VESTED RIGHTS, "FRANCHISES," AND THE SEPARATION OF POWERS.

Date01 April 2021
AuthorNelson, Caleb

INTRODUCTION 1431 I. A SUMMARY OF THE NINETEENTH-CENTURY FRAMEWORK 1433 II. WHERE DO "FRANCHISES" FIT? 1438 A. "Franchises" in the English Legal Tradition and in Nineteenth-Century America 1439 B. Corporate Franchises 1442 1. The Distinction Between Public and Private Corporations 1442 2. Was Justice Story Making Things Up? 1447 a. The Concept of "Public" Corporations 1448 b. Vested Rights and "Private" Corporations 1452 3. Some Early Qualifications 1461 C. Ferries, Bridges, Turnpikes, and Other Public Utilities 1463 D. Controversies about Franchises and Calls for Reform 1468 1. Statutory Reforms and Constitutional Restrictions on the States' Power to Grant Franchises 1468 2. Limitations on the Dartmouth College Doctrine 1470 a. Public Offices 1471 b. Exemptions from the Exercise of Governmental Powers 1474 i. Controversy About Tax Exemptions 1474 ii. Core Aspects of the Police Power 1479 III. OIL STATES AND PATENTS FOR INVENTIONS 1484 A. A Brief Summary of the English Background 1485 B. Conceptions of Patents in the United States 1491 1. The Status of Federal Patent Rights in the Early Republic 1491 2. The Patent Act of 1836 1500 3. Did the Idea of Patents as Property Originate in the Jacksonian Era? 1504 4. The Patent Office's Role in Resolving Interferences Between New Applications and Existing Patents 1513 C. Oil States Energy Services, LLC v. Greene's Energy Group, LLC 1525 1. The Traditional Framework and Patent "Reexamination" After 1980 1526 2. The America Invents Act of 2011 1529 3. Some Possible Limits on the Reservation Theory 1532 CONCLUSION 1543 INTRODUCTION

Article III of the Constitution vests what it calls "[t]he judicial Power of the United States" in courts that enjoy structural protections against political influence--courts staffed by judges who "shall hold their Offices during good Behaviour" and whose compensation "shall not be diminished during their Continuance in Office." (1) But Article III does not spell out the types of governmental decrees that require judicial power, as opposed to the decrees that Congress can authorize administrative agencies to make in the course of helping to execute federal law. That line is important to American-style separation of powers, but it has proved difficult to draw.

In 2007, I published an article explaining the framework that lawyers and judges used for this purpose throughout much of American history. (2) That framework relied on the traditional distinction between "public rights" and "private rights"--a distinction that Ann Woolhandler and I had already explored in related contexts. (3) Of course, I was not the first to note that the various branches of government play different roles when different types of legal interests are at stake, or that the distinction between public rights and private rights is an important aspect of those differences. Justice William Brennan had emphasized that distinction in cases about Congress's power to authorize adjudication outside the Article III courts, (4) and modern scholars had also examined the distinction's history. (5) Still, I took the distinction more seriously than most law professors did, (6) and I suggested that it is more embedded in separation-of-powers doctrines than people realized.

In the ensuing years, what I called the traditional framework has become more prominent. Various scholars with an interest in originalism have embraced it to distinguish the kinds of legal claims that Congress can commit to administrative agencies from the kinds of legal claims that trigger the need for "judicial" power. (7) On the Supreme Court, Justice Clarence Thomas has also deployed the framework repeatedly in this context. (8) Most recently, his majority opinion in Oil States Energy Services, LLC v. Greene's Energy Group, LLC (9) used the framework to uphold the administrative cancellation of a patent pursuant to procedures authorized by Congress. The Court reasoned that a patent is a "public franchise" granted by the government, and the Constitution does not prevent Congress from qualifying such grants by reserving a power of administrative reconsideration. (10)

I am honored and gratified by the reception of my earlier article. Precisely because people have paid attention to it, though, I feel a responsibility to correct something that I got wrong--or at least did not adequately qualify--and that risks affecting the future course of doctrine. Contrary to a passing suggestion in the article, what nineteenth-century lawyers called "franchises" were capable of vesting in private individuals or entities in such a way as to become full-fledged private rights. When granting franchises, though, legislatures could indeed structure them in such a way as to avoid this result. As we shall see, the story of "franchises" thus relates to what scholars have correctly identified as two of the most important open questions about the framework discussed in my earlier article: (1) how to classify the kinds of legal interests that modern statutes create (11) and (2) the extent to which Congress can use its other powers to extract waivers of the right to judicial adjudication of vested private rights. (12)

This Article proceeds as follows. Part I briefly summarizes the historical framework. Part II examines where "franchises" fit in that framework. Part III focuses specifically on patents for inventions.

  1. A SUMMARY OF THE NINETEENTH-CENTURY FRAMEWORK

    My earlier article relied on two key distinctions. First, it contrasted legal interests belonging to the government (or to the people in their collective capacity) with legal interests belonging to private individuals or entities. (13) Second, within the latter category, it contrasted private "rights" (of the sort that even the legislature could not abrogate once they had vested in a private person) with mere "privileges" (which belonged to private people only so long as the legislature allowed them to exist). (14)

    Those distinctions were centrally important to the doctrine of "vested rights," which Edward Corwin once described as "the underlying doctrine of American Constitutional Law" before the Civil War--a doctrine so foundational that, without it, "there would [not] have been any Constitutional Law" at all. (15) Under general principles of constitutional law (common to both the Federal Constitution and the constitutions of the various states), (16) only certain kinds of legal interests were thought to be capable of "vesting" in private individuals or entities in such a way as to trigger this doctrine. Those legal interests could be described under the categories of life, liberty, and property--categories corresponding to the kinds of individual rights that Lockeans believed would exist even in the state of nature and that allegedly supplied the basic rationale for creating government in the first place. (17) Rights to life and physical liberty were said to be vested in individuals from birth, and to remain vested unless a particular individual was duly adjudged to have forfeited them. (18) Property moved around more, but the capacity to acquire property was thought of as a natural right (19)--and when a private individual or entity did indeed acquire legal interests that counted as real or personal property (including various rights acquired by contract), those interests too triggered the doctrine of vested rights. (20)

    As applied in the nineteenth century, the doctrine of vested rights limited governmental power in various ways. Of course, the doctrine did not prevent statutes from regulating how people used their property or identifying circumstances in which property would be deemed to be abandoned, transferred from one person to another, or forfeited to the government. (21) Likewise, statutes could define crimes and authorize sentences that could include loss of property (monetary fines), loss of liberty (imprisonment), or loss of life (capital punishment). But whatever the scope of various legislatures' powers to establish rules according to which people could lose their rights to life, liberty, or property, the doctrine of vested rights restricted the temporal effect of those rules. Throughout the nineteenth century, the doctrine operated as a limit on retroactive legislation, and it also helped to define what counted as retroactivity. (22)

    That aspect of the doctrine reflected broader principles about the separation of powers. In general, neither "legislative" nor "executive" power was capable of acting directly upon vested rights and legally divesting them (or authoritatively declaring that they had been divested in the past). (23) Thus, only a court--a body with "judicial" power--could validly adjudge someone guilty of a crime and sentence him to pay a fine, to serve a term in prison, or to be executed. Likewise, if someone claimed to be the owner of the type of legal interests that counted as vested rights to property, only a court could declare authoritatively (in a way that would have preclusive effects in later litigation) that the property actually belonged to someone else.

    Some state constitutions said relatively little about the characteristics of the state's courts. But the Federal Constitution restricted the kinds of entities that could exercise what Article III calls "[t]he judicial Power of the United States." (24) Given those restrictions, Congress could not confer "judicial" power upon the typical administrative agency. (25) As a result, Congress could not authorize such agencies to make binding determinations that a private individual or entity had acted in such a way as to forfeit vested private rights (or that such rights had never vested in the individual or entity in the first place).

    By contrast, within the limits of its enumerated powers, Congress could and did authorize executive officials or administrative agencies to dispose of legal interests that did not fit the template of vested private rights. For instance, Congress could...

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