given the power to acquire, hold, and manage personal and real property. The number, nature and duration of the powers conferred upon these corporations and the territory over which they shall be exercised rests in the absolute discretion of the State." Flying in the face of this settled doctrine, the Court today holds that Congress, by providing for payments of federal funds in lieu of taxes to counties in South Dakota, implicitly prohibited the State of South Dakota from regulating in any way the manner in which its counties might spend those funds. Recognizing that the statutory language does not support such a result, the Court seeks to glean from bits and pieces of the testimony of witnesses before congressional Committees, and from selected statements in Committee Reports which do not address the question here at issue, ammunition for the result it reaches. I do not think the Court's opinion succeeds in this rather formidable task. The statute in question, 31 U.S. C. 6902(a), provides: "The Secretary of the Interior shall make a payment for each fiscal year to each unit of general local government in which entitlement land is located. A unit may use the payment for any governmental purpose." Surely the normal reading of this language would be that appellant Lawrence County is entitled to receive a payment each year from the Secretary of the Interior, and that it may use this payment for any purpose lawful under the system of laws that regulates its activities. The statutes of South Dakota constitute the system of laws regulating Lawrence County. They require in this case that all "in-lieu payments" received by the county, whether from the State or the Federal Government, shall be distributed by the county "in the same manner as taxes are distributed." S. D. Codified Laws 5-11-6 (1980). In Lawrence County this would mean that appellee Lead-Deadwood School District would *272 receive 60% of the payment. The Court's opinion, however, says the State may not impose such a neutral requirement on the county's disposition of the federal in-lieu payments. The opinion is necessarily premised on the assumption that the words "governmental purpose" in the

Justice Rehnquist

dissenting

Lawrence County v. Lead-Deadwood School Dist.

https://www.courtlistener.com/opinion/111297/lawrence-county-v-lead-deadwood-school-dist/

on the assumption that the words "governmental purpose" in the federal statute somehow emancipate the county from the state regimen as to what is and is not a proper governmental purpose for a county. The Court apparently creates a new federal definition of "governmental purpose," the confines of which are left wholly undeveloped. The Court relies upon the "administrative construction" of the Act as a primary reason for reaching the result that it does. But the vaunted "administrative construction" simply restates the statutory language in the form of a regulation, 43 CFR 1881.2 (1983), without any explanatory language. The Court says that "[t]he department has consistently interpreted the statute as foreclosing limitations on the use of in-lieu funds" and cites to a reference in the brief of the United States in this case. Ante, at 261. But the part of the brief cited by the Court refers to a regulation prohibiting school districts from receiving funds directly, and to the above-quoted language simply repeating the words of the statute. Neither of the regulations relied upon supports the Court's bland statement that administrative regulations have foreclosed limitations by the State on the counties' use of in-lieu funds. Other legislative materials upon which the Court relies are similarly inapt or ambiguous. The conclusion of the House Committee, for example, H. R. Rep. No. 94-1106, p. 12 (1976), that "these new payments should [not] be restricted or earmarked for use for specific purposes" does not by its terms, or fairly interpreted, prohibit States from having any say in the way counties may spend federal in-lieu payments. This statement could just as fairly be interpreted as indicating an intention on the part of Congress not to restrict or earmark such in-lieu funds for a particular purpose. *273 This two-sentence statutory provision enacted by Congress certainly does not proclaim by its language any single meaning, but one would be hard pressed to derive a more tortured meaning from it than that chosen by the Court. It may be that Congress, by providing that payments be made directly to the counties rather than to the States, implied a desire to have the money spent in the counties. But nothing in the South Dakota statute requires any contrary result; all the South Dakota statute requires is that the counties allocate a part of the money to school districts within the county, just as general tax revenues and state in-lieu payments are allocated. The Court's collection of reasons why Congress intended to prohibit this result is simply not convincing in the light of the long history of treatment

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

We granted certiorari to determine whether a process for curing synthetic rubber which includes in several of its steps the use of a mathematical formula and a programmed digital computer is patentable subject matter under 35 U.S. C. 101. I The patent application at issue was filed by the respondents on August 6, 1975. The claimed invention is a process for molding raw, uncured synthetic rubber into cured precision products. The process uses a mold for precisely shaping the uncured material under heat and pressure and then curing the synthetic rubber in the mold so that the product will retain its shape and be functionally operative after the molding is completed.[1] Respondents claim that their process ensures the production of molded articles which are properly cured. Achieving the perfect cure depends upon several factors including the thickness of the article to be molded, the temperature of the molding process, and the amount of time that the article is allowed to remain in the press. It is possible using well-known time, temperature, and cure relationships to calculate by means of the Arrhenius equation[2] when to open the press *178 and remove the cured product. Nonetheless, according to the respondents, the industry has not been able to obtain uniformly accurate cures because the temperature of the molding press could not be precisely measured, thus making it difficult to do the necessary computations to determine cure time.[3] Because the temperature inside the press has heretofore been viewed as an uncontrollable variable, the conventional industry practice has been to calculate the cure time as the shortest time in which all parts of the product will definitely be cured, assuming a reasonable amount of mold-opening time during loading and unloading. But the shortcoming of this practice is that operating with an uncontrollable variable inevitably led in some instances to overestimating the mold-opening time and overcuring the rubber, and in other instances to underestimating that time and undercuring the product.[4] Respondents characterize their contribution to the art to reside in the process of constantly measuring the actual temperature inside the mold. These temperature measurements are then automatically fed into a computer which repeatedly recalculates the cure time by use of the Arrhenius equation. *179 When the recalculated time equals the actual time that has elapsed since the press was closed, the computer signals a device to open the press. According to the respondents, the continuous measuring of the temperature inside the mold cavity, the feeding of this information to a digital computer which constantly recalculates the cure time, and the signaling by the computer to open

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

cure time, and the signaling by the computer to open the press, are all new in the art. The patent examiner rejected the respondents' claims on the sole ground that they were drawn to nonstatutory subject matter under 35 U.S. C. 101.[5] He determined that those *180 steps in respondents' claims that are carried out by a computer under control of a stored program constituted nonstatutory subject matter under this Court's decision in The remaining steps—installing rubber in the press and the subsequent closing of the *181 press—were "conventional and necessary to the process and cannot be the basis of patentability." The examiner concluded that respondents' claims defined and sought protection of a computer program for operating a rubber-molding press. The Patent and Trademark Office Board of Appeals agreed with the examiner, but the Court of Customs and Patent Appeals reversed. In re Diehr, The court noted that a claim drawn to subject matter otherwise statutory does not become nonstatutory because a computer is involved. The respondents' claims were not directed to a mathematical algorithm or an improved method of calculation but rather recited an improved process for molding rubber articles by solving a practical problem which had arisen in the molding of rubber products. The Commissioner of Patents and Trademarks sought certiorari arguing that the decision of the Court of Customs and Patent Appeals was inconsistent with prior decisions of this Court. Because of the importance of the question presented, we granted the writ. II Last Term in this Court discussed the historical purposes of the patent laws and in particular 35 U.S. C. 101. As in we must here construe 35 U.S. C. 101 which provides: "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."[6] *182 In cases of statutory construction, we begin with the language of the statute. Unless otherwise defined, "words will be interpreted as taking their ordinary, contemporary, common meaning," and, in dealing with the patent laws, we have more than once cautioned that "courts `should not read into the patent laws limitations and conditions which the legislature has not expressed.'" quoting United The Patent Act of 1793 defined statutory subject matter as "any new and useful art, machine, manufacture or composition of matter, or any new or useful improvement [thereof]." Act of Feb. 21, 1793, ch. 11, 1, Not until the patent laws were recodified in 1952 did Congress replace the word "art" with the word "process."

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

did Congress replace the word "art" with the word "process." It is that latter word which we confront today, and in order to determine its meaning we may not be unmindful of the Committee Reports accompanying the 1952 Act which inform us that Congress intended statutory subject matter to "include anything under the sun that is made by man." S. Rep. No. 82d Cong., 2d Sess., 5 (1952); H. R. Rep. No. 1923, 82d Cong., 2d Sess., 6 (1952). Although the term "process" was not added to 35 U.S. C. 101 until 1952, a process has historically enjoyed patent protection because it was considered a form of "art" as that term was used in the 1793 Act.[7] In defining the nature of a patentable process, the Court stated: "That a process may be patentable, irrespective of the *183 particular form of the instrumentalities used, cannot be disputed. A process is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing. If new and useful, it is just as patentable as is a piece of machinery. In the language of the patent law, it is an art. The machinery pointed out as suitable to perform the process may or may not be new or patentable; whilst the process itself may be altogether new, and produce an entirely new result. The process requires *184 that certain things should be done with certain substances, and in a certain order; but the tools to be used in doing this may be of secondary consequence." Analysis of the eligibility of a claim of patent protection for a "process" did not change with the addition of that term to 101. Recently, in we repeated the above definition recited in adding: "Transformation and reduction of an article `to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines." Analyzing respondents' claims according to the above statements from our cases, we think that a physical and chemical process for molding precision synthetic rubber products falls within the 101 categories of possibly patentable subject matter. That respondents' claims involve the transformation of an article, in this case raw, uncured synthetic rubber, into a different state or thing cannot be disputed. The respondents' claims describe in detail a step-by-step method for accomplishing such, beginning with the loading of a mold with raw, uncured rubber and ending with the eventual opening of the press

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

rubber and ending with the eventual opening of the press at the conclusion of the cure. Industrial processes such as this are the types which have historically been eligible to receive the protection of our patent laws.[8] *185 III Our conclusion regarding respondents' claims is not altered by the fact that in several steps of the process a mathematical equation and a programmed digital computer are used. This Court has undoubtedly recognized limits to 101 and every discovery is not embraced within the statutory terms. Excluded from such patent protection are laws of nature, natural phenomena, and abstract ideas. See ; ; Funk Bros. Seed "An idea of itself is not patentable," Rubber-Tip Pencil "A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right." Le Only last Term, we explained: "[A] new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter. Likewise, Einstein could not patent his celebrated law that E=mc[2]; nor could Newton have patented the law of gravity. Such discoveries are `manifestations of nature, free to all men and reserved exclusively to none.'" quoting Funk Bros. Seed at Our recent holdings in and both of which are computer-related, stand for no more than these long-established principles. In we held unpatentable claims for an algorithm used to convert binary code decimal numbers to equivalent pure binary numbers. The sole practical application of the algorithm was in connection with the programming of a *186 general purpose digital computer. We defined "algorithm" as a "procedure for solving a given type of mathematical problem," and we concluded that such an algorithm, or mathematical formula, is like a law of nature, which cannot be the subject of a patent.[9] presented a similar situation. The claims were drawn to a method for computing an "alarm limit." An "alarm limit" is simply a number and the Court concluded that the application sought to protect a formula for computing this number. Using this formula, the updated alarm limit could be calculated if several other variables were known. The application, however, did not purport to explain how these other variables were to be determined,[10] nor *187 did it purport "to contain any disclosure relating to the chemical processes at work, the monitoring of process variables, or the means of setting off an alarm or adjusting an alarm system. All that it provides is a formula for computing an updated alarm limit." In contrast, the respondents here do not

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

updated alarm limit." In contrast, the respondents here do not seek to patent a mathematical formula. Instead, they seek patent protection for a process of curing synthetic rubber. Their process admittedly employs a well-known mathematical equation, but they do not seek to pre-empt the use of that equation. Rather, they seek only to foreclose from others the use of that equation in conjunction with all of the other steps in their claimed process. These include installing rubber in a press, closing the mold, constantly determining the temperature of the mold, constantly recalculating the appropriate cure time through the use of the formula and a digital computer, and automatically opening the press at the proper time. Obviously, one does not need a "computer" to cure natural or synthetic rubber, but if the computer use incorporated in the process patent significantly lessens the possibility of "overcuring" or "undercuring," the process as a whole does not thereby become unpatentable subject matter. Our earlier opinions lend support to our present conclusion that a claim drawn to subject matter otherwise statutory does not become nonstatutory simply because it uses a mathematical formula, computer program, or digital computer. In we noted: "It is said that the decision precludes a patent for any program servicing a computer. We do not so hold." Similarly, in we stated that "a process is not unpatentable simply because it contains a law of nature or a mathematical algorithm." It is now commonplace that an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection. See, e. g., Funk Bros. Seed *188 ; Eibel Process v. Minnesota & Ontario Paper ; ; ; and Le As Justice Stone explained four decades ago: "While a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid of knowledge of scientific truth may be." Mackay Radio & Telegraph v. Radio Corp. of America,[11] We think this statement in Mackay takes us a long way toward the correct answer in this case. Arrhenius' equation is not patentable in isolation, but when a process for curing rubber is devised which incorporates in it a more efficient solution of the equation, that process is at the very least not barred at the threshold by 101. In determining the eligibility of respondents' claimed process for patent protection under 101, their claims must be considered as a whole. It is inappropriate to dissect the claims into old and new elements and then to ignore the presence

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

old and new elements and then to ignore the presence of the old elements in the analysis. This is particularly true in a process claim because a new combination of steps in a process may be patentable even though all the constituents of the combination were well known and in common use before the combination was made. The "novelty" of any element or steps in a process, or even of the *189 process itself, is of no relevance in determining whether the subject matter of a claim falls within the 101 categories of possibly patentable subject matter.[12] It has been urged that novelty is an appropriate consideration under 101. Presumably, this argument results from the language in 101 referring to any "new and useful" process, machine, etc. Section 101, however, is a general statement of the type of subject matter that is eligible for patent protection "subject to the conditions and requirements of this title." Specific conditions for patentability follow and 102 covers in detail the conditions relating to novelty.[13]*190 The question therefore of whether a particular invention is novel is "wholly apart from whether the invention falls into a category of statutory subject matter." In re Bergy, See also The legislative history of the 1952 Patent Act is in accord with this reasoning. The Senate Report stated: "Section 101 sets forth the subject matter that can be patented, `subject to the conditions and requirements of this title.' The conditions under which a patent may be obtained follow, and Section 102 covers the conditions relating to novelty." S. Rep. No. 82d Cong., 2d Sess., 5 (1952) (emphasis supplied). It is later stated in the same Report: "Section 102, in general, may be said to describe the statutory novelty required for patentability, and includes, *191 in effect, an amplification and definition of `new' in section 101." Finally, it is stated in the "Revision Notes": "The corresponding section of [the] existing statute is split into two sections, section 101 relating to the subject matter for which patents may be obtained, and section 102 defining statutory novelty and stating other conditions for patentability." See also H. R. Rep. No. 1923, 82d Cong., 2d Sess., 6, 7, and 17 (1952). In this case, it may later be determined that the respondents' process is not deserving of patent protection because it fails to satisfy the statutory conditions of novelty under 102 or nonobviousness under 103. A rejection on either of these grounds does not affect the determination that respondents' claims recited subject matter which was eligible for patent protection under 101. IV We have before

Justice Rehnquist

majority

Diamond v. Diehr

https://www.courtlistener.com/opinion/110422/diamond-v-diehr/

eligible for patent protection under 101. IV We have before us today only the question of whether respondents' claims fall within the 101 categories of possibly patentable subject matter. We view respondents' claims as nothing more than a process for molding rubber products and not as an attempt to patent a mathematical formula. We recognize, of course, that when a claim recites a mathematical formula (or scientific principle or phenomenon of nature), an inquiry must be made into whether the claim is seeking patent protection for that formula in the abstract. A mathematical formula as such is not accorded the protection of our patent laws, and this principle cannot be circumvented by attempting to limit the use of the formula to a particular technological environment. Similarly, insignificant postsolution activity will not transform *192 an unpatentable principle into a patentable process. Ibid.[14] To hold otherwise would allow a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection. On the other hand, when a claim containing a mathematical formula implements or applies that formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect (e. g., transforming or reducing an article to a different state or thing), then the claim satisfies the requirements of 101. Because we do not view respondents' claims as an attempt to patent a mathematical formula, but rather to be drawn to an industrial process *193 for the molding of rubber products, we affirm the judgment of the Court of Customs and Patent Appeals.[15] It is so ordered.

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

American Express Company and American Express Travel Related Services Company (collectively, Amex) provide credit-card services to both merchants and card- holders. When a cardholder buys something from a mer- chant who accepts Amex credit cards, Amex processes the transaction through its network, promptly pays the mer- chant, and subtracts a fee. If a merchant wants to accept Amex credit cards—and attract Amex cardholders to its business—Amex requires the merchant to agree to an antisteering contractual provision. The antisteering pro- vision prohibits merchants from discouraging customers from using their Amex card after they have already en- tered the store and are about to buy something, thereby avoiding Amex’s fee. In this case, we must decide whether Amex’s antisteering provisions violate federal antitrust law. We conclude they do not. I A Credit cards have become a primary way that consum- ers in the United States purchase goods and services. 2 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court When a cardholder uses a credit card to buy something from a merchant, the transaction is facilitated by a credit- card network. The network provides separate but inter- related services to both cardholders and merchants. For cardholders, the network extends them credit, which allows them to make purchases without cash and to defer payment until later. Cardholders also can receive rewards based on the amount of money they spend, such as airline miles, points for travel, or cash back. For merchants, the network allows them to avoid the cost of processing trans- actions and offers them quick, guaranteed payment. This saves merchants the trouble and risk of extending credit to customers, and it increases the number and value of sales that they can make. By providing these services to cardholders and mer- chants, credit-card companies bring these parties together, and therefore operate what economists call a “two-sided platform.” As the name implies, a two-sided platform offers different products or services to two different groups who both depend on the platform to intermediate between them. See Evans & Schmalensee, Markets With Two- Sided Platforms, 1 Issues in Competition L. & Pol’y 667 (2008) (Evans & Schmalensee); Evans & Noel, Defining Antitrust Markets When Firms Operate Two-Sided Plat- forms, ; Filistrucchi, Geradin, Van Damme, & Affeldt, Market Definition in Two-Sided Markets: Theory and Practice, J. Competition L. & Econ. 293, 296 (2014) (Filistrucchi). For credit cards, that interaction is a transac Thus, credit-card networks are a special type of two-sided plat- form known as a “transaction” platform. See 304, 307; Evans & Noel 676–678. The key feature of transaction platforms is that they cannot make

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

key feature of transaction platforms is that they cannot make a sale to one side of the platform without simultaneously making a sale to the other. See Klein, Lerner, Murphy, & Plache, Competition in Two-Sided Markets: The Antitrust Eco- Cite as: 585 U. S. (2018) 3 Opinion of the Court nomics of Payment Card Interchange Fees, 73 Antitrust L. J. 1, 580, 583 (2006) (Klein). For example, no credit- card transaction can occur unless both the merchant and the cardholder simultaneously agree to use the same credit-card network. See Filistrucchi 301. Two-sided platforms differ from traditional markets in important ways. Most relevant here, two-sided platforms often exhibit what economists call “indirect network ef- fects.” Evans & Schmalensee 667. Indirect network ef- fects exist where the value of the two-sided platform to one group of participants depends on how many members of a different group participate. D. Evans & R. Schmalensee, Matchmakers: The New Economics of Multisided Plat- forms 25 (2016). In other words, the value of the services that a two-sided platform provides increases as the num- ber of participants on both sides of the platform increases. A credit card, for example, is more valuable to cardholders when more merchants accept it, and is more valuable to merchants when more cardholders use it. See Evans & Noel 686–687; Klein 580, 584. To ensure sufficient partic- ipation, two-sided platforms must be sensitive to the prices that they charge each side. See Evans & Schma- lensee 675; Evans & Noel 680; Muris, Payment Card Regulation and the (Mis)Application of the Economics of Two-Sided Markets, 532– 533 (Muris); Rochet & Tirole, Platform Competition in Two-Sided Markets, 1 J. Eur. Econ. Assn. 990, 13 (2003). Raising the price on side A risks losing participa- tion on that side, which decreases the value of the plat- form to side B. If participants on side B leave due to this loss in value, then the platform has even less value to side A—risking a feedback loop of declining demand. See Evans & Schmalensee 675; Evans & Noel 680–681. Two- sided platforms therefore must take these indirect net- work effects into account before making a change in price on either side. See Evans & Schmalensee 675; Evans & 4 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court Noel 680–681.1 Sometimes indirect network effects require two-sided platforms to charge one side much more than the other. See Evans & Schmalensee 667, 675, 681, 690–691; Evans & Noel 691; Klein 585; Filistrucchi 300. For two- sided platforms, “ ‘the [relative] price structure matters, and platforms must design it

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

‘the [relative] price structure matters, and platforms must design it so as to bring both sides on board.’ ” Evans & Schmalensee 669 (quoting Rochet & Tirole, Two-Sided Markets: A Progress Report, 37 RAND J. Econ. 645, 646 (2006)). The optimal price might require charging the side with more elastic demand a below-cost (or even negative) price. See Muris 519, 550; Klein 9; Evans & Schmalensee 675; Evans & Noel 681. With credit cards, for example, networks often charge cardholders a lower fee than merchants because cardholders are more price sensitive.2 See Muris 522; Klein 3–4, 585, 595. In fact, the network might well lose money on the card- holder side by offering rewards such as cash back, airline miles, or gift cards. See Klein 587; Evans & Schmalensee 672. The network can do this because increasing the number of cardholders increases the value of accepting the card to merchants and, thus, increases the number of —————— 1 Ina competitive market, indirect network effects also encourage companies to take increased profits from a price increase on side A and spend them on side B to ensure more robust participation on that side and to stem the impact of indirect network effects. See Evans & Schmalensee 688; Evans & Noel 670–671, 695. Indirect network effects thus limit the platform’s ability to raise overall prices and impose a check on its market power. See Evans & Schmalensee 688; Evans & Noel 695. 2 “Cardholders are more price-sensitive because many consumers have multiple payment methods, including alternative payment cards. Most merchants, by contrast, cannot accept just one major card because they are likely to lose profitable incremental sales if they do not take [all] the major payment cards. Because most consumers do not carry all of the major payment cards, refusing to accept a major card may cost the merchant substantial sales.” Muris 522. Cite as: 585 U. S. (2018) 5 Opinion of the Court merchants who accept it. Muris 522; Evans & Schma- lensee 692. Networks can then charge those merchants a fee for every transaction (typically a percentage of the purchase price). Striking the optimal balance of the prices charged on each side of the platform is essential for two- sided platforms to maximize the value of their services and to compete with their rivals. B Amex, Visa, MasterCard, and Discover are the four dominant participants in the credit-card market. Visa, which is by far the largest, has 45% of the market as measured by transaction volume.3 Amex and MasterCard trail with 26.4% and 23.3%, respectively, while Discover has just 5.3%

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

with 26.4% and 23.3%, respectively, while Discover has just 5.3% of the market. Visa and MasterCard have significant structural ad- vantages over Amex. Visa and MasterCard began as bank cooperatives and thus almost every bank that offers credit cards is in the Visa or MasterCard network. This makes it very likely that the average consumer carries, and the average merchant accepts, Visa or MasterCard. As a result, the vast majority of Amex cardholders have a Visa or MasterCard, but only a small number of Visa and Master- Card cardholders have an Amex. Indeed, Visa and MasterCard account for more than 432 million cards in circulation in the United States, while Amex has only 53 million. And while 3.4 million merchants at 6.4 million locations accept Amex, nearly three million more locations accept Visa, MasterCard, and Discover.4 —————— 3 Allfigures are accurate as of 2013. 4 Discover entered the credit-card market several years after Amex, Visa, and MasterCard. It nonetheless managed to gain a foothold because Sears marketed Discover to its already significant base of private-label cardholders. Discover’s business model shares certain features with Amex, Visa, and MasterCard. Like Amex, Discover interacts directly with its cardholders. But like Visa and MasterCard, 6 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court Amex competes with Visa and MasterCard by using a different business model. While Visa and MasterCard earn half of their revenue by collecting interest from their cardholders, Amex does not. Amex instead earns most of its revenue from merchant fees. Amex’s business model thus focuses on cardholder spending rather than card- holder lending. To encourage cardholder spending, Amex provides better rewards than other networks. Due to its superior rewards, Amex tends to attract cardholders who are wealthier and spend more money. Merchants place a higher value on these cardholders, and Amex uses this advantage to recruit merchants. Amex’s business model has significantly influenced the credit-card market. To compete for the valuable cardhold- ers that Amex attracts, both Visa and MasterCard have introduced premium cards that, like Amex, charge mer- chants higher fees and offer cardholders better rewards. To maintain their lower merchant fees, Visa and Master- Card have created a sliding scale for their various cards— charging merchants less for low-reward cards and more for high-reward cards. This differs from Amex’s strategy, which is to charge merchants the same fee no matter the rewards that its card offers. Another way that Amex has influenced the credit-card market is by making banking and card-payment services available to low-income indi- viduals, who otherwise could not qualify for a credit card and could

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

otherwise could not qualify for a credit card and could not afford the fees that traditional banks charge. See 2 Record 3835–3837, 4527–4529. In sum, Amex’s business model has stimulated competitive inno- vations in the credit-card market, increasing the volume of transactions and improving the quality of the services. Despite these improvements, Amex’s business model sometimes causes friction with merchants. To maintain —————— Discover uses banks that cooperate with its network to interact with merchants. Cite as: 585 U. S. (2018) 7 Opinion of the Court the loyalty of its cardholders, Amex must continually invest in its rewards program. But, to fund those invest- ments, Amex must charge merchants higher fees than its rivals. Even though Amex’s investments benefit mer- chants by encouraging cardholders to spend more money, merchants would prefer not to pay the higher fees. One way that merchants try to avoid them, while still enticing Amex’s cardholders to shop at their stores, is by dissuad- ing cardholders from using Amex at the point of sale. This practice is known as “steering.” Amex has prohibited steering since the 1950s by placing antisteering provisions in its contracts with merchants. These antisteering provisions prohibit merchants from implying a preference for non-Amex cards; dissuading customers from using Amex cards; persuading customers to use other cards; imposing any special restrictions, conditions, disadvantages, or fees on Amex cards; or pro- moting other cards more than Amex. The antisteering provisions do not, however, prevent merchants from steer- ing customers toward debit cards, checks, or cash. C In October 20, the United States and several States (collectively, plaintiffs) sued Amex, claiming that its an- tisteering provisions violate of the Sherman Act, 26 Stat. 209, as amended, 15 U.S. C.5 After a 7-week trial, the District Court agreed that Amex’s antisteering provisions violate United It found that the credit-card market should be treated as two separate markets—one for merchants and one for card- holders. See at 171–175. Evaluating the effects on the —————— 5 Plaintiffs also sued Visa and MasterCard, claiming that their anti- steering provisions violated But Visa and MasterCard voluntarily revoked their antisteering provisions and are no longer parties to this case. 8 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court merchant side of the market, the District Court found that Amex’s antisteering provisions are anticompetitive because they result in higher merchant fees. See at 195–224. The Court of Appeals for the Second Circuit reversed. United (2016). It concluded that the credit-card market is one market, not two. 6–200. Evaluating the credit- card market as a whole, the Second Circuit concluded that Amex’s

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

market as a whole, the Second Circuit concluded that Amex’s antisteering provisions were not anticompetitive and did not violate See at 200–206. We granted certiorari, 583 U. S. (2017), and now affirm. II Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspir- acy, in restraint of trade or commerce among the several States.” 15 U.S. C. This Court has long recognized that, “[i]n view of the common law and the law in this country” when the Sherman Act was passed, the phrase “restraint of trade” is best read to mean “undue restraint.” Standard Co. of N. 59– 60 (1911). This Court’s precedents have thus understood “to outlaw only unreasonable restraints.” State Co. v. Khan, Restraints can be unreasonable in one of two ways. A small group of restraints are unreasonable per se because they “ ‘ “always or almost always tend to restrict competi- tion and decrease output.” ’ ” Business Corp. v. Sharp Corp., Typi- cally only “horizontal” restraints—restraints “imposed by agreement between competitors”—qualify as unreasonable per se. Restraints that are not unreasonable per se are judged under the “rule of reason.” at The rule of reason requires courts to conduct a fact-specific Cite as: 585 U. S. (2018) 9 Opinion of the Court assessment of “market power and market structure to assess the [restraint]’s actual effect” on competi Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984). The goal is to “distinguis[h] between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.” Creative Leather Products, In this case, both sides correctly acknowledge that Amex’s antisteering provisions are vertical restraints— i.e., restraints “imposed by agreement between firms at different levels of distribu” Business The parties also correctly acknowledge that, like nearly every other vertical restraint, the anti- steering provisions should be assessed under the rule of reason. See ; State ; Business ; Continental T. V., Inc. v. GTE Sylvania Inc., To determine whether a restraint violates the rule of reason, the parties agree that a three-step, burden- shifting framework applies. Under this framework, the plaintiff has the initial burden to prove that the chal- lenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. See 1 J. Kalinowski, Antitrust Laws and Trade Regulation 2.02[1] (2d ed. 2017) (Kalinowski); P. Areeda & H. Hovenkamp, Fundamentals of Antitrust Law 5.02[B] (4th ed. 2017) (Areeda & Hovenkamp); Capital Imaging P. If the plaintiff carries its burden, then the burden shifts to the defendant

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. See 1 Kalinow- ski 2.02[1]; Areeda & Hovenkamp 5.02[B]; Capital Imaging at If the defendant makes this showing, then the burden shifts back to the plaintiff OHIO v. AMERICAN EXPRESS CO. Opinion of the Court to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means. See 1 Kalinowski 2.02[1]; Capital Imaging at Here, the parties ask us to decide whether the plaintiffs have carried their initial burden of proving that Amex’s antisteering provisions have an anticompetitive effect. The plaintiffs can make this showing directly or indirectly. Direct evidence of anticompetitive effects would be “ ‘proof of actual detrimental effects [on competition],’ ” FTC v. Indiana Federation of such as reduced output, increased prices, or decreased quality in the relevant market, see 1 Kalinowski 2.02[2]; Craftsman Limousine, Inc. v. Ford Motor Co., 491 F.3d 381, 390 ; Virginia Atlantic Airways v. British Airways PLC, 2 F.3d 256, Indirect evidence would be proof of market power plus some evidence that the challenged restraint harms compe- ti See 1 Kalinowski 2.02[2]; Tops Markets, Inc. v. Quality Markets, Inc., ; Span- ish Broadcasting System of 376 F.3d 65, 73 Here, the plaintiffs rely exclusively on direct evidence to prove that Amex’s antisteering provisions have caused anticompetitive effects in the credit-card market.6 To assess this evidence, we must first define the relevant market. Once defined, it becomes clear that the plaintiffs’ evidence is insufficient to carry their burden. A Because “[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are gener- ally disfavored in antitrust law,” Eastman Co. v. —————— 6 Although the plaintiffs relied on indirect evidence below, they have abandoned that argument in this Court. See Brief for United States 23, n. 4 (citing Pet. for Cert. i, 18–25). Cite as: 585 U. S. (2018) 11 Opinion of the Court Image Technical Services, Inc., 466–467 (1992), courts usually cannot properly apply the rule of reason without an accurate definition of the relevant market.7 “Without a definition of [the] market there is no way to measure [the defendant’s] ability to lessen or de- stroy competi” Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., (1965); accord, 2 Kalinowski Thus, the rele- vant market is defined as “the area of effective competi- ” Typically this is the “arena within which significant substitution in consumption or production occurs.” Areeda & Hovenkamp accord, 2 Kalinow- ski United States v. Grinnell Corp., 384 U. S. —————— 7 The plaintiffs argue that we

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

384 U. S. —————— 7 The plaintiffs argue that we need not define the relevant market in this case because they have offered actual evidence of adverse effects on competition—namely, increased merchant fees. See Brief for United States 40–41 and (1980) (per curiam)). We disagree. The cases that the plaintiffs cite for this proposition evaluated whether horizontal restraints had an ad- verse effect on competi See Indiana Federation of at 450–451, 459 (agreement between competing dentists not to share X rays with insurance companies); at 644–645, 650 (agreement among competing wholesalers not to compete on extending credit to retailers). Given that horizontal restraints involve agree- ments between competitors not to compete in some way, this Court concluded that it did not need to precisely define the relevant market to conclude that these agreements were anticompetitive. See Indiana Federation of at –461; at 648–649. But vertical restraints are different. See 4 U.S. 332, ; Creative Leather Products, Vertical re- straints often pose no risk to competition unless the entity imposing them has market power, which cannot be evaluated unless the Court first defines the relevant market. See (noting that a vertical restraint “may not be a serious concern unless the relevant entity has market power”); Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L. J. 135, 160 (1984) (“[T]he possibly anticompeti- tive manifestations of vertical arrangements can occur only if there is market power”). 12 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court 563, 1 (1966). But courts should “combin[e]” different products or services into “a single market” when “that combination reflects commercial realities.” at 2; see also Brown Shoe 336– 337 (1962) (pointing out that “the definition of the relevant market” must “ ‘correspond to the commercial realities’ of the industry”). As explained, credit-card networks are two-sided plat- forms. Due to indirect network effects, two-sided plat- forms cannot raise prices on one side without risking a feedback loop of declining demand. See Evans & Schma- lensee 674–675; Evans & Noel 680–681. And the fact that two-sided platforms charge one side a price that is below or above cost reflects differences in the two sides’ demand elasticity, not market power or anticompetitive pricing. See Klein 4, 595, 598, 626. Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services. See at 5, 626. Thus, courts must include both sides of the plat- form—merchants and cardholders—when defining the credit-card market. To be sure, it is not always necessary to consider both

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

be sure, it is not always necessary to consider both sides of a two-sided platform. A market should be treated as one sided when the impacts of indirect network effects and relative pricing in that market are minor. See Fil- istrucchi 321–322. Newspapers that sell advertisements, for example, arguably operate a two-sided platform be- cause the value of an advertisement increases as more people read the newspaper. at 2, 315; Klein 9. But in the newspaper-advertisement market, the indirect networks effects operate in only one direction; newspaper readers are largely indifferent to the amount of advertis- ing that a newspaper contains. See Filistrucchi 321, 323, and n. 99; Klein 583. Because of these weak indirect network effects, the market for newspaper advertising Cite as: 585 U. S. (2018) 13 Opinion of the Court behaves much like a one-sided market and should be analyzed as such. See Filistrucchi 321; Times-Picayune Publishing 6 But two-sided transaction platforms, like the credit-card market, are different. These platforms facilitate a single, simultaneous transaction between participants. For credit cards, the network can sell its services only if a mer- chant and cardholder both simultaneously choose to use the network. Thus, whenever a credit-card network sells one transaction’s worth of card-acceptance services to a merchant it also must sell one transaction’s worth of card- payment services to a cardholder. It cannot sell transac- tion services to either cardholders or merchants individu- ally. See Klein 583 (“Because cardholders and merchants jointly consume a single product, payment card transac- tions, their consumption of payment card transactions must be directly proportional”). To optimize sales, the network must find the balance of pricing that encourages the greatest number of matches between cardholders and merchants. Because they cannot make a sale unless both sides of the platform simultaneously agree to use their services, two-sided transaction platforms exhibit more pronounced indirect network effects and interconnected pricing and demand. Transaction platforms are thus better under- stood as “suppl[ying] only one product”—transactions. Klein 580. In the credit-card market, these transactions “are jointly consumed by a cardholder, who uses the pay- ment card to make a transaction, and a merchant, who accepts the payment card as a method of payment.” Tellingly, credit cards determine their market share by measuring the volume of transactions they have sold.8 —————— 8 Contrary to the dissent’s assertion, post, at 11–12, merchant ser- vices and cardholder services are not complements. See Filistrucchi 2 (“[A] two-sided market [is] different from markets for complemen- 14 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court Evaluating both sides of a two-sided transaction plat- form

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

Court Evaluating both sides of a two-sided transaction plat- form is also necessary to accurately assess competi Only other two-sided platforms can compete with a two- sided platform for transactions. See Filistrucchi 301. A credit-card company that processed transactions for mer- chants, but that had no cardholders willing to use its card, could not compete with Amex. See Only a company that had both cardholders and merchants willing to use its network could sell transactions and compete in the credit- card market. Similarly, if a merchant accepts the four major credit cards, but a cardholder only uses Visa or Amex, only those two cards can compete for the particular transac Thus, competition cannot be accurately assessed by looking at only one side of the platform in isola9 For all these reasons, “[i]n two-sided transaction mar- kets, only one market should be defined.” ; see also Evans & Noel 671 (“[F]ocusing on one dimension of competition tends to distort the competition that actu- ally exists among [two-sided platforms]”). Any other analysis would lead to “ ‘ “mistaken inferences” ’ ” of the kind that could “ ‘ “chill the very conduct the antitrust laws are designed to protect.” ’ ” Brooke Group ; see also Matsushita Elec. Industrial Co. v. Zenith Radio Corp., —————— tary products, in which both products are bought by the same buyers, who, in their buying decisions, can therefore be expected to take into account both prices”). As already explained, credit-card companies are best understood as supplying only one product—transactions—which is jointly consumed by a cardholder and a merchant. See Klein 580. Merchant services and cardholder services are both inputs to this single product. See 9 Nontransaction platforms, by contrast, often do compete with com- panies that do not operate on both sides of their platform. A newspaper that sells advertising, for example, might have to compete with a television network, even though the two do not meaningfully compete for viewers. See Filistrucchi 301. Cite as: 585 U. S. (2018) 15 Opinion of the Court 475 U.S. 4, (“ ‘[W]e must be concerned lest a rule or precedent that authorizes a search for a particular type of undesirable pricing behavior end up by discourag- ing legitimate price competition’ ”); 551 U.S., at 895 (noting that courts should avoid “increas[ing] the total cost of the antitrust system by prohibiting procompetitive conduct the antitrust laws should encourage”). Accordingly, we will analyze the two-sided market for credit-card transactions as a whole to determine whether the plain- tiffs have shown that Amex’s antisteering provisions have anticompetitive effects. B The plaintiffs have

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

Amex’s antisteering provisions have anticompetitive effects. B The plaintiffs have not carried their burden to prove anticompetitive effects in the relevant market. The plain- tiffs stake their entire case on proving that Amex’s agree- ments increase merchant fees. We find this argument unpersuasive. As an initial matter, the plaintiffs’ argument about merchant fees wrongly focuses on only one side of the two- sided credit-card market. As explained, the credit-card market must be defined to include both merchants and cardholders. Focusing on merchant fees alone misses the mark because the product that credit-card companies sell is transactions, not services to merchants, and the compet- itive effects of a restraint on transactions cannot be judged by looking at merchants alone. Evidence of a price in- crease on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power. To demonstrate anticompetitive effects on the two-sided credit-card market as a whole, the plaintiffs must prove that Amex’s antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market. See 1 Kalinowski 2.02[2]; Craftsman Limousine, Inc., 16 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court ; Virginia Atlantic Airways 2 F.3d, at They failed to do so. 1 The plaintiffs did not offer any evidence that the price of credit-card transactions was higher than the price one would expect to find in a competitive market. As the District Court found, the plaintiffs failed to offer any reliable measure of Amex’s transaction price or profit 88 F. Supp. 3d, 8, 215. And the evidence about whether Amex charges more than its competitors was ultimately inconclusive. 9, 202, 215. Amex’s increased merchant fees reflect increases in the value of its services and the cost of its transactions, not an ability to charge above a competitive price. Amex began raising its merchant fees in 2005 after Visa and Master- Card raised their fees in the early 2000s. 5, 199– 200. As explained, Amex has historically charged higher merchant fees than these competitors because it delivers wealthier cardholders who spend more money. at 200–201. Amex’s higher merchant fees are based on a careful study of how much additional value its cardholders offer merchants. See 2–193. On the other side of the market, Amex uses its higher merchant fees to offer its cardholders a more robust rewards program, which is necessary to maintain cardholder loyalty and encourage the level of spending that makes Amex valuable to mer- chants. 191–195. That Amex allocates prices between merchants and cardholders

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

chants. 191–195. That Amex allocates prices between merchants and cardholders differently from Visa and MasterCard is simply not evidence that it wields market power to achieve anticompetitive ends. See Evans & Noel 670–671; Klein 4–5, –595, 598, 626. In addition, the evidence that does exist cuts against the plaintiffs’ view that Amex’s antisteering provisions are the cause of any increases in merchant fees. Visa and Master- Card’s merchant fees have continued to increase, even Cite as: 585 U. S. (2018) 17 Opinion of the Court at merchant locations where Amex is not accepted and, thus, Amex’s antisteering provisions do not apply. See 88 F. Supp. 3d, at 222. This suggests that the cause of in- creased merchant fees is not Amex’s antisteering provi- sions, but rather increased competition for cardholders and a corresponding marketwide adjustment in the rela- tive price charged to merchants. See Klein 5, 609. 2 The plaintiffs did offer evidence that Amex increased the percentage of the purchase price that it charges mer- chants by an average of 0.09% between 2005 and 20 and that this increase was not entirely spent on cardholder rewards. See 88 F. Supp. 3d, 5–1, 215. The plain- tiffs believe that this evidence shows that the price of Amex’s transactions increased. Even assuming the plaintiffs are correct, this evidence does not prove that Amex’s antisteering provisions gave it the power to charge anticompetitive prices. “Market power is the ability to raise price profitably by restricting output.” Areeda & Hovenkamp ; accord, ; Business 485 U.S., at This Court will “not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.” Brooke Group 509 U.S., There is no such evidence in this case. The output of credit-card transactions grew dramatically from 2008 to 2013, increasing 30%. See “Where output is expanding at the same time prices are increas- ing, rising prices are equally consistent with growing product demand.” Brooke Group And, as previously explained, the plaintiffs did not show that Amex charged more than its competitors. 18 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court 3 The plaintiffs also failed to prove that Amex’s antisteer- ing provisions have stifled competition among credit-card companies. To the contrary, while these agreements have been in place, the credit-card market experienced expand- ing output and improved quality. Amex’s business model spurred Visa and MasterCard to offer new premium card categories with higher rewards. And it has increased the availability of card services, including free banking and card-payment services for low-income

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

card services, including free banking and card-payment services for low-income customers who otherwise would not be served. Indeed, between 10 and the percentage of households with credit cards more than quadrupled, and the proportion of households in the bottom-income quintile with credit cards grew from just 2% to over 38%. See D. Evans & R. Schmalensee, Paying With Plastic: The Digital Revolution in Buying and Bor- rowing 88–89 (2d ed. 2005) (Paying With Plastic). Nor have Amex’s antisteering provisions ended competi- tion between credit-card networks with respect to mer- chant fees. Instead, fierce competition between networks has constrained Amex’s ability to raise these fees and has, at times, forced Amex to lower them. For instance, when Amex raised its merchant prices between 2005 and 20, some merchants chose to leave its network. 88 F. Supp. 3d, 7. And when its remaining merchants com- plained, Amex stopped raising its merchant prices. at 198. In another instance in the late 1980s and early 1990s, competition forced Amex to offer lower merchant fees to “everyday spend” merchants—supermarkets, gas stations, pharmacies, and the like—to persuade them to accept Amex. See –161, 202. In addition, Amex’s competitors have exploited its higher merchant fees to their advantage. By charging lower merchant fees, Visa, MasterCard, and Discover have achieved broader merchant acceptance—approximately 3 million more locations than Amex. This Cite as: 585 U. S. (2018) 19 Opinion of the Court broader merchant acceptance is a major advantage for these networks and a significant challenge for Amex, since consumers prefer cards that will be accepted everywhere. And to compete even further with Amex, Visa and MasterCard charge different merchant fees for different types of cards to maintain their comparatively lower mer- chant fees and broader acceptance. Over the long run, this competition has created a trend of declining merchant fees in the credit-card market. In fact, since the first credit card was introduced in the 1950s, merchant fees— including Amex’s merchant fees—have decreased by more than half. See at 202–203; Paying With Plastic 54, 126, 152. Lastly, there is nothing inherently anticompetitive about Amex’s antisteering provisions. These agreements actually stem negative externalities in the credit-card market and promote interbrand competi When mer- chants steer cardholders away from Amex at the point of sale, it undermines the cardholder’s expectation of “wel- come acceptance”—the promise of a frictionless transac- A lack of welcome acceptance at one merchant makes a cardholder less likely to use Amex at all other merchants. This externality endangers the viability of the entire Amex network. And it under- mines the investments that Amex has made to

Justice Thomas

majority

Ohio v. American Express Co.

https://www.courtlistener.com/opinion/4510626/ohio-v-american-express-co/

it under- mines the investments that Amex has made to encourage increased cardholder spending, which discourages invest- ments in rewards and ultimately harms both cardholders and merchants. Cf. –891 (recog- nizing that vertical restraints can prevent retailers from free riding and thus increase the availability of “tangible or intangible services or promotional efforts” that enhance competition and consumer welfare). Perhaps most im- portantly, antisteering provisions do not prevent Visa, MasterCard, or Discover from competing against Amex by offering lower merchant fees or promoting their broader 20 OHIO v. AMERICAN EXPRESS CO. Opinion of the Court merchant acceptance. In sum, the plaintiffs have not satisfied the first step of the rule of reason. They have not carried their burden of proving that Amex’s antisteering provisions have anti- competitive effects. Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions. And it is “[t]he promotion of interbrand competition,” after all, that “is ‘the primary purpose of the antitrust laws.’” at 890. * * * Because Amex’s antisteering provisions do not unrea- sonably restrain trade, we affirm the judgment of the Court of Appeals. It is so ordered. —————— The plaintiffs argue that United 6 (12), forbids any restraint that would restrict competition in part of the market—here, for example, merchant steer- ing. See Brief for Petitioners and Respondents Nebraska, Tennessee, and Texas 30, 42. Topco does not stand for such a broad proposi Topco concluded that a horizontal agreement between competitors was unreasonable per se, even though the agreement did not extend to every competitor in the market. See 608. A horizontal agreement between competitors is markedly different from a vertical agreement that incidentally affects one particular method of competi- See 551 U.S., at ; Maricopa County Medical Soc., 4 U.S., at Cite as: 585 U. S. (2018) 1 BREYER, J., dissenting SUPREME COURT OF THE UNITED STATES No. 16–1454 OHIO, ET AL., PETITIONERS v. AMERICAN EXPRESS COMPANY, ET AL.

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

For over 150 years this Court has applied the doctrine of patent exhaustion to limit the patent rights that survive the initial authorized sale of a patented item. In this case, we decide whether patent exhaustion applies to the sale of components of a patented system that must be combined with additional components in order to practice the patented methods. The Court of Appeals for the Federal Circuit held that the doctrine does not apply to method patents at all and, in the alternative, that it does not apply here because the sales were not authorized by the license agreement. We disagree on both scores. Because the exhaustion doctrine applies to method patents, and because the license authorizes the sale of components that substantially embody the patents in suit, the sale exhausted the patents. I Respondent LG Electronics, Inc. (LGE), purchased a portfolio of computer technology patents in 1999, including the three patents at issue here: U.S. Patent Nos. 4,939,641 ('641); 5,379,379 ('379); and 5,077,733 ('733) (collectively LGE Patents). The main functions of a computer system are carried out on a microprocessor, or central processing unit, which interprets program instructions, processes data, and controls other devices in the system. A set of wires, or bus, connects the microprocessor to a chipset, which transfers data between the microprocessor and other devices, including the keyboard, mouse, monitor, hard drive, memory, and disk drives. The data processed by the computer are stored principally in random access memory, also called main memory. Webster's New World Dictionary of Computer Terms 334, 451 (8th ed.2000). Frequently accessed data are generally stored in cache memory, which permits faster access than main memory and is often located on the microprocessor itself. When copies of data are stored in both the cache and main memory, problems may arise when one copy is changed but the other still contains the original "stale" version of the data. J. Handy, Cache Memory Book 124 (2d ed.1993). The '641 patent addresses this problem. It discloses a system for ensuring that the most current data are retrieved from main memory by monitoring data requests and updating main memory from the cache when stale data are requested. LG Electronics, (C.A.Fed.2006). The '379 patent relates to the coordination of requests to read from, and write to, main memory. Processing these requests in chronological order can slow down a system because read requests are faster to execute than write requests. Processing all read requests first ensures speedy access, but may result in the retrieval of outdated data if a read request for a certain piece of data

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

if a read request for a certain piece of data is processed before an outstanding write request for the same data. The '379 patent discloses an efficient method of organizing read and write requests while maintaining accuracy by allowing the computer to execute only read requests until it needs data for which there is an outstanding write request. LG Electronics, No. C 01-02187 CW et al., Order Construing Disputed Terms and Phrases, p. 42 (ND Cal., Aug. 20, 2002). Upon receiving such a read request, the computer executes pending write requests first and only then returns to the read requests so that the most up-to-date data are retrieved. The '733 patent addresses the problem of managing the data traffic on a bus connecting two computer components, so *2114 that no one device monopolizes the bus. It allows multiple devices to share the bus, giving heavy users greater access. This patent describes methods that establish a rotating priority system under which each device alternately has priority access to the bus for a preset number of cycles and heavier users can maintain priority for more cycles without "hogging" the device indefinitely. LGE licensed a patent portfolio, including the LGE Patents, to Intel Corporation (Intel). The cross-licensing agreement (License Agreement) permits Intel to manufacture and sell microprocessors and chipsets that use the LGE Patents (the Intel Products). The License Agreement authorizes Intel to "`make, use, sell (directly or indirectly), offer to sell, import or otherwise dispose of'" its own products practicing the LGE Patents. Brief for Petitioners 8 (quoting App. 154).[1] Notwithstanding this broad language, the License Agreement contains some limitations. Relevant here, it stipulates that no license "`is granted by either party hereto to any third party for the combination by a third party of Licensed Products of either party with items, components, or the like acquired from sources other than a party hereto, or for the use, import, offer for sale or sale of such combination.'" Brief for Petitioners 8 (quoting App. 164). The License Agreement purports not to alter the usual rules of patent exhaustion, however, providing that, "`[n]otwithstanding anything to the contrary contained in this Agreement, the parties agree that nothing herein shall in any way limit or alter the effect of patent exhaustion that would otherwise apply when a party hereto sells any of its Licensed Products.'" Brief for Petitioners 8 (quoting App. 164). In a separate agreement (Master Agreement), Intel agreed to give written notice to its own customers informing them that, while it had obtained a broad license "`ensur[ing] that any Intel product that you purchase

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

broad license "`ensur[ing] that any Intel product that you purchase is licensed by LGE and thus does not infringe any patent held by LGE,'" the license "`does not extend, expressly or by implication, to any product that you make by combining an Intel product with any non-Intel product.'" Brief for Respondent 9 (emphasis deleted) (quoting App. 198). The Master Agreement also provides that "`a breach of this Agreement shall have no effect on and shall not be grounds for termination of the Patent License.'" Brief for Petitioners 9 (quoting App. 176). Petitioners, including Quanta Computer (collectively Quanta), are a group of computer manufacturers. Quanta purchased microprocessors and chipsets from Intel and received the notice required by the Master Agreement. Nonetheless, Quanta manufactured computers using Intel parts in combination with non-Intel memory and buses in ways that practice the LGE Patents. Quanta does not modify the Intel components and follows Intel's specifications to incorporate the parts into its own systems. LGE filed a complaint against Quanta, asserting that the combination of the Intel Products with non-Intel memory and buses infringed the LGE Patents. The District Court granted summary judgment to Quanta, holding that, for purposes of the patent exhaustion doctrine, the license LGE granted to Intel resulted in forfeiture of any potential infringement actions *2115 against legitimate purchasers of the Intel Products. LG Electronics, (N.D.Cal.2002). The court found that, although the Intel Products do not fully practice any of the patents at issue, they have no reasonable noninfringing use and therefore their authorized sale exhausted patent rights in the completed computers under United In a subsequent order limiting its summary judgment ruling, the court held that patent exhaustion applies only to apparatus or composition-of-matter claims that describe a physical object, and does not apply to process, or method, claims that describe operations to make or use a product. LG Electronics, (N.D.Cal.2003). Because each of the LGE Patents includes method claims, exhaustion did not apply. The Court of Appeals for the Federal Circuit affirmed in part and reversed in part. It agreed that the doctrine of patent exhaustion does not apply to method claims. In the alternative, it concluded that exhaustion did not apply because LGE did not license Intel to sell the Intel Products to Quanta for use in combination with non-Intel We granted certiorari, 551 U.S. II The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item. This Court first applied the doctrine in 19th-century cases addressing patent extensions on the Woodworth planing machine. Purchasers of licenses

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

patent extensions on the Woodworth planing machine. Purchasers of licenses to sell and use the machine for the duration of the original patent term sought to continue using the licenses through the extended term. The Court held that the extension of the patent term did not affect the rights already secured by purchasers who bought the item for use "in the ordinary pursuits of life." ; see also ; In the Court affirmed the dismissal of a patent holder's suit alleging that a licensee had violated postsale restrictions on where patented coffin-lids could be used. "[W]here a person ha[s] purchased a patented machine of the patentee or his assignee," the Court held, "this purchase carrie[s] with it the right to the use of that machine so long as it [is] capable of use." Although the Court permitted postsale restrictions on the use of a patented article in[2] that *2116 decision was short lived. In the Court refused to apply A.B. Dick to uphold price-fixing provisions in a patent license. See Bauer & Shortly thereafter, in Motion Picture Patents the Court explicitly overruled A.B. Dick. In that case, a patent holder attempted to limit purchasers' use of its film projectors to show only film made under a patent held by the same company. The Court noted the "increasing frequency" with which patent holders were using A.B. Dick-style licenses to limit the use of their products and thereby using the patents to secure market control of related, unpatented 516-517, Observing that "the primary purpose of our patent laws is not the creation of private fortunes for the owners of patents but is `to promote the progress of science and useful arts,'" (quoting U.S. Const., Art. I, 8, cl. 8), the Court held that "the scope of the grant which may be made to an inventor in a patent, pursuant to the [patent] statute, must be limited to the invention described in the claims of his patent." 243 U.S., Accordingly, it reiterated the rule that "the right to vend is exhausted by a single, unconditional sale, the article sold being thereby carried outside the monopoly of the patent law and rendered free of every restriction which the vendor may attempt to put upon it." This Court most recently discussed patent exhaustion in on which the District Court relied. Lens Company, the holder of patents on eyeglass lenses, licensed a purchaser to manufacture lens blanks[3] by fusing together different lens segments to create bi- and tri-focal lenses and to sell them to other licensees at agreed-upon rates. Wholesalers were licensed to grind the blanks

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

at agreed-upon rates. Wholesalers were licensed to grind the blanks into the patented finished lenses, which they would then sell to -licensed prescription retailers for resale at a fixed rate. Finishing retailers, after grinding the blanks into patented lenses, would sell the finished lenses to consumers at the same fixed rate. The United States sued under the Sherman Act, 15 U.S.C. 1, 3, 15, alleging unlawful restraints on trade. asserted its patent monopoly rights as a defense to the antitrust suit. The Court granted certiorari to determine whether ' patent monopoly survived the sale of the lens blanks by the licensed manufacturer and therefore shielded ' pricing scheme from the Sherman Act. The Court assumed that the patents containing claims for finished lenses were practiced in part by the wholesalers and finishing retailers who ground the blanks into lenses, and held that the sale of the lens blanks exhausted the patents on the finished lenses. -249, The Court explained that the lens blanks "embodi[ed] essential features of the patented device and [were] without utility until ground and polished as the finished lens of the patent." The Court noted that: "where one has sold an uncompleted article which, because it embodies essential features of his patented invention, is within the protection of his patent, and has destined the article to be finished by the purchaser in conformity to the patent, he has sold his invention so far as it *2117 is or may be embodied in that particular article." In sum, the Court concluded that the traditional bar on patent restrictions following the sale of an item applies when the item sufficiently embodies the patent— even if it does not completely practice the patent—such that its only and intended use is to be finished under the terms of the patent. With this history of the patent exhaustion doctrine in mind, we turn to the parties' arguments. III A LGE argues that the exhaustion doctrine is inapplicable here because it does not apply to method claims, which are contained in each of the LGE Patents. LGE reasons that, because method patents are linked not to a tangible article but to a process, they can never be exhausted through a sale. Rather, practicing the patent—which occurs upon each use of an article embodying a method patent—is permissible only to the extent rights are transferred in an assignment contract. Quanta, in turn, argues that there is no reason to preclude exhaustion of method claims, and points out that both this Court and the Federal Circuit have applied exhaustion to method claims. It argues that

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

Circuit have applied exhaustion to method claims. It argues that any other rule would allow patent holders to avoid exhaustion entirely by inserting method claims in their patent specifications. Quanta has the better of this argument. Nothing in this Court's approach to patent exhaustion supports LGE's argument that method patents cannot be exhausted. It is true that a patented method may not be sold in the same way as an article or device, but methods nonetheless may be "embodied" in a product, the sale of which exhausts patent rights. Our precedents do not differentiate transactions involving embodiments of patented methods or processes from those involving patented apparatuses or materials. To the contrary, this Court has repeatedly held that method patents were exhausted by the sale of an item that embodied the method. In Ethyl Gasoline for example, the Court held that the sale of a motor fuel produced under one patent also exhausted the patent for a method of using the fuel in combustion motors.[4] Similarly, as previously described, held that the sale of optical lens blanks that partially practiced a patent exhausted the method patents that were not completely practiced until the blanks were ground into lenses. -251, These cases rest on solid footing. Eliminating exhaustion for method patents would seriously undermine the exhaustion doctrine. Patentees seeking to avoid patent exhaustion could simply draft their patent claims to describe a method rather than an apparatus.[5] Apparatus and method *2118 claims "may approach each other so nearly that it will be difficult to distinguish the process from the function of the apparatus." United States ex rel. By characterizing their claims as method instead of apparatus claims, or including a method claim for the machine's patented method of performing its task, a patent drafter could shield practically any patented item from exhaustion. This case illustrates the danger of allowing such an end-run around exhaustion. On LGE's theory, although Intel is authorized to sell a completed computer system that practices the LGE Patents, any downstream purchasers of the system could nonetheless be liable for patent infringement. Such a result would violate the longstanding principle that, when a patented item is "once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee." We therefore reject LGE's argument that method claims, as a category, are never exhaustible. B We next consider the extent to which a product must embody a patent in order to trigger exhaustion. Quanta argues that, although sales of an incomplete article do not necessarily exhaust the patent in that article,

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

article do not necessarily exhaust the patent in that article, the sale of the microprocessors and chipsets exhausted LGE's patents in the same way the sale of the lens blanks exhausted the patents in Just as the lens blanks in did not fully practice the patents at issue because they had not been ground into finished lenses, Quanta observes, the Intel Products cannot practice the LGE Patents—or indeed, function at all—until they are combined with memory and buses in a computer system. If, as in patent rights are exhausted by the sale of the incomplete item, then LGE has no postsale right to require that the patents be practiced using only Intel parts. Quanta also argues that exhaustion doctrine will be a dead letter unless it is triggered by the sale of components that essentially, even if not completely, embody an invention. Otherwise, patent holders could authorize the sale of computers that are complete with the exception of one minor step—say, inserting the microprocessor into a socket— and extend their rights through each downstream purchaser all the way to the end user. LGE, for its part, argues that is inapplicable here for three reasons. First, it maintains that should be limited to products that contain all the physical aspects needed to practice the patent. On that theory, the Intel Products cannot embody the patents because additional physical components are required before the patents can be practiced. Second, LGE asserts that in there was no "patentable distinction" between the lens blanks and the patented finished lenses since they were both subject to the same patent. Brief for Respondent 14 (citing ). In contrast, it describes the Intel Products as "independent and distinct products" from the systems using the LGE Patents and subject to "independent patents." Brief for Respondent 13. Finally, LGE argues that does not apply because the Intel Products are analogous to individual elements of a combination patent, *2119 and allowing sale of those components to exhaust the patent would impermissibly "ascrib[e] to one element of the patented combination the status of the patented invention in itself." Aro Mfg. We agree with Quanta that governs this case. As the Court there explained, exhaustion was triggered by the sale of the lens blanks because their only reasonable and intended use was to practice the patent and because they "embodie[d] essential features of [the] patented invention." 316 U.S., -251, Each of those attributes is shared by the microprocessors and chipsets Intel sold to Quanta under the License Agreement. First, held that "the authorized sale of an article which is capable of use

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold." The lens blanks in met this standard because they were "without utility until [they were] ground and polished as the finished lens of the patent." Accordingly, "the only object of the sale [was] to enable the [finishing retailer] to grind and polish it for use as a lens by the prospective wearer." Here, LGE has suggested no reasonable use for the Intel Products other than incorporating them into computer systems that practice the LGE Patents.[6] Nor can we can discern one: A microprocessor or chipset cannot function until it is connected to buses and memory. And here, as in the only apparent object of Intel's sales to Quanta was to permit Quanta to incorporate the Intel Products into computers that would practice the patents. Second, the lens blanks in "embodie[d] essential features of [the] patented invention." The essential, or inventive, feature of the lens patents was the fusing together of different lens segments to create bi- and tri-focal lenses. The finishing process performed by the finishing and prescription retailers after the fusing was not unique. As the United States explained: "The finishing licensees finish lens blanks in precisely the same manner as they finish all other bifocal lens blanks. Indeed, appellees have never contended that their licensing system is supported by patents covering methods or processes relating to the finishing of lens blanks. Consequently, it appears that appellees perform all of the operations which contribute any claimed element of novelty to lenses." Brief for United States in United O.T.1941, No. 855 et al., p. 10 (footnote and citations omitted). While the Court assumed that the finishing process was covered by the patents, and the District Court found that it was necessary to make a working lens, United (S.D.N.Y.1941), the grinding process *2120 was not central to the patents. That standard process was not included in detail in any of the patents and was not referred to at all in two of the patents. Those that did mention the finishing process treated it as incidental to the invention, noting, for example, that "[t]he blank is then ground in the usual manner," p. 2, or simply that the blank is "then ground and polished," p. 1, Tr. of Record in United O.T.1941, No. 855 et al., pp. 516, 498. Like the lens blanks, the Intel Products constitute a material part of the patented invention and all but completely practice the patent. Here, as in

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

and all but completely practice the patent. Here, as in the incomplete article substantially embodies the patent because the only step necessary to practice the patent is the application of common processes or the addition of standard parts. Everything inventive about each patent is embodied in the Intel Products. They control access to main and cache memory, practicing the '641 and '379 patents by checking cache memory against main memory and comparing read and write requests. They also control priority of bus access by various other computer components under the '733 patent. Naturally, the Intel Products cannot carry out these functions unless they are attached to memory and buses, but those additions are standard components in the system, providing the material that enables the microprocessors and chipsets to function. The Intel Products were specifically designed to function only when memory or buses are attached; Quanta was not required to make any creative or inventive decision when it added those parts. Indeed, Quanta had no alternative but to follow Intel's specifications in incorporating the Intel Products into its computers because it did not know their internal structure, which Intel guards as a trade secret. Brief for Petitioners 3. Intel all but practiced the patent itself by designing its products to practice the patents, lacking only the addition of standard parts. We are unpersuaded by LGE's attempts to distinguish First, there is no reason to distinguish the two cases on the ground that the articles in required the removal of material to practice the patent while the Intel Products require the addition of components to practice the patent. LGE characterizes the lens blanks and lenses as sharing a "basic nature" by virtue of their physical similarity, while the Intel Products embody only some of the "patentably distinct elements and steps" involved in the LGE Patents. Brief for Respondent 26-27. But we think that the nature of the final step, rather than whether it consists of adding or deleting material, is the relevant characteristic. In each case, the final step to practice the patent is common and noninventive: grinding a lens to the customer's prescription, or connecting a microprocessor or chipset to buses or memory. The Intel Products embody the essential features of the LGE Patents because they carry out all the inventive processes when combined, according to their design, with standard components. With regard to LGE's argument that exhaustion does not apply across patents, we agree on the general principle: The sale of a device that practices patent A does not, by virtue of practicing patent A, exhaust patent B. But if

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

virtue of practicing patent A, exhaust patent B. But if the device practices patent A while substantially embodying patent B, its relationship to patent A does not prevent exhaustion of patent B. For example, if the lens blanks had been composed of shatter-resistant glass under patent A, the blanks would nonetheless have substantially embodied, and therefore exhausted, patent B for the finished lenses. This case is no different. *2121 While each Intel microprocessor and chipset practices thousands of individual patents, including some LGE patents not at issue in this case, the exhaustion analysis is not altered by the fact that more than one patent is practiced by the same product. The relevant consideration is whether the Intel Products that partially practice a patent—by, for example, embodying its essential features—exhaust that patent. Finally, LGE's reliance on Aro is misplaced because that case dealt only with the question whether replacement of one part of a patented combination infringes the patent. First, the replacement question is not at issue here. Second, and more importantly, Aro is not squarely applicable to the exhaustion of patents like the LGE Patents that do not disclose a new combination of existing parts. Aro described combination patents as "cover[ing] only the totality of the elements in the claim [so] that no element, separately viewed, is within the grant." Aro's warning that no element can be viewed as central to or equivalent to the invention is specific to the context in which the combination itself is the only inventive aspect of the patent. In this case, the inventive part of the patent is not the fact that memory and buses are combined with a microprocessor or chipset; rather, it is included in the design of the Intel Products themselves and the way these products access the memory or bus. C Having concluded that the Intel Products embodied the patents, we next consider whether their sale to Quanta exhausted LGE's patent rights. Exhaustion is triggered only by a sale authorized by the patent holder. 316 U.S., LGE argues that there was no authorized sale here because the License Agreement does not permit Intel to sell its products for use in combination with non-Intel products to practice the LGE Patents. It cites General Talking Pictures and General Talking Pictures in which the manufacturer sold patented amplifiers for commercial use, thereby breaching a license that limited the buyer to selling the amplifiers for private and home use. The Court held that exhaustion did not apply because the manufacturer had no authority to sell the amplifiers for commercial use, and the manufacturer "could

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

sell the amplifiers for commercial use, and the manufacturer "could not convey to petitioner what both knew it was not authorized to sell." General Talking Pictures, LGE argues that the same principle applies here: Intel could not convey to Quanta what both knew it was not authorized to sell, i.e., the right to practice the patents with non-Intel parts. LGE overlooks important aspects of the structure of the Intel-LGE transaction. Nothing in the License Agreement restricts Intel's right to sell its microprocessors and chipsets to purchasers who intend to combine them with non-Intel parts. It broadly permits Intel to "`make, use, [or] sell'" products free of LGE's patent claims. Brief for Petitioners 8 (quoting App. 154). To be sure, LGE did require Intel to give notice to its customers, including Quanta, that LGE had not licensed those customers to practice its patents. But neither party contends that Intel breached the agreement in that respect. Brief for Petitioners 9; Brief for Respondent 9. In any event, the provision requiring *2122 notice to Quanta appeared only in the Master Agreement, and LGE does not suggest that a breach of that agreement would constitute a breach of the License Agreement. Hence, Intel's authority to sell its products embodying the LGE Patents was not conditioned on the notice or on Quanta's decision to abide by LGE's directions in that notice. LGE points out that the License Agreement specifically disclaimed any license to third parties to practice the patents by combining licensed products with other components. Brief for Petitioners 8. But the question whether third parties received implied licenses is irrelevant because Quanta asserts its right to practice the patents based not on implied license but on exhaustion. And exhaustion turns only on Intel's own license to sell products practicing the LGE Patents. Alternatively, LGE invokes the principle that patent exhaustion does not apply to postsale restrictions on "making" an article. Brief for Respondent 43. But this is simply a rephrasing of its argument that combining the Intel Products with other components adds more than standard finishing to complete a patented article. As explained above, making a product that substantially embodies a patent is, for exhaustion purposes, no different from making the patented article itself. In other words, no further "making" results from the addition of standard parts—here, the buses and memory—to a product that already substantially embodies the patent. The License Agreement authorized Intel to sell products that practiced the LGE Patents. No conditions limited Intel's authority to sell products substantially embodying the patents. Because Intel was authorized to sell its products to Quanta,

Justice Thomas

majority

Quanta Computer, Inc. v. LG Electronics, Inc.

https://www.courtlistener.com/opinion/145800/quanta-computer-inc-v-lg-electronics-inc/

Because Intel was authorized to sell its products to Quanta, the doctrine of patent exhaustion prevents LGE from further asserting its patent rights with respect to the patents substantially embodied by those [7] IV The authorized sale of an article that substantially embodies a patent exhausts the patent holder's rights and prevents the patent holder from invoking patent law to control postsale use of the article. Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel's microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. Nothing in the License Agreement limited Intel's ability to sell its products practicing the LGE Patents. Intel's authorized sale to Quanta thus took its products outside the scope of the patent monopoly, and as a result, LGE can no longer assert its patent rights against Quanta. Accordingly, the judgment of the Court of Appeals is reversed. It is so ordered.

Justice Stevens

majority

Franchise Tax Board of California v. USPS

https://www.courtlistener.com/opinion/111209/franchise-tax-board-of-california-v-usps/

Appellant, the Franchise Tax Board of California, determined that four employees of appellee United States Postal Service were delinquent in the payment of their state income taxes. The Board served process on the Postal Service directing it to withhold the amounts of the delinquencies from the employees' wages, pursuant to 18817 of the California Revenue and Taxation Code, which authorizes the Board to *514 require any employer to withhold delinquent taxes from an employee's salary and transfer those funds to the Board.[1] The question presented is whether the Postal Service was obligated to honor these "orders to withhold." I When the Postal Service refused to comply with the four orders to withhold, the Board filed this action in the United States District Court for the Central District of California asserting that the Service was liable under the Revenue and Taxation Code for failing to honor the orders,[2] and invoking federal jurisdiction pursuant to 39 U.S. C. 409(a) and 28 U.S. C. 1339.[3] The District Court entered summary judgment for the Postal Service. It held that 5 U.S. C. 5517, which authorized the agreement that California and the United States had made regarding the withholding of state income taxes from the pay of federal employees, applies only to withholding of anticipated tax liabilities and not to *515 delinquent liabilities.[4] The Court of Appeals affirmed, agreeing that 5 U.S. C. 5517 excused the Service from complying with the orders. Employment Development[5] The Court of Appeals rejected the Board's argument that 5517 did not prohibit issuance of the orders, and also rejected the argument that the provision in 39 U.S. C. 401(1) declaring that the Postal Service may "sue and be sued in its official name" had waived any sovereign immunity that the Service might possess.[6] This appeal followed.[7] In this Court, the Postal Service does not argue that 5 U.S. C. 5517 and the agreement pursuant thereto between the United States and California prohibit the issuance of an order to withhold against the Postal Service with respect to delinquent tax liabilities of its employees.[8] To the contrary, *516 the Postal Service expressly concedes that it is amenable to judicial process and could be required to honor a garnishment order requiring it to withhold the salary of a federal employee in order to satisfy a delinquent tax liability if issued by a state court.[9] Instead, the Postal Service contends that although it must obey a judicial order, it retains sovereign immunity with respect to state administrative tax levies. It argues that while the provision that the Postal Service can "sue and be sued

Justice Stevens

majority

Franchise Tax Board of California v. USPS

https://www.courtlistener.com/opinion/111209/franchise-tax-board-of-california-v-usps/

provision that the Postal Service can "sue and be sued in its official name" waives immunity from suit, it does not apply to administrative proceedings. II The Board does not dispute the proposition that, unless waived, sovereign immunity prevents the creditor of a federal *517 employee from collecting a debt through a judicial order requiring the United States to garnishee the employee's salary. See Rather, it places its primary reliance on 39 U.S. C. 401(1), which indicates that the Postal Service may "sue and be sued." Thus the question in this case is whether this statutory waiver of sovereign immunity extends to the Board's orders to withhold. This Court construed a statute providing that an agency created by Congress — the Federal Housing Authority — was empowered "to sue and be sued," in In Burr the question presented was whether the agency had to honor a garnishment order issued by a state court. The Court began by observing: "Since consent to `sue and be sued' has been given by Congress, the problem here merely involves a determination of whether or not garnishment comes within the scope of that authorization." It continued: "[W]e start from the premise that such waivers by Congress of governmental immunity in case of such federal instrumentalities should be liberally construed. This policy is in line with the current disfavor of the doctrine of governmental immunity from suit, as evidenced by the increasing tendency of Congress to waive the immunity where federal governmental corporations are concerned. Hence, when Congress establishes such an agency, authorizes it to engage in commercial and business transactions with the public, and permits it to `sue and be sued,' it cannot be lightly assumed that restrictions on that authority are to be implied. Rather if the general authority to `sue and be sued' is to be delimited by implied exceptions, it must be clearly shown that certain types of suits are not consistent with the statutory or constitutional scheme, that an implied restriction of the general authority is necessary to avoid grave interference with the performance of a governmental function, or that for other reasons it was plainly the purpose of *518 Congress to use the `sue and be sued' clause in a narrow sense. In the absence of such showing, it must be presumed that when Congress launched a governmental agency into the commercial world and endowed it with authority to `sue or be sued,' that agency is not less amenable to judicial process than a private enterprise under like circumstances would be."[10] The Court then explained why garnishment orders fell within

Justice Stevens

majority

Franchise Tax Board of California v. USPS

https://www.courtlistener.com/opinion/111209/franchise-tax-board-of-california-v-usps/

be."[10] The Court then explained why garnishment orders fell within the scope of the statutory waiver of sovereign immunity: "Clearly the words `sue and be sued' in their normal connotation embrace all civil process incident to the commencement or continuance of legal proceedings. Garnishment and attachment commonly are part and parcel of the process, provided by statute, for the collection of debt. [H]owever it may be denominated, whether legal or equitable, and whenever it may be available, whether prior to or after final judgment, garnishment is *519 a well-known remedy available to suitors. To say that Congress did not intend to include such civil process in the words `sue and be sued' would in general deprive suits of some of their efficacy." -246 If anything, the waiver of sovereign immunity is broader here than it was in Burr. In passing the Postal Reorganization Act of 1970, Congress not only indicated that the Postal Service could "sue and be sued," 39 U.S. C. 401(1), but also that it had the power "to settle and compromise claims by or against it," 401(8), and that "[t]he provisions of chapter 171 and all other provisions of title 28 relating to tort claims shall apply to tort claims arising out of activities of the Postal Service." 409(c).[11] Neither of these provisions would have been necessary had Congress intended to preserve sovereign immunity with respect to the Postal Service.[12] Congress also indicated that it wished the *520 Postal Service to be run more like a business than had its predecessor, the Post Office Department.[13] Here, the Board has employed the same "well-known" remedy that was held to be within the scope of a sue-and-be-sued clause in Burr. Moreover, as was true of the agency involved in Burr, Congress has "launched [the Postal Service] into the commercial world"; hence under Burr not only must we liberally construe the sue-and-be-sued clause, but also we must presume that the Service's liability is the same as that of any other business. No showing has been made to overcome that presumption. Since an order to withhold cannot issue unless the Postal Service owes the employee wages, the Service is nothing but a stakeholder; the order to withhold has precisely the same effect on its ability to operate efficiently as it does on that of any other employer subject to the California statute. It creates no greater inconvenience than did the garnishment order that this Court held could issue against a federal agency in Burr.[14] Indeed, the Board's *521 order to withhold contains the same direction as did the writ of garnishment

Justice Stevens

majority

Franchise Tax Board of California v. USPS

https://www.courtlistener.com/opinion/111209/franchise-tax-board-of-california-v-usps/

contains the same direction as did the writ of garnishment served on the FHA in Burr. The Postal Service attempts to distinguish Burr by observing that the waiver of sovereign immunity in 401(1) is limited to cases in which it has been "sued," and then arguing that because the process that has issued here is that of an administrative agency rather than a court, the Service has not been "sued" within the meaning of 401(1). This crabbed construction of the statute overlooks our admonition that waiver of sovereign immunity is accomplished not by "a ritualistic formula"; rather intent to waive immunity and the scope of such a waiver can only be ascertained by reference to underlying congressional policy. Keifer &[15] In this *522 case, at the level of policy and practicality it is illogical to conclude that Congress would have differentiated between process issued by the Board and that of a court, for even if a court issued the orders to withhold, neither the Postal Service nor its employees would be in a materially different position. The operation of California's tax collection process makes it clear that there is no meaningful difference between an order to withhold issued by the Board and a garnishment order issued by a court. Under state law an assessment that has been validly made against a taxpayer[16] operates to impose an absolute liability for the tax that may not be contested except in an action seeking refund of amounts already paid. Indeed state law is unequivocal in requiring employers to honor orders to withhold — no defense is permitted.[17] Thus, a California *523 tax assessment, like a federal tax assessment, operates in a way that is functionally indistinguishable from the judgment of a court of law; it creates an absolute legal obligation to make payment by a date certain: "Once the tax is assessed the taxpayer will owe the sovereign the amount when the date fixed by law for payment arrives. Default in meeting the obligations calls for some procedure whereby payment can be enforced. The statute might remit the Government to an action at law wherein the taxpayer could offer such defense as he had. A judgment against him might be collected by the levy of an execution. But taxes are the life-blood of government, and their prompt and certain availability an imperious need. Time out of mind, therefore, the sovereign has resorted to more drastic means of collection. The assessment is given the force of a judgment, and if the amount assessed is not paid when due, administrative officials may seize the debtor's

Justice Stevens

majority

Franchise Tax Board of California v. USPS

https://www.courtlistener.com/opinion/111209/franchise-tax-board-of-california-v-usps/

not paid when due, administrative officials may seize the debtor's property to satisfy the debt."[18] Thus, in operation and effect the Board's orders to withhold are identical to the judgment of a court. They give rise to a binding legal obligation to pay the assessed amounts; the taxpayer may no more dispute this liability than the liability under any other judgment. Neither the Postal Service nor its employees would obtain any additional protections from a requirement that such orders be issued by a court, since the liability cannot be contested until after the tax has been paid *524 and a refund action brought.[19] At the same time, construing the statute to require the issuance of judicial process before the Postal Service need honor an order to withhold would create unwarranted disruption of the State's machinery for collection of delinquent taxes,[20] while simultaneously depriving the orders of "some of their efficacy" — a result inconsistent with Burr. There is thus no reason to believe that Congress intended to impose a meaningless procedural requirement that an order to withhold be issued by a court. To distinguish between administrative and judicial process would be to take an approach to sovereign immunity that this Court rejected more than 40 years ago — "to impute to Congress a desire for incoherence in a body of affiliated enactments and for drastic legal differentiation where policy justifies none." Keifer & Keifer,[21] In cases of this kind, we believe *525 Congress intended the Postal Service to be treated similarly to other self-sustaining commercial ventures. Accordingly, we hold that when administrative process of the type employed by the Board issues against the Postal Service, it has been "sued" within the meaning of 401(1), and must respond to that process.[22] The judgment of the Court of Appeals is reversed, and the case is remanded to that court for further proceedings consistent with this opinion. It is so ordered.

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

In previous cases we have considered the constitutionality of state laws prohibiting lawyers from engaging in direct, personal solicitation of prospective clients. See ; In re Primus, In the case now before us, we consider a solicitation ban applicable to certified public accountants (CPA's) enacted by the State of Florida. We hold that, as applied to CPA solicitation in the business context, Florida's prohibition is inconsistent with the free speech guarantees of the First and Fourteenth Amendments. I Respondent Scott Fane is a CPA licensed to practice in the State of Florida by the Florida Board of Accountancy (Board). Before moving to Florida in 1985, Fane had his own accounting CPA practice in New Jersey, specializing in providing tax advice to small and medium-sized businesses. He often obtained business clients by making unsolicited telephone calls to their executives and arranging meetings to explain his services and expertise. This direct, personal, uninvited solicitation was permitted under New Jersey law. When he moved to Florida, Fane wished to build a practice similar to his solo practice in New Jersey but was unable to do so because the Board of Accountancy had a comprehensive rule prohibiting CPA's from engaging in the direct, personal *764 solicitation he had found most effective in the past. The Board's rules provide that a CPA "shall not by any direct, in-person, uninvited solicitation solicit an engagement to perform public accounting services where the engagement would be for a person or entity not already a client of [the CPA], unless such person or entity has invited such a communication." Fla. Admin. Code 21A-24.002(2)(c) "[D]irect, in-person, uninvited solicitation" means "any communication which directly or implicitly requests an immediate oral response from the recipient," which, under the Board's rules, includes all "[u]ninvited in-person visits or conversations or telephone calls to a specific potential client." 21A-24.002(3). The rule, according to Fane's uncontradicted submissions, presented a serious obstacle, because most businesses are willing to rely for advice on the accountants or CPA's already serving them. In Fane's experience, persuading a business to sever its existing accounting relations or alter them to include a new CPA on particular assignments requires the new CPA to contact the business and explain the advantages of a change. This entails a detailed discussion of the client's needs and the CPA's expertise, services and fees. See Affidavit of Scott Fane ¶¶ 7, 11, App. 11, 15. Fane sued the Board in the United States District Court for the Northern District of Florida, seeking declaratory and injunctive relief on the ground that the Board's antisolicitation rule violated the First and

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

ground that the Board's antisolicitation rule violated the First and Fourteenth Amendments. Fane alleged that but for the prohibition he would seek clients through personal solicitation and would offer fees below prevailing rates. Complaint ¶¶ 9-11, App. 3-4. In response to Fane's submissions, the Board relied on the affidavit of Louis Dooner, one of its former chairmen. Dooner concluded that the solicitation ban was necessary to preserve the independence of CPA's performing the attest function, which involves the rendering of opinions on a firm's financial statements. His premise was that a CPA who solicits *765 clients "is obviously in need of business and may be willing to bend the rules." App. 23. In Dooner's view, "[i]f [a CPA] has solicited the client he will be beholden to him." Dooner also suggested that the ban was needed to prevent "overreaching and vexatious conduct by the CPA." The District Court gave summary judgment to Fane and enjoined enforcement of the rule "as it is applied to CPA's who seek clients through in-person, direct, uninvited solicitation in the business context." Civ. Case No. 88-40264—MNP App. 88. A divided panel of the Court of Appeals for the Eleventh Circuit affirmed. We granted certiorari, and now affirm. II In soliciting potential clients, Fane seeks to communicate no more than truthful, nondeceptive information proposing a lawful commercial transaction. We need not parse Fane's proposed communications to see if some parts are entitled to greater protection than the solicitation itself. This case comes to us testing the solicitation, nothing more. That is what the State prohibits and Fane proposes. Whatever ambiguities may exist at the margins of the category of commercial speech, see, e. g., Pittsburgh Press it is clear that this type of personal solicitation is commercial expression to which the protections of the First Amendment apply. E. g., Virginia State Bd. of While we did uphold a ban on in-person solicitation by lawyers in that opinion did not hold that all personal solicitation is without First Amendment protection. See There are, no doubt, detrimental aspects to personal commercial solicitation in certain circumstances, *766 see and n. 23, but these detriments are not so inherent or ubiquitous that solicitation of this sort is removed from the ambit of First Amendment protection, cf. United ("Solicitation is a recognized form of speech protected by the First Amendment"); see also International Society for Krishna In the commercial context, solicitation may have considerable value. Unlike many other forms of commercial expression, solicitation allows direct and spontaneous communication between buyer and seller. A seller has a strong financial incentive to educate

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

seller. A seller has a strong financial incentive to educate the market and stimulate demand for his product or service, so solicitation produces more personal interchange between buyer and seller than would occur if only buyers were permitted to initiate contact. Personal interchange enables a potential buyer to meet and evaluate the person offering the product or service and allows both parties to discuss and negotiate the desired form for the transaction or professional relation. Solicitation also enables the seller to direct his proposals toward those consumers who he has a reason to believe would be most interested in what he has to sell. For the buyer, it provides an opportunity to explore in detail the way in which a particular product or service compares to its alternatives in the market. In particular, with respect to nonstandard products like the professional services offered by CPA's, these benefits are significant. In denying CPA's and their clients these advantages, Florida's law threatens societal interests in broad access to complete and accurate commercial information that First Amendment coverage of commercial speech is designed to safeguard. See Virginia State Bd. of at -765; ; Central Hudson Gas & Electric *767 The commercial marketplace, like other spheres of our social and cultural life, provides a forum where ideas and information flourish. Some of the ideas and information are vital, some of slight worth. But the general rule is that the speaker and the audience, not the government, assess the value of the information presented. Thus, even a communication that does no more than propose a commercial transaction is entitled to the coverage of the First Amendment. See Virginia State Bd. of at Commercial speech, however, is "linked inextricably" with the commercial arrangement that it proposes, so the State's interest in regulating the underlying transaction may give it a concomitant interest in the expression itself. See For this reason, laws restricting commercial speech, unlike laws burdening other forms of protected expression, need only be tailored in a reasonable manner to serve a substantial state interest in order to survive First Amendment scrutiny. Board of Trustees of State University of N. ; Central Hudson Gas & Electric Even under this intermediate standard of review, however, Florida's blanket ban on direct, in-person, uninvited solicitation by CPA's cannot be sustained as applied to Fane's proposed speech. III To determine whether personal solicitation by CPA's may be proscribed under the test set forth in Central Hudson we must ask whether the State's interests in proscribing it are substantial, whether the challenged regulation advances these interests in a direct and material

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

challenged regulation advances these interests in a direct and material way, and whether the extent of the restriction on protected speech is in reasonable proportion to the interests served. See Though we conclude that the Board's asserted interests are substantial, the Board has failed to demonstrate that its solicitation ban advances those interests. *768 A In undertaking the first inquiry, we must identify with care the interests the State itself asserts. Unlike rationalbasis review, the Central Hudson standard does not permit us to supplant the precise interests put forward by the State with other suppositions. See at Neither will we turn away if it appears that the stated interests are not the actual interests served by the restriction. See, e. g., Mississippi Univ. for To justify its ban on personal solicitation by CPA's, the Board proffers two interests. First, the Board asserts an interest in protecting consumers from fraud or overreaching by CPA's. Second, the Board claims that its ban is necessary to maintain both the fact and appearance of CPA independence in auditing a business and attesting to its financial statements. The State's first interest encompasses two distinct purposes: to prevent fraud and other forms of deception, and to protect privacy. As to the first purpose, we have said that "[t]he First Amendment does not prohibit the State from insuring that the stream of commercial information flow[s] cleanly as well as freely," Virginia State Bd. of -772, and our cases make clear that the State may ban commercial expression that is fraudulent or deceptive without further justification, see, e. g., Central Hudson Gas & Electric ; In re R. M. ; Metromedia, Indeed, 25 States and the District of Columbia take various forms of this approach, forbidding solicitation by CPA's only under circumstances that would render it fraudulent, deceptive, or coercive. See, e. g., Code of Colo. Regs. 7.12 ; N. D. Admin. Code 3-04-06-02 ; N. H. Code Admin. Rules02(c) ; D. C. Mun. Reg., Tit. 17, 2513.4 But where, as with the blanket ban involved here, truthful *769 and nonmisleading expression will be snared along with fraudulent or deceptive commercial speech, the State must satisfy the remainder of the Central Hudson test by demonstrating that its restriction serves a substantial state interest and is designed in a reasonable way to accomplish that end. See In re R. M. at For purposes of that test, there is no question that Florida's interest in ensuring the accuracy of commercial information in the marketplace is substantial. See, e. g., Virginia State Bd. of ; San Francisco Arts & Athletics, ;

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

State Bd. of ; San Francisco Arts & Athletics, ; Likewise, the protection of potential clients' privacy is a substantial state interest. Even solicitation that is neither fraudulent nor deceptive may be pressed with such frequency or vehemence as to intimidate, vex, or harass the recipient. In we made explicit that "protection of the public from these aspects of solicitation is a legitimate and important state interest." The Board's second justification for its ban—the need to maintain the fact and appearance of CPA independence and to guard against conflicts of interest—is related to the audit and attest functions of a CPA. In the course of rendering these professional services, a CPA reviews financial statements and attests that they have been prepared in accordance with generally accepted accounting principles and present a fair and accurate picture of the firm's financial condition. See generally R. Gormley, Law of Accountants and Auditors ¶ 1.07[4] ; 1 American Institute of Certified Public Accountants, Professional Standards AU 110.01 (hereinafter AICPA Professional Standards). In the Board's view, solicitation compromises the independence necessary to perform the audit and attest functions, because a CPA who needs business enough to solicit clients will be prone to ethical lapses. The Board claims that even if actual misconduct does not occur, the public perception of CPA independence *770 will be undermined if CPA's behave like ordinary commercial actors. We have given consistent recognition to the State's important interests in maintaining standards of ethical conduct in the licensed professions. See, e. g., ; Virginia State Bd. of ; National Soc. of Professional With regard to CPA's, we have observed that they must "maintain total independence" and act with "complete fidelity to the public trust" when serving as independent auditors. United Although the State's interest in obscuring the commercial nature of public accounting practice is open to doubt, see Bates v. Arizona State Bar -371, the Board's asserted interest in maintaining CPA independence and ensuring against conflicts of interest is not. We acknowledge that this interest is substantial. See -461. B That the Board's asserted interests are substantial in the abstract does not mean, however, that its blanket prohibition on solicitation serves them. The penultimate prong of the Central Hudson test requires that a regulation impinging upon commercial expression "directly advance the state interest involved; the regulation may not be sustained if it provides only ineffective or remote support for the government's purpose." Central Hudson Gas & Electric We agree with the Court of Appeals that the Board's ban on CPA solicitation as applied to the solicitation of business clients fails to satisfy

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

applied to the solicitation of business clients fails to satisfy this requirement. It is well established that "[t]he party seeking to uphold a restriction on commercial speech carries the burden of justifying it." v. Youngs Drug Products ; 492 U. S., at This burden is not satisfied by mere speculation or conjecture; rather, a governmental *771 body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that itsrestriction will in fact alleviate them to a material degree. See, e. g., ; ; In re R. M. -206; Central Hudson Gas & Electric ; 440 U. S., -15; Linmark Associates, Without this requirement, a State could with ease restrict commercial speech in the service of other objectives that could not themselves justify a burden on commercial expression. The Board has not demonstrated that, as applied in the business context, the ban on CPA solicitation advances its asserted interests in any direct and material way. It presents no studies that suggest personal solicitation of prospective business clients by CPA's creates the dangers of fraud, overreaching, or compromised independence that the Board claims to fear. The record does not disclose any anecdotal evidence, either from Florida or another State, that validates the Board's suppositions. This is so even though 21 States place no specific restrictions of any kind on solicitation by CPA's, and only 3 States besides Florida have enacted a categorical ban. See 3 La. Admin. Code 46:XIX.(D)(1)(c) ; Minn. Admin. Code 1100.6100 ; 22 Tex. Admin. Code 501.44 Not even Fane's own conduct suggests that the Board's concerns are justified. Cf. The only suggestion that a ban on solicitation might help prevent fraud and overreaching or preserve CPA independence is the affidavit of Louis Dooner, which contains nothing more than a series of conclusory statements that add little if anything to the Board's original statement of its justifications. The Board directs the Court's attention to a report on CPA solicitation prepared by the American Institute of Certified Public Accountants in 1981. See AICPA, Report of the Special *772 Committee on Solicitation App. 29. The Report contradicts, rather than strengthens, the Board's submissions. The AICPA Committee stated that it was "unaware of the existence of any empirical data supporting the theories that CPAs (a) are not independent of clients obtained by direct uninvited solicitation, or (b) do not maintain their independence in mental attitude toward those clients subjected to direct uninvited solicitation by another CPA." App. 38. Louis Dooner's suggestion that solicitation of new accounts signals the need for work and invites an

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

new accounts signals the need for work and invites an improper approach from the client ignores the fact that most CPA firms desire new clients. The AICPA Report discloses no reason to suspect that CPA's who engage in personal solicitation are more desperate for work, or would be any more inclined to compromise their professional standards, than CPA's who do not solicit, or who solicit only by mail or advertisement. With respect to the prospect of harassment or overreaching by CPA's, the report again acknowledges an "absence of persuasive evidence that direct uninvited solicitation by CPAs is likely to lead to false or misleading claims or oppressive conduct." App. 35. Other evidence concerning personal solicitation by CPA's also belies the Board's concerns. In contrast to the Board's anxiety over uninvited solicitation, the literature on the accounting profession suggests that the main dangers of compromised independence occur when a CPA firm is too dependent upon, or involved with, a longstanding client. See, e. g., P. Cottell & T. Accounting Ethics 39-40 ; G. Previts, The Scope of CPA Services: A Study of the Development of the Concept of Independence and the Profession's Role in Society 142 ; S. Rep. No. -34, pp. 50-52 ; General Accounting Office, CPA Audit Quality: Status of Actions Taken to Improve Auditing and Financial Reporting of Public Companies 36 (GAO/AFMD-89-38). It appears from the literature that a business executive who wishes to obtain a favorable but unjustified audit opinion *773 from a CPA would be less likely to turn to a stranger who has solicited him than to pressure his existing CPA, with whom he has an ongoing, personal relation and over whom he may also have some financial leverage. See ; Cottell & For similar reasons, we reject the Board's alternative argument that the solicitation ban is a reasonable restriction on the manner in which CPA's may communicate with prospective clients, rather than a direct regulation of the commercial speech itself. Assuming that a flat ban on commercial solicitation could be regarded as a content-neutral time, place, or manner restriction on speech, a proposition that is open to serious doubt, see, e. g., Virginia State Bd. of a challenged restriction of that type still must serve a substantial state interest in "a direct and effective way," The State has identified certain interests in regulating solicitation in the accounting profession that are important and within its legitimate power, but the prohibitions here do not serve these purposes in a direct and material manner. Where a restriction on speech lacks this close and substantial relation to the

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

on speech lacks this close and substantial relation to the governmental interests asserted, it cannot be, by definition, a reasonable time, place, or manner restriction. C Relying on the Board seeks to justify its solicitation ban as a prophylactic rule. It acknowledges that Fane's solicitations may not involve any misconduct but argues that all personal solicitation by CPA's must be banned, because this contact most often occurs in private offices and is difficult to regulate or monitor. *774 We reject the Board's argument and hold that, as applied in this context, the solicitation ban cannot be justified as a prophylactic rule. does not stand for the proposition that blanket bans on personal solicitation by all types of professionals are constitutional in all circumstances. Because "the distinctions, historical and functional, between professions, may require consideration of quite different factors," Virginia State Bd. of the constitutionality of a ban on personal solicitation will depend upon the identity of the parties and the precise circumstances of the solicitation. Later cases have made this clear, explaining that `s holding was narrow and depended upon certain "unique features of in-person solicitation by lawyers" that were present in the circumstances of that case. ; see also Shapero v. Kentucky Bar was a challenge to the application of 's ban on attorney solicitation and held only that a State Bar "constitutionally may discipline a lawyer for soliciting clients in person, for pecuniary gain, under circumstances likely to pose dangers that the State has a right to prevent." 436 U. S., 49. While discusses the generic hazards of personal solicitation, see -466, the opinion made clear that a preventative rule was justified only in situations "inherently conducive to overreaching and other forms of misconduct." ; cf. In re R. M. 455 U. S., at The Court in explained why the case before it met this standard: "[T]he potential for overreaching is significantly greater when a lawyer, a professional trained in the art of persuasion, personally solicits an unsophisticated, injured, or distressed lay person. Such an individual may place his trust in a lawyer, regardless of the latter's qualifications or the individual's actual need for legal representation, *775 simply in response to persuasion under circumstances conducive to uninformed acquiescence. Although it is argued that personal solicitation is valuable because it may apprise a victim of misfortune of his legal rights, the very plight of that person not only makes him more vulnerable to influence but also may make advice all the more intrusive. Thus, under these adverse conditions the overtures of an uninvited lawyer may distress the solicited individual

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

overtures of an uninvited lawyer may distress the solicited individual simply because of their obtrusiveness and the invasion of the individual's privacy, even when no other harm materializes. Under such circumstances, it is not unreasonable for the State to presume that in-person solicitation by lawyers more often than not will be injurious to the person solicited." 436 U.S., 65-466 The solicitation here poses none of the same dangers. Unlike a lawyer, a CPA is not "a professional trained in the art of persuasion." A CPA's training emphasizes independence and objectivity, not advocacy. See 1 AICPA Professional Standards AU 220; 2 ET 55; H. Magill & G. Previts, CPA Professional Responsibilities: An Introduction 105-108 The typical client of a CPA is far less susceptible to manipulation than the young accident victim in Fane's prospective clients are sophisticated and experienced business executives who understand well the services that a CPA offers. See Affidavit of Scott Fane ¶¶ 5-7, 10(A), App. 10-11, 13. In general, the prospective client has an existing professional relation with an accountant and so has an independent basis for evaluating the claims of a new CPA seeking professional work. App. 10-11. The manner in which a CPA like Fane solicits business is conducive to rational and considered decisionmaking by the prospective client, in sharp contrast to the "uninformed acquiescence" to which the accident victims in were prone. 65. While the clients in were approached at a moment of high stress and *776 vulnerability, the clients Fane wishes to solicit meet him in their own offices at a time of their choosing. If they are unreceptive to his initial telephone solicitation, they need only terminate the call. Invasion of privacy is not a significant concern. If a prospective client does decide to meet with Fane, there is no expectation or pressure to retain Fane on the spot; instead, he or she most often exercises caution, checking references and deliberating before deciding to hire a new CPA. See Affidavit of Scott Fane ¶ 10(C), App. 13-14. Because a CPA has access to a business firm's most sensitive financial records and internal documents, retaining a new accountant is not a casual decision. The engagements Fane seeks are also long term in nature; to the extent he engages in unpleasant, high pressure sales tactics, he can impair rather than improve his chances of obtaining an engagement or establishing a satisfactory professional relation. The importance of repeat business and referrals gives the CPA a strong incentive to act in a responsible and decorous manner when soliciting business. In contrast with it cannot be said

Justice Kennedy

majority

Edenfield v. Fane

https://www.courtlistener.com/opinion/112850/edenfield-v-fane/

when soliciting business. In contrast with it cannot be said that under these circumstances, personal solicitation by CPA's "more often than not will be injurious to the person solicited." 436 U. S., 66. The Board's reliance on is misplaced for yet another reason: The Board misunderstands what meant when it approved the use of a prophylactic rule. The ban on attorney solicitation in was prophylactic in the sense that it prohibited conduct conducive to fraud or overreaching at the outset, rather than punishing the misconduct after it occurred. But in no way relieves the State of the obligation to demonstrate that it is regulating speech in order to address what is in fact a serious problem and that the preventative measure it proposes will contribute in a material way to solving that problem. See *777 Were we to read in the manner the Board proposes, the protection afforded commercial speech would be reduced almost to nothing; comprehensive bans on certain categories of commercial speech would be permitted as a matter of course. That would be inconsistent with the results reached in a number of our prior cases. See, e. g., ; ; Linmark Associates, It would also be inconsistent with this Court's general approach to the use of preventative rules in the First Amendment context. "Broad prophylactic rules in the area of free expression are suspect. Precision of regulation must be the touchstone in an area so closely touching our most precious freedoms." Even under the First Amendment's somewhat more forgiving standards for restrictions on commercial speech, a State may not curb protected expression without advancing a substantial governmental interest. Here, the ends sought by the State are not advanced by the speech restriction, and legitimate commercial speech is suppressed. For this reason, the Board's rule infringes upon Fane's right to speak, as guaranteed by the Constitution. The judgment of the Court of Appeals is Affirmed.

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

This case and Commissioner v "Americans United" Inc, post, p 752, involve the application of the Anti-Injunction *727 Act, 7421 (a) of the Internal Revenue Code of 1954 (the Code), 26 US C 7421 (a), to the ruling-letter program of the Internal Revenue Service (the Service) for organizations claiming tax-exempt status under Code 501 (c) (3), 26 US C 501 (c) (3) The question presented is whether, prior to the assessment and collection of any tax, a court may enjoin the Service from revoking a ruling letter declaring that petitioner qualifies for tax-exempt status and from withdrawing advance assurance to donors that contributions to petitioner will constitute charitable deductions under Code 170 (c) (2), 26 US C 170 (c) (2) We hold that it may not I Section 501 (a) of the Code exempts from federal income taxes organizations described in 501 (c) (3) The latter provision encompasses: "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office" Section 501 (c) (3) organizations are also exempt from federal social security (FICA) taxes by virtue of Code 3121 (b) (8) (B), 26 US C 3121 (b) (8) (B), and from federal unemployment (FUTA) taxes by virtue of 3306 (c) (8), 26 US C 3306 (c) (8) Donations *728 to 501 (c) (3) organizations are tax deductible under 170 (c) (2)[1] As a practical matter, an organization hoping to solicit tax-deductible contributions may not rely solely on technical compliance with the language of 501 (c) (3) and 170 (c) (2) The organization must also obtain a ruling letter from the Service, pursuant to Rev Procs 72-3 and 72-4, -1 Cum Bull 698, 706, declaring that it qualifies under 501 (c) (3) Receipt of such a ruling letter leads, in the ordinary case, to inclusion in *729 the Service's periodically updated Publication No 78, "Cumulative List of Organizations described in Section 170 (c) of the Internal Revenue Code of 1954" (the Cumulative List) In essence, the Cumulative List is the Service's official roster of tax-exempt organizations: "The listing of an organization in [the Cumulative List] signifies

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

"The listing of an organization in [the Cumulative List] signifies it has received a ruling or determination letter stating that contributions by donors to the organization are deductible as provided in section 170 of the Code" Rev Proc 72-39, -2 Cum Bull 818 An organization's inclusion in the Cumulative List assures potential donors in advance that contributions to the organization will qualify as charitable deductions under 170 (c) (2) The Service has announced that, with narrowly limited exceptions, a donor may rely on the Cumulative List for so long as the beneficiaries of his largesse maintain their listing, regardless of their actual tax status[2] For this reason, appearance on the Cumulative List is a prerequisite to successful fund raising *730 for most charitable organizations Many contributors simply will not make donations to an organization that does not appear on the Cumulative List[3] Because of the importance of inclusion in the Cumulative List, revocation of a 501 (c) (3) ruling letter and consequent removal from the Cumulative List is likely to result in serious damage to a charitable organization[4] Revocation not only threatens the flow of contributions, it also subjects the affected organization to FICA and FUTA taxes and, assuming that the organization has taxable income and does not qualify as tax exempt under another subsection of 501, to federal income taxes[5] Upon the assessment and attempted collection of income taxes, the organization may litigate the legality of the Service's action by petitioning the Tax Court to review a notice of deficiency See Code 6212 and 6213, 26 US C 6212 and 6213 Or, following the collection of any federal tax and the denial of a refund by the Service, the organization may bring a *731 refund suit in a federal district court or in the Court of Claims See Code 7422, 26 US C 7422; 28 US C 1346 (a) (1) and 1491 Finally, a donor to the organization may bring a refund suit to challenge the denial of a charitable deduction under 170 (c) (2) Presumably such a "friendly donor" would be able to attack the legality of the Service's revocation of an organization's 501 (c) (3) status But these post-revocation avenues of review take substantial time, during which the organization is certain to lose contributions from those donors whose gifts are contingent on entitlement to charitable deductions under 170 (c) (2) Accordingly, any organization threatened with revocation of a 501 (c) (3) ruling letter has a powerful incentive to bring a pre-enforcement suit to prevent the Service from taking action in the first instance The pressures operating on

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

taking action in the first instance The pressures operating on organizations facing revocation of 501 (c) (3) status to seek injunctive relief against the Service pending judicial review of the proposed action conflict directly with a congressional prohibition of such pre-enforcement tax suits In force continuously since its enactment in 1867, the Anti-Injunction Act, now Code 7421 (a), provides in pertinent part that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court "[6] Because an injunction *732 preventing the Service from withdrawing a 501 (c) (3) ruling letter would necessarily preclude the collection of FICA, FUTA, and possibly income taxes from the affected organization, as well as the denial of 170 (c) (2) charitable deductions to donors to the organization, a suit seeking such relief falls squarely within the literal scope of the Act[7] *733 The clash between the language of the Anti-Injunction Act and the desire of 501 (c) (3) organizations to block the Service from withdrawing a ruling letter has been resolved against the organizations in most cases E g, *734 Crenshaw County Private School pet for cert pending in No 73-170; National Council on the Facts of ; Israelite House of [8] But see Cf (DC), aff'd per curiam sub nom In the present case, the Court of Appeals for the Fourth Circuit followed the majority view Bob Jones In light of the contrary result reached by the Court of Appeals for the District of Columbia Circuit in "Americans United" rev'd sub nom Commissioner v "Americans United" Inc, post, p 752, we granted Bob Jones University's petition for certiorari II Petitioner refers to itself as "the world's most unusual university" Founded in 1927 and now located in Greenville, South Carolina, the University is devoted to the teaching and propagation of its fundamentalist religious beliefs All classes commence and close with prayer, *735 and courses in religion are compulsory Students and faculty are screened for adherence to certain religious precepts and may be expelled or dismissed for lack of allegiance to them One of these beliefs is that God intended segregation of the races and that the Scriptures forbid interracial marriage Accordingly, petitioner refuses to admit Negroes as students On pain of expulsion students are prohibited from interracial dating, and petitioner believes that it would be impossible to enforce this prohibition absent the exclusion of Negroes In 1942, the Service issued petitioner a ruling letter under 101 (6) of the Internal Revenue Code of 1939, the predecessor of 501 (c) (3) In 1970, however, the Service announced

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

of 501 (c) (3) In 1970, however, the Service announced that it would no longer allow 501 (c) (3) status for private schools maintaining racially discriminatory admissions policies and that it would no longer treat contributions to such schools as tax deductible See Rev Rul 71-447, -2 Cum Bull 230 The Service requested proof of a nondiscriminatory admissions policy from all such schools and warned that tax-exempt ruling letters would be reviewed in light of the information provided At the end of 1970, petitioner advised the Service that it did not admit Negroes, and in September further stated that it had no intention of altering this policy The Commissioner of Internal Revenue therefore instructed the District Director to commence administrative procedures leading to the revocation of petitioner's 501 (c) (3) ruling letter Petitioner brought these administrative proceedings to a halt by filing suit in the United District Court for the District of South Carolina for preliminary and permanent injunctive relief preventing the Service from revoking or threatening to revoke petitioner's tax-exempt status Petitioner alleged irreparable injury in the form of substantial federal income tax liability and the loss of *736 contributions Petitioner asserted that the Service's threatened action was outside its lawful authority and would violate petitioner's rights to the free exercise of religion, to free association, and to due process and equal protection of the laws The District Court rejected a motion to dismiss for lack of jurisdiction, and it preliminarily enjoined the Service from revoking or threatening to revoke petitioner's tax-exempt status and from withdrawing advance assurance of the deductibility of contributions made to petitioner Bob Jones The Court of Appeals for the Fourth Circuit reversed, with one judge dissenting reh den, That court held that petitioner's suit was barred by the Anti-Injunction Act as interpreted by this Court in III The Anti-Injunction Act apparently has no recorded legislative history,[9] but its language could scarcely be more explicit—"no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court " The Court has interpreted the principal purpose of this language to be the protection of the Government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference, "and to require that the legal right to the disputed sums be determined in a suit for refund" Enochs v Williams & Navigation *737 Co, See also, e g, State Railroad Tax 92 US 575, Cf Cheatham v United 92 US 85, The Court has also identified "a collateral objective of the Act—protection of the collector

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

identified "a collateral objective of the Act—protection of the collector from litigation pending a suit for refund" Williams -8 In furtherance of these goals, the Court in its most recent reading gave the Act almost literal effect In Williams an employer sought to enjoin the collection of FICA and FUTA taxes that the employer alleged were not owed and would destroy its business The Court held unanimously that the suit was barred by the Act Only upon proof of the presence of two factors could the literal terms of 7421 (a) be avoided: first, irreparable injury, the essential prerequisite for injunctive relief in any case; and second, certainty of success on the merits Id, An injunction could issue only "if it is clear that under no circumstances could the Government ultimately prevail " Id, And this determination would be made on the basis of the information available to the Government at the time of the suit "Only if it is then apparent that, under the most liberal view of the law and the facts, the United cannot establish its claim, may the suit for an injunction be maintained" Ibid Perhaps in recognition of the stringent nature of the Williams standard and its implications for this case, petitioner makes little effort to argue that it can meet that test Rather, it asserts that the Anti-Injunction Act, properly construed, is not applicable, that Williams is not the controlling reading of the Act, and that rejection of both these contentions would work a denial of due process of law We find these arguments unpersuasive *738 A First, petitioner contends that the Act is inapplicable because this is not a suit "for the purpose of restraining the assessment or collection of any tax " Under petitioner's theory, its suit is intended solely to compel the Service to refrain from withdrawing petitioner's 501 (c) (3) ruling letter and from depriving petitioner's donors of advance assurance of deductibility Petitioner describes its goal as the maintenance of the flow of contributions, not the obstruction of revenue Petitioner's complaint and supporting documents filed in the District Court belie any notion that this is not a suit to enjoin the assessment or collection of federal taxes from petitioner In support of its claim of irreparable injury, petitioner alleged in part that it would be subject to "substantial" federal income tax liability if the Service were allowed to carry out its threatened action App 6 Petitioner buttressed this contention with sworn affidavits alleging federal income tax liability of three-quarters of a million dollars for one year and in excess of

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

a million dollars for one year and in excess of half a million dollars for another and stressing the detrimental effect such tax liability would have on petitioner's capacity to operate its institution, to support its personnel, and to continue with its expansion plans Id, These allegations leave little doubt that a primary purpose of this lawsuit is to prevent the Service from assessing and collecting income taxes from petitioner We recognize that petitioner's assertions that it will owe federal income taxes should its 501 (c) (3) status be revoked are open to debate, because they are based in part on a failure to take into account possible deductions for depreciation of plant and equipment Even if it could be shown, however, that petitioner would owe no federal income taxes if its 501 (c) (3) status were *739 revoked, this would still be a suit to restrain the assessment or collection of taxes because petitioner would also be liable for FICA and FUTA taxes Section 7421 (a) speaks of "any tax"; it does not differentiate between federal income taxes or FICA or FUTA taxes See, e g, Williams supra Moreover, petitioner seeks to restrain the collection of taxes from its donors—to force the Service to continue to provide advance assurance to those donors that contributions to petitioner will be recognized as tax deductible, thereby reducing their tax liability Although in this regard petitioner seeks to lower the taxes of those other than itself, the Act is nonetheless controlling[10] Thus in any of its implications, this case falls within the literal scope and the purposes of the Act Petitioner further contends that the Service's actions do not represent an effort to protect the revenues but an attempt to regulate the admissions policies of private universities Under this line of argument, the Anti-Injunction *740 Act is said to be inapplicable because the case does not truly involve taxes We disagree The Service bases its present position with regard to the tax status of segregative private schools on its interpretation of the Code[11] There is no evidence that that position does not represent a good-faith effort to enforce the technical requirements of the tax laws, and, without indicating a view as to whether the Service's interpretation is correct, we cannot say that its position has no legal basis or is unrelated to the protection of the revenues The Act is therefore applicable Petitioner's attribution of non-tax-related motives to the Service ignores the fact that petitioner has not shown that the Service's action is without an independent basis in the requirements of the Code

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

without an independent basis in the requirements of the Code Moreover, petitioner's argument fails to give appropriate weight to Bailey v 259 US 16 In that case, the Court held that the Act blocked a pre-enforcement suit to enjoin collection of the federal Child Labor Tax, although the tax was challenged as a regulatory measure beyond the taxing power of Congress Significantly, the Court announced Bailey v on the same day that it issued Bailey v Drexel Furniture Co, 259 US 20 a tax-refund case in which the Court struck down the Child Labor Tax Law as unconstitutional on the grounds that the taxpayer attempted to raise prematurely in Bailey v [12] Petitioner also argues that 7421 (a) is not controlling because when the Act was passed in 1867 Congress could not possibly have foreseen something as sophisticated as the comparatively recent ruling-letter program[13] and the special importance of that program for 501 (c) (3) organizations This argument proves too much, however, since the same Congress also could not have foreseen, for example, FICA or FUTA taxes, to which the prohibitory command of 7421 (a) indisputably applies See, e g, Williams supra Moreover, through the years Congress has repeatedly re-enacted the Anti-Injunction Act[14] at times when it was obviously aware of *742 the continuously increasing complexity of the federal tax system[15] B Petitioner next argues that does not constitute an all-encompassing reading of the Act Petitioner contends, on the basis of prior precedents, that 7421 (a) is subject to judicially created exceptions other than the "under no circumstances" test announced in Williams But the Court's unanimous opinion in Williams indicates that the case was meant to be the capstone to judicial construction of the Act It spells an end to a cyclical pattern of allegiance to the plain meaning of the Act, followed by periods of uncertainty caused by a judicial departure from that meaning, and followed in turn by the Court's rediscovery of the Act's purpose During the first half century of the Act's existence, the Court gave it literal force, without regard to the character of the tax, the nature of the pre-enforcement challenge to it, or the status of the plaintiff See State Railroad Tax 92 U S, at ; Snyder v Marks, 109 US 189 ; Pacific Steam Whaling Co v United 187 US 447 ; Dodge v 240 US 118 ; Bailey v 259 US 16 [16] Occasionally, however, the Court noted in *743 dictum that unspecified extraordinary and exceptional circumstances might justify an injunction despite the Act E g, Dodge v ; Bailey v

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

despite the Act E g, Dodge v ; Bailey v In 1922, the Court seized upon these dicta and permitted pre-enforcement injunctive suits against tax statutes that were viewed as penalties or as adjuncts to the criminal law Hill v Wallace, 259 US 44 ; Lipke v Lederer, 259 US 557 ; Regal Drug Corp v Wardell, 260 US 386 Shortly thereafter, however, the Court made clear that Hill, Lipke, and Regal Drug were of narrow scope and had no application to pre-enforcement challenges to truly revenue-raising tax statutes Graham v Du 262 US 234 [17] Thus, the Court's first departure from a literal reading of the Act produced a prompt correction in course *744 In the 1930's the Court decided Miller v Standard Nut Margarine Co, 284 US 498 and Allen v Regents of the University System of Georgia, 304 US 439 the cases relied on most heavily by petitioner Standard Nut set forth a new definition of the extraordinary and exceptional circumstances test, which was followed in Regents In Standard Nut the Court stated that the Act is merely "declaratory of the principle" of cases prior to its passage that equity usually, but not always, disavows interference with tax collection; thus, the Act was to be construed "as near as may be in harmony with [equity doctrine] and the reasons upon which it rests" 284 US, at 509 Through this interpretation, the concept of extraordinary and exceptional circumstances was reduced to the traditional equitable requirements for issuance of an injunction Standard Nut was such a significant deviation from precedent that it was referred to by a commentator at the time as "a tribute to the tenacity of the American taxpayer" and "little short of phenomenal"[18] Read literally, the Court's opinion effectively repealed the Act, since the Act was viewed as requiring nothing more than equity doctrine had demanded before the Act's passage The incongruity of this position has not escaped notice[19] It undoubtedly led directly to the Court's re-examination *745 of the requirements of the Act in Williams the second time the Court has undertaken to rehabilitate the Act following debilitating departures from its explicit language See Graham v Du supra Williams switched the focus of the extraordinary and exceptional circumstances test from a showing of the degree of harm to the plaintiff absent an injunction to the requirement that it be established that the Service's action is plainly without a legal basis The Court in essence read Standard Nut not as an instance of irreparable injury but as a case where the Service had no chance of

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

as a case where the Service had no chance of success on the merits 370 US, And the Court explicitly held that the Act may not be evaded "merely because collection would cause an irreparable injury, such as the ruination of the taxpayer's enterprise" Id, Yet petitioner's argument that we should find Williams inapplicable turns, in the last analysis, on its claim that to do otherwise would subject it to great harm The Court rejected that consideration in Williams itself, and we reject it as a reason for finding that case not controlling Under the language of the Act, the degree of harm is not a factor, and as a matter of judicial construction, it does not provide a meaningful stopping point between Standard Nut and Williams Acceptance of petitioner's irreparable injury argument would simply *746 revive the evisceration of the Act inherent in Standard Nut C Assuming, arguendo, the applicability of 7421 (a) and Williams petitioner contends that forcing it to meet the standards of those authorities will deny it due process of law in light of the irreparable injury it will suffer pending resort to alternative procedures for review and of the alleged inadequacies of those remedies at law The Court dismissed out of hand similar contentions nearly 60 years ago,[20] and we find such arguments no more compelling now than then This is not a case in which an aggrieved party has no access at all to judicial review Were that true, our conclusion might well be different If, as alleged in its complaint, petitioner will have taxable income upon the withdrawal of its 501 (c) (3) status, it may in accordance with prescribed procedures petition the Tax Court to review the assessment of income taxes Alternatively, petitioner may pay income taxes, or, in their absence, an installment of FICA or FUTA taxes, exhaust the Service's internal refund procedures, and then bring suit for a refund These review procedures offer petitioner a full, albeit delayed, opportunity to litigate the legality of the Service's revocation of tax-exempt status and withdrawal of advance assurance of deductibility See, e g, Christian Echoes National Ministry, Inc v United *747 470 F2d 849 cert denied, 414 US 864 ; Center on Corporate Responsibility, Inc v Shultz, 368 F Supp 863 [21] We do not say that these avenues of review are the best that can be devised They present serious problems of delay, during which the flow of donations to an organization will be impaired and in some cases perhaps even terminated But, as the Service notes, some delay may be an

Justice Powell

majority

Bob Jones Univ. v. Simon

https://www.courtlistener.com/opinion/109028/bob-jones-univ-v-simon/

But, as the Service notes, some delay may be an inevitable consequence of the fact that disputes between the Service and a party challenging the Service's actions are not susceptible of instant resolution through litigation And although the congressional restriction to postenforcement review may place an organization claiming tax-exempt status in a precarious financial position, the problems presented do not rise to the level of constitutional infirmities, in light of the powerful governmental interests in protecting the administration of the tax system from premature judicial interference, e g, Cheatham v United 92 U S, at ; State *748 Railroad Tax 92 U S, at and of the opportunities for review that are available[22] IV Since we hold that Williams governs this case, the remaining issue is whether petitioner has met the standards of that case Without deciding the *749 merits, we think that petitioner's First Amendment, due process, and equal protection contentions are sufficiently debatable to foreclose any notion that "under no circumstances could the Government ultimately prevail " 370 US, See, e g, (DC), aff'd per curiam sub nom Accordingly, the Court of Appeals did not err in holding that 7421 (a) deprived the District Court of jurisdiction to issue the injunctive relief petitioner sought In holding that 7421 (a) blocks the present suit, we are not unaware that Congress has imposed an especially harsh regime on 501 (c) (3) organizations threatened with loss of tax-exempt status and with withdrawal of advance assurance of deductibility of contributions A former Commissioner of the Internal Revenue Service has sharply criticized the system applicable to such organizations[23] The degree of bureaucratic control *750 that, practically speaking, has been placed in the Service over those in petitioner's position is susceptible of abuse, regardless of how conscientiously the Service may attempt to carry out its responsibilities Specific treatment of not-for-profit organizations to allow them to seek pre-enforcement review may well merit consideration But this matter is for Congress, which is the appropriate body to weigh the relevant, policy-laden considerations, such as the harshness of the present law, the consequences of an unjustified revocation of 501 (c) (3) status, the number of organizations in any year threatened with such revocation, the comparability of those organizations to others which rely on the Service's ruling-letter program, and the litigation burden on the Service and the effect on the assessment and collection of federal taxes if the law were to be changed The judgment is affirmed It is so ordered MR JUSTICE DOUGLAS took no part in the decision of this case MR JUSTICE BLACKMUN, concurring in the

Justice O'Connor

concurring

Ramdass v. Angelone

https://www.courtlistener.com/opinion/118374/ramdass-v-angelone/

In a majority of the Court held that "[w]here the State puts the defendant's future dangerousness in issue, and the only available alternative sentence to death is life imprisonment without possibility of parole, due process entitles the defendant *179 to inform the capital sentencing jury that he is parole ineligible." ; see also Due process requires that "a defendant not be sentenced to death `on the basis of information which he had no opportunity to deny or explain.' " ). Accordingly, where the State seeks to demonstrate that the defendant poses a future danger to society, he "should be allowed to bring his parole ineligibility to the jury's attention" as a means of rebutting the State's I have no doubt that Simmons was rightly decided. In this case, because petitioner seeks a writ of habeas corpus rather than the vacatur of his sentence on direct appeal, the scope of our review is governed by 28 U.S. C. 2254(d)(1) ( ed., Supp. III). Accordingly, we may grant relief only if the Virginia Supreme Court's decision "was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States," ; see also which in this case is our holding in Simmons. The Virginia Supreme Court concluded that Simmons was inapplicable because petitioner "was not ineligible for parole when the jury was considering his sentence." The court noted that, under Virginia law, any person who has been convicted of three separate felony offenses of murder, rape, or robbery "by the presenting of firearms or other deadly weapon" "shall not be eligible for parole." Va. Code Ann. 53.1-151(B1) (1993). It explained that Ramdass was not parole ineligible at the time of his capital sentencing proceeding because the Kayani murder conviction would not constitute his third conviction for purposes of 53.1-151(B1). Critically, the court held that, although Ramdass had been *180 found guilty of the armed robbery of a Domino's Pizza restaurant, that verdict did not count as a prior conviction under 53.1-151(B1) because judgment had not yet been entered on that verdict at the time of Ramdass' capital sentencing 450 S. E. 2d, at For the reasons explained in the plurality opinion, the Virginia Supreme Court's decision was neither contrary to, nor an unreasonable application of, our holding in Simmons. Whether a defendant is entitled to inform the jury that he is parole ineligible is ultimately a question of federal law, but we look to state law to determine a defendant's parole status. In Simmons, the defendant had "conclusively establish[ed]" that he was parole

Justice O'Connor

concurring

Ramdass v. Angelone

https://www.courtlistener.com/opinion/118374/ramdass-v-angelone/

Simmons, the defendant had "conclusively establish[ed]" that he was parole ineligible at the time of sentencing, and the "prosecution did not challenge or question [his] parole ineligibility." Ramdass, however, was not ineligible for parole when the jury considered his sentence as the relevant court had not yet entered the judgment of conviction for the Domino's Pizza robbery. Were the entry of judgment a purely ministerial act under Virginia law, in the sense that it was foreordained, I would agree with petitioner that "the only available alternative sentence to death [was] life imprisonment without possibility of parole." Such circumstances would be "materially indistinguishable" from the facts of Simmons. See It therefore would have been "contrary to" Simmons for the Virginia Supreme Court to hold that petitioner was not entitled to inform the jury that he would be parole ineligible. See Where all that stands between a defendant and parole ineligibility under state law is a purely ministerial act, Simmons entitles the defendant to inform the jury of that ineligibility, either by argument or instruction, even if he is not technically "parole ineligible" at the moment of sentencing. Such was not the case here, however. As the plurality opinion explains, the entry of judgment following a criminal *181 conviction in Virginia state court is not a purely ministerial act, i. e., one that is inevitable and foreordained under state law. The Commonwealth allows criminal defendants to file post-trial motions following a guilty verdict, and trial courts may set aside jury verdicts in response to such motions. See ante, at 173-175. Thus, as a matter of Virginia law, a guilty verdict does not inevitably lead to the entry of a judgment order. Consequently, the jury verdict finding petitioner guilty of the Domino's Pizza robbery did not mean that petitioner would necessarily be parole ineligible under state law. Indeed, petitioner himself concedes that there was a "possibility that the Domino's Pizza trial judge could set aside the verdict under Virginia Supreme Court Rule 3A:15(b)." Brief for Petitioner 37. Petitioner nevertheless contends that the possibility that the trial court would set aside the guilty verdict for the Domino's Pizza robbery was quite remote, and therefore that the entry of judgment was extremely likely. But, as the plurality opinion explains, Simmons does not require courts to estimate the likelihood of future contingencies concerning the defendant's parole ineligibility. Rather, Simmons entitles the defendant to inform the capital sentencing jury that he is parole ineligible where the only alternative sentence to death is life without the possibility of parole. And unlike the defendant in Simmons, Ramdass was eligible

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

Pursuant long-term leases with the Jicarilla Apache Tribe, petitioners, 21 lessees, extract and produce oil and gas from the Tribe's reservation lands. In these two consolidated cases, petitioners challenge an ordinance enacted by the Tribe imposing a severance tax on "any oil and natural gas severed, saved and removed from Tribal lands." See Oil and Gas Severance Tax No. 77-0-02, App. 38. We granted certiorari determine whether the Tribe has the authority impose this tax, and, if so, whether the tax imposed by the Tribe violates the Commerce Clause. I The Jicarilla Apache Tribe resides on a reservation in northwestern New Mexico. Established by Executive Order in 1887,[1] the reservation contains 742,3 acres, all of which are held as tribal trust property. The 1887 Executive *134 Order set aside public lands in the Terriry of New Mexico for the use and occupation of the Jicarilla Apache Indians, and contained no special restrictions except for a provision protecting pre-existing rights of bona fide settlers.[2] Approximately 2,100 individuals live on the reservation, with the majority residing in the wn of Dulce, N. M., near the Colorado border. The Tribe is organized under the Indian Reorganization Act of 1934, ch. 576, 25 U.S. C. ง 461 et seq., which authorizes any tribe residing on a reservation adopt a constitution and bylaws, subject the approval of the Secretary of the Interior (Secretary).[3] The Tribe's first Constitution, approved by the Secretary on August 4, 1937, preserved all powers conferred by ง 16 of the Indian Reorganization Act of 1934, ch. 576, 25 U.S. C. ง 476. In 1968, the Tribe revised its Constitution specify: "The inherent powers of the Jicarilla Apache Tribe, including those conferred by Section 16 of the Act of June 18, 1934 (), as amended, shall vest in the tribal council and shall be exercised thereby subject only limitations imposed by the Constitution of the United States, applicable Federal statutes and regulations of *135 the Department of the Interior, and the restrictions established by this revised constitution." Revised Constitution of the Jicarilla Apache Tribe, Art. XI, ง 1. The Revised Constitution provides that "[t]he tribal council may enact ordinances govern the development of tribal lands and other resources," Art. XI, ง 1(a)(3). It further provides that "[t]he tribal council may levy and collect taxes and fees on tribal members, and may enact ordinances, subject approval by the Secretary of the Interior, impose taxes and fees on non-members of the tribe doing business on the reservation," Art. XI, ง 1(e). The Revised Constitution was approved by the Secretary on February 13, 1969. To

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

was approved by the Secretary on February 13, 1969. To develop tribal lands, the Tribe has executed mineral leases encompassing some 69% of the reservation land. Beginning in 1953, the petitioners entered in leases with the Tribe. The Commissioner of Indian Affairs, on behalf of the Secretary, approved these leases, as required by the Act of May 11, 1938, ch. 198, 25 U.S. C. งง 396a-396g (1938 Act). In exchange for a cash bonus, royalties, and rents, the typical lease grants the lessee "the exclusive right and privilege drill for, mine, extract, remove, and dispose of all the oil and natural gas deposits in or under" the leased land for as long as the minerals are produced in paying quantities. App. 22. Petitioners may use oil and gas in developing the lease without incurring the royalty. In addition, the Tribe reserves the rights use gas without charge for any of its buildings on the leased land, and take its royalties in kind. Petitioners' activities on the leased land have been subject taxes imposed by the State of New Mexico on oil and gas severance and on oil and gas production equipment. See Act of Mar. 3, 1927, ch. 299, ง 3, 25 U.S. C. ง 398c (permitting state taxation of mineral production on Indian reservations) (1927 Act). Pursuant its Revised Constitution, the Tribal Council adopted an ordinance imposing a severance tax on oil and gas *136 production on tribal land. See App. 38. The ordinance was approved by the Secretary, through the Acting Direcr of the Bureau of Indian Affairs, on December 23, The tax applies "any oil and natural gas severed, saved and removed from Tribal lands" The tax is assessed at the wellhead at $0.05 per million Btu's of gas produced and $0.29 per barrel of crude oil or condensate produced on the reservation, and it is due at the time of severance. Oil and gas consumed by the lessees develop their leases or received by the Tribe as in-kind royalty payments are exempted from the tax. ; Brief for Respondent Jicarilla Apache Tribe 59, n. 42. In two separate actions, petitioners sought enjoin enforcement of the tax by either the tribal authorities or the Secretary. The United States District Court for the District of New Mexico consolidated the cases, granted other lessees leave intervene, and permanently enjoined enforcement of the tax. The District Court ruled that the Tribe lacked the authority impose the tax, that only state and local authorities had the power tax oil and gas production on Indian reservations, and that the tax violated the

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

production on Indian reservations, and that the tax violated the Commerce Clause. The United States Court of Appeals for the Tenth Circuit, sitting en banc, reversed.[4] The Court of Appeals reasoned that the taxing power is an inherent attribute of tribal sovereignty that has not been divested by any treaty or Act of Congress, including the 1927 Act, 25 U.S. C. ง 398c. The court also found no Commerce Clause violation. We granted certiorari, and we now affirm the decision of the Court of Appeals. II Petitioners argue, and the dissent agrees, that an Indian tribe's authority tax non-Indians who do business on the *137 reservation stems exclusively from its power exclude such persons from tribal lands. Because the Tribe did not initially condition the leases upon the payment of a severance tax, petitioners assert that the Tribe is without authority impose such a tax at a later time. We disagree with the premise that the power tax derives only from the power exclude. Even if that premise is accepted, however, we disagree with the conclusion that the Tribe lacks the power impose the severance tax. A In we addressed the Indian tribes' authority impose taxes on non-Indians doing business on the reservation. We held that "[t]he power tax transactions occurring on trust lands and significantly involving a tribe or its members is a fundamental attribute of sovereignty which the tribes retain unless divested of it by federal law or necessary implication of their dependent status." The power tax is an essential attribute of Indian sovereignty because it is a necessary instrument of self-government and terririal management. This power enables a tribal government raise revenues for its essential services. The power does not derive solely from the Indian tribe's power exclude non-Indians from tribal lands. Instead, it derives from the tribe's general authority, as sovereign, control economic activity within its jurisdiction, and defray the cost of providing governmental services by requiring contributions from persons or enterprises engaged in economic activities within that jurisdiction. See, e. g., The petitioners avail themselves of the "substantial privilege of carrying on business" on the reservation. Mobil Oil ; They benefit from the provision of police protection and other governmental services, as well as from " `the advantages *138 of a civilized society' " that are assured by the existence of tribal government. Exxon Numerous other governmental entities levy a general revenue tax similar that imposed by the Jicarilla Tribe when they provide comparable services. Under these circumstances, there is nothing exceptional in requiring petitioners contribute through taxes the general cost of tribal government.[5] Cf.

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

contribute through taxes the general cost of tribal government.[5] Cf. Commonwealth Edison ; ; Mobil Oil at 436-. As we observed in the tribe's interest in levying taxes on nonmembers raise "revenues for essential governmental programs is strongest when the revenues are derived from value generated on the reservation by activities involving the Tribes and when the taxpayer is the recipient of tribal services." -7. This surely is the case here. The mere fact that the government imposing the tax also enjoys rents and royalties as the lessor of the mineral lands does not undermine the government's authority impose the tax. See infra, at 145-148. The royalty payments from the mineral leases are paid the Tribe in its role as partner in petitioners' commercial venture. The severance tax, in contrast, is petitioners' contribution " the general cost of providing governmental services." Commonwealth Edison State governments commonly receive both royalty payments and severance taxes from lessees of mineral lands within their borders. *139 Viewing the taxing power of Indian tribes as an essential instrument of self-government and terririal management has been a shared assumption of all three branches of the Federal Government. Cf. In the Court relied in part on a 1934 opinion of the Solicir for the Department of the Interior. In this opinion, the Solicir recognized that, in the absence of congressional action the contrary, the tribes' sovereign power tax " `may be exercised over members of the tribe and over nonmembers, so far as such nonmembers may accept privileges of trade, residence, etc., which taxes may be attached as conditions.' " 447 U.S., further noted that official executive pronouncements have repeatedly recognized that "Indian tribes possess a broad measure of civil jurisdiction over the activities of non-Indians on Indian reservation lands in which the tribes have a significant interest including jurisdiction tax." 447 U.S., -3 ; 17 Op. Atty. Gen. 134 (1881); 7 Op. Atty. Gen. 174 (1855)).[6] Similarly, Congress has acknowledged that the tribal power tax is one of the ols necessary self-government and terririal control. As early as 1879, the Senate Judiciary *140 Committee acknowledged the validity of a tax imposed by the Chickasaw Nation on non-Indians legitimately within its terriry: "We have considered [Indian tribes] as invested with the right of self-government and jurisdiction over the persons and property within the limits of the terriry they occupy, except so far as that jurisdiction has been restrained and abridged by treaty or act of Congress. Subject the supervisory control of the Federal Government, they may enact the requisite legislation maintain peace and good order, improve their

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

the requisite legislation maintain peace and good order, improve their condition, establish school systems, and aid their people in their efforts acquire the arts of civilized life; and they undoubtedly possess the inherent right resort taxation raise the necessary revenue for the accomplishment of these vitally important objects โ€” a right not in any sense derived from the Government of the United States." S. Rep. No. 698, 45th Cong., 3d Sess., 1-2 (1879) Thus, the views of the three federal branches of government, as well as general principles of taxation, confirm that Indian tribes enjoy authority finance their governmental services through taxation of non-Indians who benefit from those services. Indeed, the conception of Indian sovereignty that this Court has consistently reaffirmed permits no other conclusion. As we observed in United "Indian tribes within `Indian country' are a good deal more than `private, voluntary organizations.' " They "are unique aggregations possessing attributes of sovereignty over both their members and their terriry." See, e. g., ; Iron ; ; Cohen, `The Spanish Origin of Indian Rights in the Law of the United States,' in The Legal Conscience 230, 234 (L. Cohen ed. *141 19). Adhering this understanding, we conclude that the Tribe's authority tax non-Indians who conduct business on the reservation does not simply derive from the Tribe's power exclude such persons, but is an inherent power necessary tribal self-government and terririal management. Of course, the Tribe's authority tax nonmembers is subject constraints not imposed on other governmental entities: the Federal Government can take away this power, and the Tribe must obtain the approval of the Secretary before any tax on nonmembers can take effect. These additional constraints minimize potential concern that Indian tribes will exercise the power tax in an unfair or unprincipled manner, and ensure that any exercise of the tribal power tax will be consistent with national policies. We are not persuaded by the dissent's attempt limit an Indian tribe's authority tax non-Indians by asserting that its only source is the tribe's power exclude such persons from tribal lands. Limiting the tribes' authority tax in this manner contradicts the conception that Indian tribes are domestic, dependent nations, as well as the common understanding that the sovereign taxing power is a ol for raising revenue necessary cover the costs of government. Nor are we persuaded by the dissent that three early decisions upholding tribal power tax nonmembers support this limitation. Post, at 175-183, discussing ; appeal dism'd, ; (Ct. App. Ind. T.), aff'd, In discussing these cases, the dissent correctly notes that a hallmark of Indian sovereignty is the power

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

notes that a hallmark of Indian sovereignty is the power exclude non-Indians from Indian lands, and that this power provides a basis for tribal authority tax. None of these cases, however, establishes that the authority tax derives solely from the power exclude. Instead, these cases demonstrate that a tribe has the power tax nonmembers only the extent the nonmember enjoys the *142 privilege of trade or other activity on the reservation which the tribe can attach a tax. This limitation on tribal taxing authority exists not because the tribe has the power exclude nonmembers, but because the limited authority that a tribe may exercise over nonmembers does not arise until the nonmember enters the tribal jurisdiction. We do not question that there is a significant terririal component tribal power: a tribe has no authority over a nonmember until the nonmember enters tribal lands or conducts business with the tribe. However, we do not believe that this terririal component Indian taxing power, which is discussed in these early cases, means that the tribal authority tax derives solely from the tribe's power exclude nonmembers from tribal lands. for example, suggests that the taxing power is a legitimate instrument for raising revenue, and that a tribe may exercise this power over non-Indians who receive privileges from the tribe, such as the right trade on Indian land. In Morris, the Court approved a tax on cattle grazing and relied in part on a Report the Senate by the Committee on the Judiciary, which found no legal defect in previous tribal tax legislation having "a twofold object โ€” prevent the intrusion of unauthorized persons in the terriry of the Chickasaw Nation, and raise revenue." In the question of Indian sovereignty was not even raised: the decision turned on the construction of a treaty denying the Tribe any governing or jurisdictional authority over 3 Ind. T., 7, 54 S.W., at[7] *143 Finally, the decision in actually undermines the theory that the tribes' taxing authority derives solely from the power exclude non-Indians from tribal lands. Under this theory, a non-Indian who establishes lawful presence in Indian terriry could avoid paying a tribal tax by claiming that no residual portion of the power exclude supports the tax. This result was explicitly rejected in In Buster, deeds individual lots in Indian terriry had been granted non-Indian residents, and cities and wns had been incorporated. As a result, Congress had expressly prohibited the Tribe from removing these non-Indian residents. Even though the ownership of land and the creation of local governments by non-Indians established their legitimate presence on Indian land,

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

governments by non-Indians established their legitimate presence on Indian land, the court held that the Tribe retained its power tax. The court concluded that "[n]either the United States, nor a state, nor any other sovereignty loses the power govern the people within its borders by the existence of wns and cities therein endowed with the usual powers of municipalities, nor by the ownership nor occupancy of the land within its terririal jurisdiction by citizens or foreigners."[8] This result confirms that the Tribe's authority tax derives not from its power exclude, but from its power govern and raise revenues pay for the costs of government. We choose not embrace a new restriction on the extent of the tribal authority tax, which is based on a questionable interpretation of three early cases. Instead, based on the views of each of the federal branches, general principles of taxation, and the conception of Indian tribes as domestic, dependent nations, we conclude that the Tribe has the authority impose a severance tax on the mining activities of petitioners as part of its power govern and pay for the costs of self-government. B Alternatively, if we accept the argument, advanced by petitioners and the dissent, that the Tribe's authority tax derives solely from its power exclude non-Indians from the reservation, we conclude that the Tribe has the authority impose the severance tax challenged here. Nonmembers who lawfully enter tribal lands remain subject the tribe's power exclude them. This power necessarily includes the lesser power place conditions on entry, on continued presence, or on reservation conduct, such as a tax on business activities conducted on the reservation. When a tribe grants a non-Indian the right be on Indian land, the tribe agrees not exercise its ultimate power oust the non-Indian as long as the non-Indian complies with the initial conditions of entry. However, it does not follow that the lawful property right be on Indian land also immunizes the non-Indian from the tribe's exercise of its lesser-included power tax or *145 place other conditions on the non-Indian's conduct or continued presence on the reservation.[9] A nonmember who enters the jurisdiction of the tribe remains subject the risk that the tribe will later exercise its sovereign power. The fact that the tribe chooses not exercise its power tax when it initially grants a non-Indian entry on the reservation does not permanently divest the tribe of its authority impose such a tax.[10] Petitioners argue that their leaseholds entitle them enter the reservation and exempt them from further exercises of the Tribe's sovereign authority. Similarly, the dissent asserts that the

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

the Tribe's sovereign authority. Similarly, the dissent asserts that the Tribe has lost the power tax petitioners' mining activities because it has leased them the use of the mineral lands and such rights of access the reservation as might be necessary enjoy the leases. Post, at 186-190.[11] However, this conclusion is not compelled by linking the taxing power the power exclude. Instead, it is based on additional assumptions and confusions about the consequences of the commercial arrangement between petitioners and the Tribe. Most important, petitioners and the dissent confuse the Tribe's role as commercial partner with its role as sovereign.[12]*146 This confusion relegates the powers of sovereignty the bargaining process undertaken in each of the sovereign's commercial agreements. It is one thing find that the Tribe has agreed sell the right use the land and take from it valuable minerals; it is quite another find that the Tribe has abandoned its sovereign powers simply because it has not expressly reserved them through a contract. Confusing these two results denigrates Indian sovereignty. Indeed, the dissent apparently views the tribal power exclude, as well as the derivative authority tax, as merely the power possessed by any individual landowner or any social group attach conditions, including a "tax" or fee, the entry by a stranger on private land or in the social group, and not as a sovereign power. The dissent does pay lipservice the established views that Indian tribes retain those fundamental attributes of sovereignty, including the power tax transactions that occur on tribal lands, which have not been divested by Congress or by necessary implication of the tribe's dependent status, see 447 U. S., and that tribes "are a good deal more than `private, voluntary organizations.' " United 419 U. S., at However, in arguing that the Tribe somehow "lost" its power tax petitioners by not including *147 a taxing provision in the original leases or otherwise notifying petitioners that the Tribe retained and might later exercise its sovereign right tax them, the dissent attaches little significance the sovereign nature of the tribal authority tax, and it obviously views tribal authority as little more than a landowner's contractual right. This overly restrictive view of tribal sovereignty is further reflected in the dissent's refusal apply established principles for determining whether other governmental bodies have waived a sovereign power through contract. See post, at 189, n. 50. See also infra, at 148. Moreover, the dissent implies that the power tax depends on the consent of the taxed as well as on the Tribe's power exclude non-Indians. Whatever place consent may have in contractual

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

power exclude non-Indians. Whatever place consent may have in contractual matters and in the creation of democratic governments, it has little if any role in measuring the validity of an exercise of legitimate sovereign authority. Requiring the consent of the entrant deposits in the hands of the excludable non-Indian the source of the tribe's power, when the power instead derives from sovereignty itself. Only the Federal Government may limit a tribe's exercise of its sovereign authority. E. g., United[13] Indian sovereignty is not conditioned on the assent of a nonmember; the contrary, the nonmember's presence and conduct on Indian lands are conditioned by the limitations the tribe may choose impose. Viewed in this light, the absence of a reference the tax in the leases themselves hardly impairs the Tribe's authority impose the tax. Contractual arrangements remain subject subsequent legislation by the presiding sovereign. See, e. g., ; Home Building & Loan Even where the contract at issue requires payment of a royalty for a license or franchise issued by the governmental entity, the government's power tax remains unless it "has been specifically surrendered in terms which admit of no other reasonable interpretation." St. To state that Indian sovereignty is different than that of Federal, State or local Governments, see post, at 189, n. 50, does not justify ignoring the principles announced by this Court for determining whether a sovereign has waived its taxing authority in cases involving city, state, and federal taxes imposed under similar circumstances. Each of these governments has different attributes of sovereignty, which also may derive from different sources. These differences, however, do not alter the principles for determining whether any of these governments has waived a sovereign power through contract, and we perceive no principled reason for holding that the different attributes of Indian sovereignty require different treatment in this regard. Without regard its source, sovereign power, even when unexercised, is an enduring presence that governs all contracts subject the sovereign's jurisdiction, and will remain intact unless surrendered in unmistakable terms. No claim is asserted in this litigation, nor could one be, that petitioners' leases contain the clear and unmistakable surrender of taxing power required for its extinction. We could find a waiver of the Tribe's taxing power only if we inferred it from silence in the leases. To presume that a sovereign forever waives the right exercise one of its sovereign powers unless it expressly reserves the right exercise that power in a commercial agreement turns the concept of sovereignty on its head, and we do not adopt this analysis.[14] *149 C The Tribe has

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

do not adopt this analysis.[14] *149 C The Tribe has the inherent power impose the severance tax on petitioners, whether this power derives from the Tribe's power of self-government or from its power exclude. Because Congress may limit tribal sovereignty, we now review petitioners' argument that Congress, when it enacted two federal Acts governing Indians and various pieces of federal energy legislation, deprived the Tribe of its authority impose the severance tax. In we concluded that the "widely held understanding within the Federal Government has always been that federal law date has not worked a divestiture of Indian taxing power." 447 U.S., Moreover, we noted that "[n]o federal statute cited us shows any congressional departure from this view." Likewise, petitioners can cite no statute that specifically divests the Tribe of its power impose the severance tax on their mining activities. Instead, petitioners argue that Congress implicitly ok away this power when it enacted the Acts and various pieces of legislation on which petitioners rely. Before reviewing this argument, we reiterate here our admonition in Santa Clara : "a proper respect both for tribal sovereignty itself and for the plenary authority of Congress in this area cautions that we tread lightly in the absence of clear indications of legislative intent." *0 Petitioners argue that Congress pre-empted the Tribe's power impose a severance tax when it enacted the 1938 Act, 25 U.S. C. งง 396a-396g. In essence, petitioners argue that the tax constitutes an additional burden on lessees that is inconsistent with the Act's regulary scheme for leasing and developing oil and gas reserves on Indian land. This Act, and the regulations promulgated by the Department of the Interior for its enforcement, establish the procedures be followed for leasing oil and gas interests on tribal lands. However, the proviso 25 U.S. C. ง 396b states that "the foregoing provisions shall in no manner restrict the right of tribes lease lands for mining purposes in accordance with the provisions of any constitution and charter adopted by any Indian tribe pursuant sections 461, 462, 463, [464-475, 476-478], and 479 of this title"[] Therefore, this Act does not prohibit the Tribe from imposing a severance tax on petitioners' mining activities pursuant its Revised Constitution, when both the Revised Constitution and the ordinance authorizing the tax are approved by the Secretary.[16] Petitioners also assert that the 1927 Act, 25 U.S. C. งง 398a-398e, divested the Tribe's taxing power. We disagree. The 1927 Act permits state taxation of mineral lessees *1 on Executive Order reservations, but it indicates no change in the taxing power of the affected

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

indicates no change in the taxing power of the affected tribes. See 25 U.S. C. ง 398c. Without mentioning the tribal authority tax, the Act authorizes state taxation of royalties from mineral production on all Indian lands. Petitioners argue that the Act transferred the Indian power tax mineral production the States in exchange for the royalties assured the tribes. This claim not only lacks any supporting evidence in the legislative hisry, it also deviates from settled principles of taxation: different sovereigns can enjoy powers tax the same transactions. Thus, the mere existence of state authority tax does not deprive the Indian tribe of its power tax. Fort Mojave cert. denied, Cf. ("There is no direct conflict between the state and tribal schemes, since each government is free impose its taxes without ousting the other").[17] Finally, petitioners contend that tribal taxation of oil and gas conflicts with national energy policies, and therefore the tribal tax is pre-empted by federal law. Again, petitioners cite no specific federal statute restricting Indian sovereignty. Nor do they explain why state taxation of the same type of activity escapes the asserted conflict with federal policy. Cf. Commonwealth Edison Indeed, rather than forbidding tribal severance taxes, Congress has included taxes imposed by an Indian *2 tribe in its definition of costs that may be recovered under federal energy pricing regulations. Natural Gas Policy Act of 1978, งง 110(a), (c)(1), U.S. C. งง 3320(a), (c)(1) ( ed., Supp. IV). Although this inclusion may not reflect Congress' view with respect the source of a tribe's power impose a severance tax,[18] it surely indicates that imposing such a tax would not contravene federal energy policy and that the tribal authority do so is not implicitly divested by that Act. We find no "clear indications" that Congress has implicitly deprived the Tribe of its power impose the severance tax. In any event, if there were ambiguity on this point, the doubt would benefit the Tribe, for "[a]mbiguities in federal law have been construed generously in order comport with traditional notions of sovereignty and with the federal policy of encouraging tribal independence." White Mountain Apache Accordingly, we find that the Federal Government has not divested the Tribe of its inherent authority tax mining activities on its land, whether this authority derives from the Tribe's power of self-government or from its power exclude. III Finding no defect in the Tribe's exercise of its taxing power, we now address petitioners' contention that the severance tax violates the "negative implications" of the Commerce Clause because it taxes an activity that is an integral *3 part

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

it taxes an activity that is an integral *3 part of the flow of commerce, discriminates against interstate commerce, and imposes a multiple burden on interstate commerce. At the outset, we note that reviewing tribal action under the Interstate Commerce Clause is not without conceptual difficulties. E. g., nn. 21 and 24, infra. Apparently recognizing these difficulties, the Solicir General, on behalf of the Secretary, argues that the language,[19] the structure, and the purposes of the Commerce Clause support the conclusion that the Commerce Clause does not, of its own force, limit Indian tribes in their dealings with non-Indians. Brief for Secretary of Interior 35-40. The Solicir General reasons that the Framers did not intend "the courts, through the Commerce Clause, impose their own views of the proper relationship between Indians and non-Indians and strike down measures adopted by a tribe with which the political departments of government had not seen fit disagree." Instead, where tribal legislation is inimical the national welfare, the Solicir asserts that the Framers contemplated that the remedies would be the negotiation or renegotiation of treaties, the enactment of legislation governing trade and other relations, or the exertion of superior force by the United States Government. Using similar reasoning, the Solicir suggests that if the Commerce Clause does impose restrictions on tribal activity, those restrictions must arise from the Indian Commerce Clause, and not its interstate counterpart. To date, however, this Court has relied on the Indian Commerce Clause as a shield protect Indian tribes from state *4 and local interference, and has not relied on the Clause authorize tribal regulation of commerce without any constitutional restraints. We see no need break new ground in this area day: even if we assume that tribal action is subject the limitations of the Interstate Commerce Clause, this tax does not violate the "negative implications" of that Clause. A A state tax may violate the "negative implications" of the Interstate Commerce Clause by unduly burdening or discriminating against interstate commerce. See, e. g., Commonwealth Edison ; Complete Au Transit, Judicial review of state taxes under the Interstate Commerce Clause is intended ensure that States do not disrupt or burden interstate commerce when Congress' power remains unexercised: it protects the free flow of commerce, and thereby safeguards Congress' latent power from encroachment by the several States. However, we only engage in this review when Congress has not acted or purported act. See, e. g., Prudential Insurance Once Congress acts, courts are not free review state taxes or other regulations under the dormant Commerce Clause. When Congress has struck the balance

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

the dormant Commerce Clause. When Congress has struck the balance it deems appropriate, the courts are no longer needed prevent States from burdening commerce, and it matters not that the courts would invalidate the state tax or regulation under the Commerce Clause in the absence of congressional action. See Prudential Insurance[20] Courts are *5 final arbiters under the Commerce Clause only when Congress has not acted. See Japan Line, Here, Congress has affirmatively acted by providing a series of federal checkpoints that must be cleared before a tribal tax can take effect.[21] Under the Indian Reorganization Act, 25 U.S. C. งง 476, 477, a tribe must obtain approval from the Secretary before it adopts or revises its constitution announce its intention tax Further, before the ordinance imposing the severance tax challenged here could take effect, the Tribe was required again obtain approval from the Secretary. See Revised Constitution of the Jicarilla Tribe, Art. XI, งง 1(e), 2. Cf. 25 U.S. C. งง 476, 477; 25 CFR ง 171.29 (implementing the proviso 25 U.S. C. ง 396b, quoted in n. As we noted earlier, the severance tax challenged by petitioners was enacted in accordance with this congressional scheme. Both the Tribe's Revised Constitution and the challenged tax ordinance received the requisite approval from the Secretary. This course of events fulfilled the administrative process established by Congress monir such exercises of tribal authority. As a result, this tribal tax comes us in a *6 posture significantly different from a challenged state tax, which does not need specific federal approval take effect, and which therefore requires, in the absence of congressional ratification, judicial review ensure that it does not unduly burden or discriminate against interstate commerce. Judicial review of the Indian tax measure, in contrast, would duplicate the administrative review called for by the congressional scheme. Finally, Congress is well aware that Indian tribes impose mineral severance taxes such as the one challenged by petitioners. See Natural Gas Policy Act of 1978, U.S. C. งง 3320(a), (c)(1) ( ed., Supp. IV). Congress, of course, retains plenary power limit tribal taxing authority or alter the current scheme under which the tribes may impose taxes. However, it is not our function nor our prerogative strike down a tax that has traveled through the precise channels established by Congress, and has obtained the specific approval of the Secretary. B The tax challenged here would survive judicial scrutiny under the Interstate Commerce Clause, even if such scrutiny were necessary. In Complete Au Transit, we held that a state tax on activities connected interstate commerce is sustainable if

Justice Marshall

majority

Merrion v. Jicarilla Apache Tribe

https://www.courtlistener.com/opinion/110643/merrion-v-jicarilla-apache-tribe/

state tax on activities connected interstate commerce is sustainable if it "is applied an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related the services provided by the State." Petitioners do not question that the tax on the severance of minerals from the mines[22] meets the first and the *7 second tests: the mining activities taxed pursuant the ordinance occur entirely on reservation land. Furthermore, petitioners do not challenge the tax on the ground that the amount of the tax is not fairly related the services provided by the Tribe. See Supplemental Brief for Petitioners in No. 80-, pp. 11, 17-20.[23] Instead, petitioners focus their attack on the third facr, and argue that the tax discriminates against interstate commerce. In essence, petitioners argue that the language "sold or transported off the reservation" exempts from taxation minerals sold on the reservation, kept on the reservation for use by individual members of the Tribe, and minerals taken by the Tribe on the reservation as in-kind royalty. Although petitioners admit that no sales have occurred on the reservation date, they argue that the Tribe might induce private industry locate on the reservation take advantage of this allegedly discriminary taxing policy. We do not accept petitioners' arguments; instead, we agree with the Tribe, the Solicir General, and the Court of Appeals that the tax is imposed on minerals sold on the reservation or transported off the reservation before sale. See Cf. n. 22, supra.[24] Under this interpretation, the tax does not *8 treat minerals transported away from the reservation differently than it treats minerals that might be sold on the reservation. Nor does the Tribe's tax ordinance exempt minerals ultimately received by individual members of the Tribe. The ordinance does exempt minerals received by the Tribe as in-kind payments on the leases and used for tribal purposes,[25] but this exemption merely avoids the administrative make-work that would ensue if the Tribe, as local government, taxed the amount of minerals that the Tribe, as commercial partner, received in royalty payments. Therefore, this exemption cannot be deemed a discriminary preference for local commerce.[26] *9 IV In Chief Justice Marshall observed that Indian tribes had "always been considered as distinct, independent political communities, retaining their original natural rights." Although the tribes are subject the authority of the Federal Government, the "weaker power does not surrender its independence โ€” its right self-government, by associating with a stronger, and taking its protection." Adhering this understanding, we conclude that the Tribe did not surrender its authority tax

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

The plurality and dissent agree on two fundamental propositions: that there is some age below which a juvenile's crimes can never be constitutionally punished by death, and that our precedents require us to locate this age in light of the " `evolving standards of decency that mark the progress of a maturing society.' " See ante, at 821 ); ante, at 827-829; post, at 864-865, 872. See also, e. g., I accept both principles. The disagreements between the plurality and the dissent rest on their different evaluations of the evidence available to us about the relevant social consensus. Although I believe that a national consensus forbidding the execution of any person *849 for a crime committed before the age of 16 very likely does exist, I am reluctant to adopt this conclusion as a matter of constitutional law without better evidence than we now possess. Because I conclude that the sentence in this case can and should be set aside on narrower grounds than those adopted by the plurality, and because the grounds on which I rest should allow us to face the more general question when better evidence is available, I concur only in the judgment of the Court. I Both the plurality and the dissent look initially to the decisions of American legislatures for signs of a national consensus about the minimum age at which a juvenile's crimes may lead to capital punishment. Although I agree with the dissent's contention, post, at 865, that these decisions should provide the most reliable signs of a society-wide consensus on this issue, I cannot agree with the dissent's interpretation of the evidence. The most salient statistic that bears on this case is that every single American legislature that has expressly set a minimum age for capital punishment has set that age at 16 or above. See ante, at 829, and n. 30. When one adds these 18 States to the 14 that have rejected capital punishment completely, see ante, and n. 25, it appears that almost two-thirds of the state legislatures have definitely concluded that no 15-year-old should be exposed to the threat of execution. See also ante, at 829, n. 29 (pointing out that an additional two States with death penalty statutes on their books seem to have abandoned capital punishment in practice). Where such a large majority of the state legislatures have unambiguously outlawed capital punishment for 15-year-olds, and where no legislature in this country has affirmatively and unequivocally endorsed such a practice, strong counterevidence would be required to persuade me that a national consensus against this practice does

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

persuade me that a national consensus against this practice does not exist. *850 The dissent argues that it has found such counterevidence in the laws of the 19 States that authorize capital punishment without setting any statutory minimum age. If we could be sure that each of these 19 state legislatures had deliberately chosen to authorize capital punishment for crimes committed at the age of 15, one could hardly suppose that there is a settled national consensus opposing such a practice. In fact, however, the statistics relied on by the dissent may be quite misleading. When a legislature provides for some 15-year-olds to be processed through the adult criminal justice system, and capital punishment is available for adults in that jurisdiction, the death penalty becomes at least theoretically applicable to such defendants. This is how petitioner was rendered death eligible, and the same possibility appears to exist in 18 other States. See post, at 861-862; ante, at 828, n. 26. As the plurality points out, however, it does not necessarily follow that the legislatures in those jurisdictions have deliberately concluded that it would be appropriate to impose capital punishment on 15-year-olds (or on even younger defendants who may be tried as adults in some jurisdictions). See ante, n. 24. There are many reasons, having nothing whatsoever to do with capital punishment, that might motivate a legislature to provide as a general matter for some 15-year-olds to be channeled into the adult criminal justice process. The length or conditions of confinement available in the juvenile system, for example, might be considered inappropriate for serious crimes or for some recidivists. Similarly, a state legislature might conclude that very dangerous individuals, whatever their age, should not be confined in the same facility with more vulnerable juvenile offenders. Such reasons would suggest nothing about the appropriateness of capital punishment for 15-year-olds. The absence of any such implication is illustrated by the very States that the dissent cites as evidence of a trend toward lowering the age at which juveniles may be punished as adults. See post, at 867, and n. 3. New York, *851 which recently adopted legislation allowing juveniles as young as 13 to be tried as adults, does not authorize capital punishment under any circumstances. In New Jersey, which now permits some 14-year-olds to be tried as adults, the minimum age for capital punishment is 18. In both cases, therefore, the decisions to lower the age at which some juveniles may be treated as adults must have been based on reasons quite separate from the legislatures' views about the minimum age at

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

separate from the legislatures' views about the minimum age at which a crime should render a juvenile eligible for the death penalty. Nor have we been shown evidence that other legislatures directly considered the fact that the interaction between their capital punishment statutes and their juvenile offender statutes could in theory lead to executions for crimes committed before the age of 16. The very real possibility that this result was not considered is illustrated by the recent federal legislation, cited by the dissent, which lowers to 15 the age at which a defendant may be tried as an adult. See post, at 865 (discussing Comprehensive Crime Control Act of 1984, Stat. 2149). Because a number of federal statutes have long provided for capital punishment, see post, at 866, n. 1, this legislation appears to imply that 15-year-olds may now be rendered death eligible under federal law. The dissent does not point to any legislative history suggesting that Congress considered this implication when it enacted the Comprehensive Crime Control Act. The apparent absence of such legislative history is especially striking in light of the fact that the United States has agreed by treaty to set a minimum age of 18 for capital punishment in certain circumstances. See Article 68 of the Geneva Convention Relative to the Protection of Civilian Persons in Time of War, August 12, 1949, [1955] 6 U. S. T. 3516, 3560, T. I. A. S. No. 3365 (rules pertaining to military occupation); ante, at 831, n. 34; see also (citing two other international agreements, signed but not ratified by the United States, prohibiting capital punishment for juveniles). Perhaps even more striking is *852 the fact that the United States Senate recently passed a bill authorizing capital punishment for certain drug offenses, but prohibiting application of this penalty to persons below the age of 18 at the time of the crime. 134 Cong. Rec. 14117, 14118 Whatever other implications the ratification of Article 68 of the Geneva Convention may have, and whatever effects the Senate's recent action may eventually have, both tend to undercut any assumption that the Comprehensive Crime Control Act signals a decision by Congress to authorize the death penalty for some 15-year-old felons. Thus, there is no indication that any legislative body in this country has rendered a considered judgment approving the imposition of capital punishment on juveniles who were below the age of 16 at the time of the offense. It nonetheless is true, although I think the dissent has overstated its significance, that the Federal Government and 19 States have adopted statutes that appear

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

Federal Government and 19 States have adopted statutes that appear to have the legal effect of rendering some of these juveniles death eligible. That fact is a real obstacle in the way of concluding that a national consensus forbids this practice. It is appropriate, therefore, to examine other evidence that might indicate whether or not these statutes are inconsistent with settled notions of decency in our society. In previous cases, we have examined execution statistics, as well as data about jury determinations, in an effort to discern whether the application of capital punishment to certain classes of defendants has been so aberrational that it can be considered unacceptable in our society. See, e. g., ; ; In this case, the plurality emphasizes that four decades have gone by since the last execution of a defendant who was younger than 16 at the time of the offense, and that only 5 out of 1,393 death sentences during a recent 5-year period involved such defendants. *853 Ante, at 832-833. Like the statistics about the behavior of legislatures, these execution and sentencing statistics support the inference of a national consensus opposing the death penalty for 15-year-olds, but they are not dispositive. A variety of factors, having little or nothing to do with any individual's blameworthiness, may cause some groups in our population to commit capital crimes at a much lower rate than other groups. The statistics relied on by the plurality, moreover, do not indicate how many juries have been asked to impose the death penalty for crimes committed below the age of 16, or how many times prosecutors have exercised their discretion to refrain from seeking the death penalty in cases where the statutory prerequisites might have been proved. Without such data, raw execution and sentencing statistics cannot allow us reliably to infer that juries are or would be significantly more reluctant to impose the death penalty on 15-year-olds than on similarly situated older defendants. Nor, finally, do I believe that this case can be resolved through the kind of disproportionality analysis employed in Part V of the plurality opinion. I agree that "proportionality requires a nexus between the punishment imposed and the defendant's blameworthiness." ; see also Granting the plurality's other premise — that adolescents are generally less blameworthy than adults who commit similar crimes — it does not necessarily follow that all 15-year-olds are incapable of the moral culpability that would justify the imposition of capital punishment. Nor has the plurality educed evidence demonstrating that 15-years-olds as a class are inherently incapable of being deterred from major crimes by the

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

inherently incapable of being deterred from major crimes by the prospect of the death penalty. Legislatures recognize the relative immaturity of adolescents, and we have often permitted them to define age-based classes that take account of this qualitative difference between juveniles and adults. See, e. g., Hazelwood School *854 ; ; ; But compare Planned Parenthood of Central and (same), with (Parental notification requirements may be constitutional). The special qualitative characteristics of juveniles that justify legislatures in treating them differently from adults for many other purposes are also relevant to Eighth Amendment proportionality analysis. These characteristics, however, vary widely among different individuals of the same age, and I would not substitute our inevitably subjective judgment about the best age at which to draw a line in the capital punishment context for the judgments of the Nation's legislatures. Cf. and n. 42 The history of the death penalty instructs that there is danger in inferring a settled societal consensus from statistics like those relied on in this case. In 1846, Michigan became the first State to abolish the death penalty for all crimes except treason, and Rhode Island soon thereafter became the first jurisdiction to abolish capital punishment completely. F. Zimring & G. Hawkins, Capital Punishment and the American Agenda 28 In succeeding decades, other American States continued the trend towards abolition, especially during the years just before and during World War I. Later, and particularly after World War II, there ensued a steady and dramatic decline in executions — both in absolute terms and in relation to the number of homicides occurring in the country. W. Bowers, Legal Homicide *855 26-28 In the 1950's and 1960's, more States abolished or radically restricted capital punishment, and executions ceased completely for several years beginning in 1968. H. Bedau, The Death Penalty in America 23, 25 In 1972, when this Court heard arguments on the constitutionality of the death penalty, such statistics might have suggested that the practice had become a relic, implicitly rejected by a new societal consensus. Indeed, counsel urged the Court to conclude that "the number of cases in which the death penalty is imposed, as compared with the number of cases in which it is statutorily available, reflects a general revulsion toward the penalty that would lead to its repeal if only it were more generally and widely enforced." We now know that any inference of a societal consensus rejecting the death penalty would have been mistaken. But had this Court then declared the existence of such a consensus, and outlawed capital punishment, legislatures would very likely not have

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

and outlawed capital punishment, legislatures would very likely not have been able to revive it. The mistaken premise of the decision would have been frozen into constitutional law, making it difficult to refute and even more difficult to reject. The step that the plurality would take today is much narrower in scope, but it could conceivably reflect an error similar to the one we were urged to make in Furman. The day may come when we must decide whether a legislature may deliberately and unequivocally resolve upon a policy authorizing capital punishment for crimes committed at the age of 15. In that event, we shall have to decide the Eighth Amendment issue that divides the plurality and the dissent in this case, and we shall have to evaluate the evidence of societal standards of decency that is available to us at that time. In my view, however, we need not and should not decide the question today. *856 II Under the Eighth Amendment, the death penalty has been treated differently from all other punishments. See, e. g., Among the most important and consistent themes in this Court's death penalty jurisprudence is the need for special care and deliberation in decisions that may lead to the imposition of that sanction. The Court has accordingly imposed a series of unique substantive and procedural restrictions designed to ensure that capital punishment is not imposed without the serious and calm reflection that ought to precede any decision of such gravity and finality. The restrictions that we have required under the Eighth Amendment affect both legislatures and the sentencing authorities responsible for decisions in individual cases. Neither automatic death sentences for certain crimes, for example, nor statutes committing the sentencing decision to the unguided discretion of judges or juries, have been upheld. See, e. g., ; ; ; and the lack of sufficiently precise restrictions on the aggravating circumstances that may be considered, e. g., Godfrey v. As a practical matter we have virtually required that the death penalty be imposed only when a guilty verdict has been followed by separate trial-like sentencing proceedings, and we have extended many of the procedural restrictions applicable during criminal trials into these proceedings. See, e. g., ; ; Legislatures have been forbidden to authorize capital punishment for certain crimes. ; ; see also Constitutional scrutiny in this area has been more searching than in the review of noncapital sentences. See ; The case before us today raises some of the same concerns that have led us to erect barriers to the imposition of capital punishment in other contexts.

Justice O'Connor

concurring

Thompson v. Oklahoma

https://www.courtlistener.com/opinion/112142/thompson-v-oklahoma/

barriers to the imposition of capital punishment in other contexts. Oklahoma has enacted a statute that authorizes capital punishment for murder, without setting any minimum age at which the commission of murder may lead to the imposition of that penalty. The State has also, but quite separately, provided that 15-year-old murder defendants may be treated as adults in some circumstances. Because it proceeded in this manner, there is a considerable risk that the Oklahoma Legislature either did not realize that its actions would have the effect of rendering 15-year-old defendants death eligible or did not give the question the serious consideration that would have been reflected in the explicit choice of some minimum age for death eligibility. Were it clear that no national consensus forbids the imposition of capital punishment for crimes committed before the age of 16, the implicit nature of the Oklahoma Legislature's decision would not be constitutionally problematic. In the peculiar circumstances we face today, however, the Oklahoma statutes have presented this Court with a result that is of very dubious constitutionality, and they have done so without the earmarks of careful consideration that we have required for other kinds of decisions leading to the death penalty. In this unique situation, I am prepared to conclude that petitioner and others who were below the age of 16 at the time of their offense may not be executed under the authority of a capital punishment statute that specifies no minimum *858 age at which the commission of a capital crime can lead to the offender's execution.[*] The conclusion I have reached in this unusual case is itself unusual. I believe, however, that it is in keeping with the principles that have guided us in other Eighth Amendment cases. It is also supported by the familiar principle — applied in different ways in different contexts — according to which we should avoid unnecessary, or unnecessarily broad, constitutional adjudication. See generally, e. g., The narrow conclusion I have reached in this case is consistent with the underlying rationale for that principle, which was articulated many years ago by Justice Jackson: "We are not final because we are infallible, but we are infallible only because we are final." ; see also By leaving open for now the broader Eighth Amendment question that both the plurality and the dissent would resolve, the approach I take allows the ultimate moral issue at stake in the constitutional question to be addressed in the first instance *859A by those best suited to do so, the people's elected representatives. For the reasons stated in this opinion,

Justice Stevens

dissenting

Young v. Community Nutrition Institute

https://www.courtlistener.com/opinion/111698/young-v-community-nutrition-institute/

The parties agree that aflatoxins are added, unavoidable contaminants of food and as such are governed by the following provision of the Federal Food, Drug, and Cosmetic Act: "[W]hen such substance cannot be so avoided, the Secretary shall promulgate regulations limiting the quantity therein or thereon to such extent as he finds necessary for the protection of public health, and any quantity exceeding the limits so fixed shall also be deemed to be unsafe for purposes of the application of clause (2)(A) of section 342(a) of this title." 21 U.S. C. 346 (emphasis added). To one versed in the English language, the meaning of this provision is readily apparent. The plain language of the section tells us when the Secretary's duty to promulgate regulations arises — "when such substance cannot be so avoided"; it tells us the purpose of the regulations — to establish *985 a tolerance level that will enable manufacturers to know what they can lawfully produce and to enable the public to know what they can safely consume; and it tells us what standard he should employ in drafting them — "to such extent as he finds necessary for the protection of public health." For purposes of deciding this case, the parties' agreement that aflatoxins are substances that "cannot be so avoided" within the meaning of the section triggers the obligation to initiate rulemaking. The Court's contrary conclusion reflects an absence of judgment and of judging. Before exploring either infirmity, it is worthwhile to summarize the Court's reason for reading the section to authorize, but not require, the promulgation of regulations. First, the Court declares that the qualifying language — "to such extent as he finds necessary for protection of the public health" — is a "dangling participle" that might or might not modify the words "shall promulgate regulations." Ante, at 981. Second, as between the two readings of this "ambiguous statutory provision," ibid., deference dictates that the Commissioner of the Food and Drug Administration (FDA) (to whom enforcement of the Act has been delegated) may take his pick. The Court's finding of ambiguity is simply untenable. The antecedent of the qualifying language is quite clearly the phrase "limiting the quantity therein or thereon," which immediately precedes it, rather than the word "shall," which appears eight words before it. Thus, the Commissioner is to "limi[t] the quantity [of an added, unavoidable poisonous or deleterious substance] therein or thereon to such extent as he finds necessary for the protection of public health."[1] By instead *986 reading the section to mean that "the Secretary shall promulgate regulations to such

Justice Stevens

dissenting

Young v. Community Nutrition Institute

https://www.courtlistener.com/opinion/111698/young-v-community-nutrition-institute/

to mean that "the Secretary shall promulgate regulations to such extent as he finds necessary," the Court ignores the import of the words immediately following, which specify the effect of the "limits so fixed" — i. e., fixed by "limiting the quantity [of the poisonous substance] therein or thereon to such extent as he finds necessary for the protection of public health" — which can only mean that the qualification modifies the limits set by regulation rather than the duty to regulate. In addition, the Court's construction, by skipping over the words "limiting the quantity therein or thereon," renders them superfluous and of no operative force or effect. Indeed, the Court renders the very language it construes superfluous, because reading the provision to authorize (rather than mandate) the promulgation of regulations assigns it an office already filled by the general rulemaking authority conferred later in the Food, Drug, and Cosmetic Act. See 21 U.S. C. 371(a).[2] If Congress intended the Secretary to have unbridled authority to proceed with action levels, instead of with formal regulations, there was no need to enact this part of 346 at all. This is plainly a case in which "the intent of Congress is clear [and] the court, as well as the agency, must give effect to the *987 unambiguously expressed intent of Congress." Chevron U. S. A.[3] *988 The task of interpreting a statute requires more than merely inventing an ambiguity and invoking administrative deference. A statute is not "unclear unless we think there are decent arguments for each of two competing interpretations of it." R. Dworkin, Law's Empire 352 (1986). Thus, to say that the statute is susceptible of two meanings, as does the Court, is not to say that either is acceptable. Furthermore, to say that the Commissioner's interpretation of the statute merits deference, as does the Court, is not to say that the singularly judicial role of marking the boundaries of agency choice is at an end. As Justice Frankfurter reminds us, "[t]he purpose of construction being the ascertainment of meaning, every consideration brought to bear for the solution of that problem must be devoted to that end alone." Frankfurter, Some Reflections on the Reading of Statutes, It is not "a ritual to be observed by unimaginative adherence to well-worn professional phrases." "Nor can canons of construction save us from the anguish of judgment." The Court, correctly self-conscious of the limits of the judicial role, employs a reasoning so formulaic that it trivializes the art of judging. I respectfully dissent.

Justice Stevens

majority

Laborers Tr. Fund v. Advanced Lightweight Conc.

https://www.courtlistener.com/opinion/111991/laborers-tr-fund-v-advanced-lightweight-conc/

A company that is a party to a collective-bargaining agreement may have a contractual duty to make contributions to a pension fund during the term of the agreement and, in addition, may have a duty under the National Labor Relations Act (NLRA) to continue making such contributions after the expiration of the contract and while negotiations for a new contract are in process. In 1980, Congress amended the Employee Retirement Income Security Act (ERISA) to provide trustees of multiemployer benefit plans with an effective federal remedy to collect delinquent contributions. The question presented in this case is whether that remedy encompasses actions based on an alleged breach of the employer's statutory duty as well as those based on an alleged breach of contract. We agree with the Court of Appeals' conclusion that the remedy is limited to the collection of "promised contributions." I Prior to 1983, respondent was a member of the Associated General Contractors of California and a party to two multiemployer collective-bargaining agreements negotiated on its *542 behalf by that association.[1] The agreements included provisions requiring respondent to make monthly contributions to eight different employee benefit plans.[2] The collective-bargaining agreements, which were executed in 1980, had an expiration date of June 15, 1983. On April 1, 1983, respondent notified both unions that it had terminated the association's authority to bargain on its behalf, that it would not be bound by either master agreement (or any successor agreement) after the June 15, 1983, expiration date, and that it was prepared to negotiate with the unions independently. Respondent continued to contribute to the eight trust funds until June 15, 1983, but has made no contributions since that date. In December 1983, the trustees of the eight plans (petitioners)[3] brought suit in the Federal District Court for the Northern District of California against respondent to collect contributions for the period after June 15, 1983. Petitioners allege that respondent's unilateral decision to change the terms and conditions of employment by discontinuing its contributions constituted a breach of its duty to bargain in good faith and violated 8(a)(5) of the NLRA. 29 *543 U. S. C. 158(a)(5). The complaints alleged that the federal court had jurisdiction under 502(g)(2) and 515 of ERISA.[4] Respondent's answer to the complaint challenged the District Court's jurisdiction and also denied that respondent had any statutory duty to make contributions to the funds because its negotiations with the unions had reached an "impasse."[5] The "impasse" issue has never been resolved *544 because the District Court granted a motion for summary judgment based on two other grounds: That 515 of

Justice Stevens

majority

Laborers Tr. Fund v. Advanced Lightweight Conc.

https://www.courtlistener.com/opinion/111991/laborers-tr-fund-v-advanced-lightweight-conc/

summary judgment based on two other grounds: That 515 of ERISA does not apply to an employer's obligations under 8(a)(5) of the NLRA; and that the National Labor Relations Board (NLRB) has exclusive jurisdiction over petitioners' claims. The Court of Appeals affirmed. It necessarily assumed that petitioner could prove that respondent's postcontract refusal to contribute to the funds was an unfair labor practice.[6] It held, however, that the claims should be resolved by the NLRB rather than by a federal district court. After examining the text and the legislative history of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), the Court concluded: *545 "We find no persuasive evidence in either the plain words or legislative history of ERISA or the MPPAA that Congress intended section 515 to be an exception to the general rule of NLRB preemption for that narrow category of suits seeking recovery of unpaid contributions accrued during the period between contract expiration and impasse."[7] We granted certiorari, and now affirm. II In its 1980 amendments to ERISA, Congress responded to two concerns that are relevant to the question presented by this case. It was primarily concerned about the burden placed upon the remaining contributors to a multiemployer fund when one or more of them withdraw.[8] In response to this concern Congress enacted an elaborate provision imposing "withdrawal liability" on such withdrawing employers.[9] That liability arises when an employer ceases to have an "obligation to contribute" to the plan.[10] That term is defined for the purposes of the withdrawal liability portion of the statute in language that unambiguously includes both the employer's *546 contractual obligations and any obligation imposed by the NLRA.[11] That definition is significant because it demonstrates that Congress was aware of the two different sources of an employer's duty to contribute to covered plans. Congress was also concerned about the problem that had arisen because a substantial number of employers had failed to make their "promised contributions" on a regular and timely basis.[12] Sections 515 and 502(g)(2) of ERISA, the provisions at issue in this case, were enacted in response to that concern. The text of 515 plainly describes the employer's contractual obligation to make contributions but omits any reference to a noncontractual obligation imposed by the NLRA. Section 515 provides: "Every employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement shall, to the extent not inconsistent with law, make such *547 contributions in accordance with the terms and conditions of such plan or such agreement." 29

Justice Stevens

majority

Laborers Tr. Fund v. Advanced Lightweight Conc.

https://www.courtlistener.com/opinion/111991/laborers-tr-fund-v-advanced-lightweight-conc/

terms and conditions of such plan or such agreement." 29 U.S. C. 1145. The liability created by 515 may be enforced by the trustees of a plan by bringing an action in federal district court pursuant to 502. The special remedy against employers who are delinquent in meeting their contractual obligations that is created by 502(g)(2) includes a mandatory award of prejudgment interest plus liquidated damages in an amount at least equal to that interest, as well as attorney's fees and costs.[13] The legislative history of these provisions explains that Congress added these strict remedies to give employers a strong incentive to honor their contractual obligations to contribute and to facilitate the collection of delinquent accounts.[14]*548 That history contains no mention of the employer's statutory duty to make postcontract contributions while negotiations for a new contract are being conducted.[15] Thus, both the *549 text and the legislative history of 515 and 502(g)(2) provide firm support for the Court of Appeals' conclusion that this remedy is limited to the collection of "promised contributions" and does not confer jurisdiction on district courts to determine whether an employer's unilateral decision to refuse to make postcontract contributions constitutes a violation of the NLRA.[16] *550 III Petitioners, supported by the United States as Amicus Curiae, advance two policy arguments for giving 515 a broad construction that would include postcontract delinquencies. First, they argue that the reasons for giving a district *551 court jurisdiction of collection actions apply to post-contract delinquencies as well as those arising during the term of the contract and that it is unwise to leave a "gap" in the enforcement scheme. Second, they argue that the remedies available in NLRB proceedings are inadequate. Our principal reason for rejecting these arguments is our conviction that Congress' intent is so plain that policy arguments of this kind must be addressed to the body that has the authority to amend the legislation, rather than one whose authority is limited to interpreting it. We nevertheless note that there are countervailing policy arguments that make it highly unlikely that the limited reach of the statute is the consequence of inadvertence rather than deliberate choice. With respect to the asserted "gap" in the enforcement scheme, three observations are pertinent. First, the incidence of the asserted gap is unknown. Presumably most employers who anticipate a continuing relationship with a union honor their obligations to preserve the status quo during negotiations for a new contract. If a new contract is ultimately signed, it should define the employer's obligations during the period subsequent to the expiration of the preceding contract; therefore,

Justice Stevens

majority

Laborers Tr. Fund v. Advanced Lightweight Conc.

https://www.courtlistener.com/opinion/111991/laborers-tr-fund-v-advanced-lightweight-conc/

period subsequent to the expiration of the preceding contract; therefore, any delinquency during that period would be covered by 515. On the other hand, if no new contract is ever signed, there is at least a possibility that an impasse had been reached either before, or only a short time after, the expiration of the old contract. The fact that this type of delinquency appears not even to have been called to the attention of Congress indicates that it may not be a problem of serious magnitude.[17] Second, the issues that must be decided in a dispute over an employer's refusal to make any postcontract contributions are more complex than those that are presented in a simple collection action. Whereas it is entirely appropriate to *552 award prejudgment interest or liquidated damages as a remedy for an employer's failure to make the payments specified in a contract, those remedies are problematic in cases in which there is a good-faith dispute over both the existence and the extent of the employer's liability. The question whether and when an impasse has been reached is often a matter of judgment based on an evaluation of the parties' bargaining history against standards that are imprecise at best.[18] Third, whether an employer's unilateral decision to discontinue contributions to a pension plan constitutes a violation of the statutory duty to bargain in good faith is the kind of question that is routinely resolved by the administrative agency with expertise in labor law. There are situations in which district judges must occasionally resolve labor issues, but they surely represent the exception rather than the rule. In cases like this, which involve either an actual or an "arguable" violation of 8 of the NLRA, federal courts typically defer to the judgment of the NLRB. See San Diego Building Trades[19] Petitioners may be correct in contending that the remedies available in an NLRB proceeding are less effective than an ERISA action would be. Under ERISA they are entitled to attorney's fees, prejudgment interest, and liquidated damages, *553 whereas the scope of relief available in an NLRB proceeding is often a matter of agency discretion. Moreover, an unfair labor practice charge must be filed within a 6-month period and the general counsel has discretion to refuse to issue a complaint if she is not persuaded that the charge has merit or is of sufficient importance to justify prosecution. Finally, the employer and the union may enter into a settlement that either reduces, or even might waive, the employer's postcontract obligations to contribute to the pension fund. But these asserted defects

Justice Stevens

majority

Laborers Tr. Fund v. Advanced Lightweight Conc.

https://www.courtlistener.com/opinion/111991/laborers-tr-fund-v-advanced-lightweight-conc/

to contribute to the pension fund. But these asserted defects in petitioners' labor law remedy are characteristic of all unfair labor practice proceedings before the NLRB. If the labor legislation were simply repealed, in toto, petitioners would have no basis whatsoever for claiming that an employer had any duty to continue making contributions to a fund after the expiration of its contractual commitment to do so. The duty that does exist is simply a consequence of a broader labor law duty that was created to protect the collective-bargaining process. Unilateral changes in the terms and conditions of employment are prohibited, not to vindicate the interests that motivated the enactment of 515 in 1980, but rather to carry out the purposes of the NLRA. The net effect of the labor law duties imposed on employers by that legislation provides a substantial benefit to ERISA plan trustees, but Congress has not provided them with a unique and preferred procedure for obtaining redress for an employer's violation of its duty to bargain with the union. The judgment of the Court of Appeals is Affirmed. JUSTICE KENNEDY took no part in the consideration or decision of this case.

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

The question presented is whether the Due Process Clause of the Fourteenth Amendment was violated when a justice of the Alabama Supreme Court declined to recuse himself from participation in that court's consideration of this case. I This appeal arises out of litigation concerning an insurance policy issued by appellant covering appellees Margaret and Roger Lavoie. In January 1977, Mrs. Lavoie was examined by her physician, Dr. Douglas' because of various ailments. Shortly thereafter, on Dr. Douglas' recommendation, she was admitted to the Mobile Infirmary Hospital, where she remained for 23 days for a battery of tests. After her discharge, the hospital forwarded the appropriate forms and medical records along with a bill for $3,028.25 to appellant's local office in Mobile, Alabama. The local office refused to pay the entire amount, tendering payment for only $1,650. The local office also sent a letter to the national office, concluding that the 23-day hospitalization was unnecessary and that "[h]ospital records do not indicate anything to the contrary," even though all the hospital records had not yet been received. At one point, the national office told the local office to continue denying the request for full payment, but added that "if they act like they are going to file suit," the file should be reviewed. *816 Appellees filed suit against appellant, seeking both payment of the remainder of their original claim and punitive damages for the tort of bad-faith refusal to pay a valid claim. The trial court dismissed for failure to state a cause of action with respect to the bad-faith counts. Appellees appealed to the Alabama Supreme Court, which remanded on the ground that it had "not foreclosed the possibility of recovery in tort for the bad faith refusal of an insurer to pay legitimate benefits due under an insurance policy." On remand, the trial court entered judgment for appellees on the unpaid portion of their claim and granted summary judgment for appellant on the bad-faith claim. The Alabama Supreme Court again reversed, explaining that on that same day it had "recognized the intentional tort of bad faith in first party insurance actions." ). On remand, appellees' bad-faith claim was submitted to a jury. The jury awarded $3.5 million in punitive damages. The trial judge denied appellant's motion for judgment n.o.v. or, alternatively, for remittitur. The Alabama Supreme Court affirmed the award in a 5-to-4 decision. An unsigned per curiam opinion expressed the view of five justices that the evidence demonstrated that appellant had acted in bad faith. The court interpreted its prior opinions as not requiring dismissal of a bad-faith-refusal-to-pay

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

its prior opinions as not requiring dismissal of a bad-faith-refusal-to-pay claim even where a directed verdict against the insurer on the underlying claim was impossible. The opinion also clarified the issue of whether a bad-faith suit could be maintained where the insurer had made a partial payment of the underlying claim. Although earlier opinions of the court had refused to allow bad-faith suits in such circumstances, partial payment was not dispositive of *817 the bad-faith issue. The court also rejected appellant's argument that the punitive damages award was so excessive that it must be set aside. Chief Justice Torbert, joined by Justice Beatty, dissented; Justice Maddox, joined by Justice Shores, also dissented, concluding that the case was controlled by the court's earlier decision in National Savings Life Ins. because there was an arguable reason for appellant's refusal to pay the claim. The Court's opinion was released on December 7, ; on December 21, appellant filed a timely application for rehearing. On February 14, 1985, before its application had been acted on, appellant learned that while the instant action was pending before the Alabama Supreme Court, Justice Embry, one of the five justices joining the per curiam opinion, had filed two actions in the Circuit Court for Jefferson County, Alabama, against insurance companies. Both of these actions alleged bad-faith failure to pay a claim. One suit arose out of Maryland Casualty Company's alleged failure to pay for the loss of a valuable mink coat; the other suit, which Justice Embry brought on behalf of himself and as a representative of a class of all other Alabama state employees insured under a group plan by Blue Cross-Blue Shield of Alabama (including, apparently, all justices of the Alabama Supreme Court), alleged a willful and intentional plan to withhold payment on valid claims. Both suits sought punitive damages. On February 21, 1985, appellant filed two motions in the Alabama Supreme Court, challenging Justice Embry's participation in the court's December 7, decision and his continued participation in considering appellant's application for rehearing. The motion also alleged that all justices on the court should recuse themselves because of their interests as potential class members in Justice Embry's suit against Blue Cross. On March 8, 1985, the court unanimously denied *8 the recusal motions. The brief order stated that each justice had voted individually on the matter of whether he should recuse himself and that each justice had voted not to do so. At the same time, by a 5-to-4 division, the court denied appellant's motion for rehearing. Chief Justice Torbert wrote separately, explaining that although his

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

rehearing. Chief Justice Torbert wrote separately, explaining that although his views had not been influenced by his possible membership in the putative class alleged in Justice Embry's suit against Blue Cross, he was nonetheless notifying the Clerk of the court where that suit was pending not to permit him to be included in the alleged class. Justice Maddox also wrote separately, taking similar action. On March 20, 1985, appellant obtained a copy of the transcript of Justice Embry's deposition, taken on January 10, 1985, in connection with his Blue Cross suit. The deposition revealed that Justice Embry had authored the per curiam opinion in this case over an 8- or 9-month period during which his civil action against Blue Cross was being prosecuted. Justice Embry also stated that, during that period, he had received "leads" from people with regard to his bad-faith action against Blue Cross and that he put them in touch with his attorney. Finally, Justice Embry revealed frustration with insurance companies. For example, when asked if he had ever had any difficulty with processing claims, Justice Embry retorted: "[T]hat is a silly question. For years and years." Appellant moved for leave to file a second application for rehearing based on the deposition, but that motion was denied. Appellant filed an appeal with this Court, and JUSTICE POWELL, as Circuit Justice, granted appellant's application for a stay of the judgment below pending this Court's disposition of the appeal. Shortly thereafter, Justice Embry's suit against Blue Cross was settled by stipulation of the parties.[1] In the stipulation, Blue Cross recognized that "some problems have occurred in the past and is determined *819 to minimize them in the future." Justice Embry received $30,000 under the settlement agreement on a basic compensatory claim of unspecified amount; a check for that sum was deposited by his attorney directly into Justice Embry's personal account. We postponed consideration of the question of jurisdiction pending argument on the merits. We now vacate and remand. II We are satisfied as to the Court's jurisdiction over the question of whether Justice Embry's participation violated appellant's Fourteenth Amendment due process rights. Appellees argue that the Alabama Supreme Court did not reach this issue because it was raised only after the court's decision on the merits. We reject that contention as at odds with the record. On March 8, 1985, the court entered the following order: "Upon consideration, the Court is of the opinion that under the allegation of said motion in this case each justice should vote individually on the matter of whether or not he or she

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

on the matter of whether or not he or she is disqualified and should recuse. Each justice having voted not to recuse, "IT IS, THEREFORE, ORDERED that the `Motion for Disqualification and Motion for Withdrawal of Opinion of December 7, and for Hearing De Novo' be. denied." App. to Juris. Statement 64a. This order clearly demonstrates that the Alabama court reached the merits of appellant's constitutional challenge, albeit on a justice-by-justice basis. Moreover, appellant raised this issue as soon as it discovered the facts relating to Justice Embry's personal lawsuits. On this record, we conclude jurisdiction is proper. See Ulster County ; III A Appellant contends Justice Embry's general hostility towards insurance companies that were dilatory in paying claims, as expressed in his deposition, requires a conclusion that the Due Process Clause was violated by his participation in the disposition of this case. The Court has recognized that not "[a]ll questions of judicial qualification involve constitutional validity. Thus matters of kinship, personal bias, state policy, remoteness of interest, would seem generally to be matters merely of legislative discretion." ; see also Moreover, the traditional common-law rule was that disqualification for bias or prejudice was not permitted. See, e. g., (94). See generally Frank, Disqualification of Judges, 56 Yale L. J. 605 (1947). As Blackstone put it, "the law will not suppose a possibility of bias or favour in a judge, who is already sworn to administer impartial justice, and whose authority greatly depends upon that presumption and idea." 3 W. Blackstone, Commentaries *3. The more recent trend has been towards the adoption of statutes that permit disqualification for bias or prejudice. See See also ABA Code of Judicial Conduct, Canon 3C(1)(a) ("A judge should disqualify himself where he has a personal bias or prejudice concerning a party"). But that alone would not be sufficient basis for imposing a constitutional requirement under the Due Process Clause. *821 We held in that "it is normally within the power of the State to regulate procedures under which its laws are carried out and its decision in this regard is not subject to proscription under the Due Process Clause unless it offends some principle of justice so rooted in the traditions and conscience of our people as to be ranked as fundamental." We need not decide whether allegations of bias or prejudice by a judge of the type we have here would ever be sufficient under the Due Process Clause to force recusal. Certainly only in the most extreme of cases would disqualification on this basis be constitutionally required, and appellant's arguments here fall

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

this basis be constitutionally required, and appellant's arguments here fall well below that level. Appellant suggests that Justice Embry's general frustration with insurance companies reveals a disqualifying bias, but it is likely that many claimants have developed hostile feelings from the frustration in awaiting settlement of insurance claims. Insurers, on their side, have no easy task, especially when trying to evaluate whether certain medical diagnostic tests or prolonged hospitalization were indicated. In turn, the physicians and surgeons, whether impelled by valid medical judgment or by apprehension as to future malpractice claims — or some combination of the two — similarly face difficult problems. Appellant's allegations of bias and prejudice on this general basis, however, are insufficient to establish any constitutional violation. B The record in this case presents more than mere allegations of bias and prejudice, however. Appellant also presses a claim that Justice Embry had a more direct stake in the outcome of this case. In while recognizing that the Constitution does not reach every issue of judicial qualification, the Court concluded that "it certainly violates the Fourteenth Amendment to subject [a person's] liberty or *8 property to the judgment of a court the judge of which has a direct, personal, substantial, pecuniary interest in reaching a conclusion against him in his case." 273 U.S., at More than 30 years ago Justice Black, speaking for the Court, reached a similar conclusion and recognized that under the Due Process Clause no judge "can be a judge in his own case [or be] permitted to try cases where he has an interest in the outcome." In re Murchison, He went on to acknowledge that what degree or kind of interest is sufficient to disqualify a judge from sitting "cannot be defined with precision." Nonetheless, a reasonable formulation of the issue is whether the "situation is one `which would offer a possible temptation to the average judge to lead him not to hold the balance nice, clear and true.' " Under these prior holdings, we examine just what factors might constitute such an interest in the outcome of this case that would bear on recusal. At the time Justice Embry cast the deciding vote and authored the court's opinion, he had pending at least one very similar bad-faith-refusal-to-pay lawsuit against Blue Cross in another Alabama court. The decisions of the court on which Justice Embry sat,[2] the Alabama Supreme Court, are binding on all Alabama courts. We need not blind ourselves to the fact that the law in the area of bad-faith-refusal-to-pay claims in Alabama, as in many other jurisdictions, was unsettled

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

claims in Alabama, as in many other jurisdictions, was unsettled at that time, as the court's close division in deciding this case indicates. When Justice Embry cast the deciding vote, he did not merely apply well-established law and in fact quite possibly made new law; the court's opinion does not suggest that its conclusion was compelled by earlier decisions. Instead, to decide the case the court stated that "it is first necessary to review the policy considerations, elements, and instructive guide *823 posts set out by this court in earlier case law." And in another case the court acknowledged that "the tort of bad faith refusal to pay a valid insurance claim is in the embryonic stage, and the Court has not had occasion to address every issue that might arise in these cases." National Savings Life Ins. 419 So. 2d, at 2. The decision under review firmly established that punitive damages could be obtained in Alabama in a situation where the insured's claim is not fully approved and only partial payment of the underlying claim had been made. Prior to the decision under review, the Alabama Supreme Court had not clearly recognized any claim for tortious injury in such circumstances; moreover, it had affirmatively recognized that partial payment was evidence of good faith on the part of the insurer. 405 So. 2d The Alabama court also held that a bad-faith-refusal-to-pay cause of action will lie in Alabama even where the insured is not entitled to a directed verdict on the underlying claim, a conclusion that at the least clarified the thrust of an earlier holding. Cf. National Savings Life Ins. at 2. Finally, the court refused to set aside as excessive a punitive damages award of $3.5 million. The largest punitive award previously affirmed by that court was $100,000, a figure remitted from $1.1 million as "obviously the result of passion and prejudice on the part of the jury." Gulf Atlantic Life Ins. All of these issues were present in Justice Embry's lawsuit against Blue Cross. His complaint sought recovery for partial payment of claims. Also the very nature of Justice Embry's suit placed in issue whether he would have to establish that he was entitled to a directed verdict on the underlying claims that he alleged Blue Cross refused to pay before gaining punitive damages. Finally, the affirmance of the largest punitive damages award ever (by a substantial margin) on precisely the type of claim raised in the Blue Cross *824 suit undoubtedly "raised the stakes" for Blue Cross in that suit, to the benefit of Justice Embry.

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

Cross in that suit, to the benefit of Justice Embry. Thus, Justice Embry's opinion for the Alabama Supreme Court had the clear and immediate effect of enhancing both the legal status and the settlement value of his own case. We need not decide whether to characterize the decision under review as a change in Alabama law or a clarification of the contours of that law, a judgment we are obviously not called on to make. We hold simply that when Justice Embry made that judgment, he acted as "a judge in his own case." Murchison, at We also hold that his interest was " `direct, personal, substantial, [and] pecuniary.' " (quoting 273 U. S., at ). Justice Embry's complaint against Blue Cross sought "compensatory damage for breach of contract, inconvenience, emotional and mental distress, disappointment, pain and suffering" in addition to punitive damages for himself and for the class. Soon after the opinion of the Alabama Supreme Court in this case was announced, Blue Cross paid Justice Embry what he characterized in an interview as "a tidy sum," Reply Brief for Appellant 10, n. 8, to settle the suit. Records lodged with this Court show that Justice Embry received $30,000, which was deposited by his attorney directly into Justice Embry's personal account. To be sure, a portion of this money may have gone to Justice Embry's attorney in connection with the case, even though some materials before us suggest that his attorney agreed to waive his fee. Deposition of A. Grey Till in Clay v. Nationwide Insurance Co., CV-78-1148 (Cir. Ct. of Mobile Cty., Ala.), pp. 27-29. We are also aware that Justice Embry obtained a statement in the settlement agreement to the effect that "[t]he primary object of the institution of this suit was to emphasize to defendant Blue Cross. that claims under the Plan be processed and determined by Blue Cross in a timely and efficient manner," even though that type of relief was not sought specifically in the complaint *825 while monetary relief was. We nonetheless hold that the "tidy sum" that Justice Embry received directly is sufficient to establish the substantiality of his interest here. We conclude that Justice Embry's participation in this case violated appellant's due process rights as explicated in Murchison, and We make clear that we are not required to decide whether in fact Justice Embry was influenced, but only whether sitting on the case then before the Supreme Court of Alabama " `would offer a possible temptation to the average judge to lead him not to hold the balance nice, clear and

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

lead him not to hold the balance nice, clear and true.' " 409 U. S., (quoting ). The Due Process Clause "may sometimes bar trial by judges who have no actual bias and who would do their very best to weigh the scales of justice equally between contending parties. But to perform its high function in the best way, `justice must satisfy the appearance of justice.' " Murchison, 349 U. S., at C Appellant has challenged not only the participation of Justice Embry in this case but also the participation of all the other justices of the Alabama Supreme Court, or at least the six justices who did not withdraw from Justice Embry's class action against Blue Cross, claiming that they also have an interest in this case. Such allegations do not constitute a sufficient basis for requiring recusal under the Constitution. In the first place, accepting appellant's expansive contentions might require the disqualification of every judge in the State. If so, it is possible that under a "rule of necessity" none of the judges or justices would be disqualified. See United More important, while these justices might conceivably have had a slight pecuniary interest,[3] we find it impossible to *826 characterize that interest as " `direct, personal, substantial, [and] pecuniary.' " (quoting at ). Appellant concedes that nothing in the record even suggests that these justices had any knowledge of the class action before the court issued a decision on the merits. Thus, at most only the decision to deny rehearing was even plausibly affected. Any interest that they might have had when they passed on the rehearing motion was clearly highly speculative and contingent. At the time, the trial court had not even certified a class, let alone awarded any class relief of a pecuniary nature. With the proliferation of class actions involving broadly defined classes, the application of the constitutional requirement of disqualification must be carefully limited. Otherwise constitutional disqualification arguments could quickly become a standard feature of class-action litigation. Cf. In re City of Houston, At some point, "[t]he biasing influence [will be] too remote and insubstantial to violate the constitutional constraints." Charges of disqualification should not be *827 made lightly. See We hold that there is no basis for concluding these justices were disqualified under the Due Process Clause. D Having concluded that only Justice Embry was disqualified from participation in this case, we turn to the issue of the proper remedy for this constitutional violation. Our prior decisions have not considered the question whether a decision of a multimember tribunal must be vacated because

Justice Burger

majority

Aetna Life Ins. Co. v. Lavoie

https://www.courtlistener.com/opinion/111632/aetna-life-ins-co-v-lavoie/

a decision of a multimember tribunal must be vacated because of the participation of one member who had an interest in the outcome of the case. Rather, our prior cases have involved interpretations of statutes with provisions concerning this question, e. g., Commonwealth Coatings disqualifications of the sole member of a tribunal, e. g., and disqualifications of an entire panel, e. g., Some courts have concluded that a decision need not be vacated where a disqualified judge's vote is mere surplusage. See, e. g., State ex rel. 38 N. D. 6, (19); but see, e. g., (50).[4] But we are aware of no case, and none has been called to our attention, *828 permitting a court's decision to stand when a disqualified judge casts the deciding vote. Here Justice Embry's vote was decisive in the 5-to-4 decision[5] and he was the author of the court's opinion. Because of Justice Embry's leading role in the decision under review, we conclude that the "appearance of justice" will best be served by vacating the decision and remanding for further proceedings. Appellees have not contended that, upon a finding of disqualification, this disposition is improper. III We underscore that our decision today undertakes to answer only the question of under what circumstances the Constitution requires disqualification. The Due Process Clause demarks only the outer boundaries of judicial disqualifications. Congress and the states, of course, remain free to impose more rigorous standards for judicial disqualification than those we find mandated here today. Appellant also argues that the retrospective imposition of punitive damages under a new cause of action violates its rights under the Contracts Clause of Article I, 10; that a $3.5 million punitive damages award is impermissible under the Excessive Fines Clause of the Eighth Amendment; and that lack of sufficient standards governing punitive damages awards in Alabama violates the Due Process Clause of the Fourteenth Amendment. In addition, appellant contends that Ala. Code 12--72 (1975), under which any person who unsuccessfully appeals a money judgment is assessed a 10% penalty, is unconstitutional under the Equal Protection Clause of the Fourteenth Amendment. These arguments raise important issues which, in an appropriate setting, must *829 be resolved; however, our disposition of the recusal-for-bias issue makes it unnecessary to reach them. The judgment of the Supreme Court of Alabama is vacated, and the case is remanded for further proceedings not inconsistent with this opinion. Vacated and remanded. JUSTICE STEVENS took no part in the consideration or decision of this case.

Justice Kagan

dissenting

Yates v. United States

https://www.courtlistener.com/opinion/2781925/yates-v-united-states/

A criminal law, 18 U.S. C. prohibits tampering with “any record, document, or tangible object” in an attempt to obstruct a federal investigation. This case raises the question whether the term “tangible object” means the same thing in as it means in everyday language—any object capable of being touched. The an- swer should be easy: Yes. The term “tangible object” is broad, but clear. Throughout the U. S. Code and many States’ laws, it invariably covers physical objects of all kinds. And in context confirms what bare text says: All the words surrounding “tangible object” show that Congress meant the term to have a wide range. That fits with Congress’s evident purpose in enacting : to punish those who alter or destroy physical evidence—any physical evidence—with the intent of thwarting federal law enforcement. The plurality instead interprets “tangible object” to cover “only objects one can use to record or preserve in- formation.” Ante, The concurring opinion similarly, if more vaguely, contends that “tangible object” should refer to “something similar to records or documents”—and shouldn’t include colonial farmhouses, crocodiles, or fish. Ante, at 1 (ALITO, J., concurring in judgment). In my view, conventional tools of statutory construction all lead to a 2 YATES v. UNITED STATES KAGAN, J., dissenting more conventional result: A “tangible object” is an object that’s tangible. I would apply the statute that Congress enacted and affirm the judgment below. I While the plurality starts its analysis with ’s heading, see ante, at 10 (“We note first ’s caption”), I would begin with ’s text. When Congress has not supplied a definition, we generally give a statutory term its ordinary meaning. See, e.g., Schindler Elevator Corp. v. United States ex rel. Kirk, 563 U. S. (2011) (slip op., ). As the plurality must acknowledge, the ordi- nary meaning of “tangible object” is “a discrete thing that possesses physical form.” Ante, (punctuation and citation omitted). A fish is, of course, a discrete thing that possesses physical form. See generally Dr. Seuss, One Fish Two Fish Red Fish Blue Fish (1960). So the ordinary meaning of the term “tangible object” in as no one here disputes, covers fish (including too-small red grouper). That interpretation accords with endless uses of the term in statute and rule books as construed by courts. Dozens of federal laws and rules of procedure (and hun- dreds of state enactments) include the term “tangible object” or its first cousin “tangible thing”—some in associ- ation with documents, others not. See, e.g., 7 U.S. C. (referring to “any material or tangible object that could harbor a pest or