Protecting Innovation by Private Companies in Partnership with Government Agencies

By Heather Walker*

To encourage innovation, the government may provide a private company with an equipment authorization to develop new technology or create rules and regulations encouraging such development. However, private companies risk losing money on their innovations if the government later revokes an equipment authorization or changes a project unless the government compensates them. Although the Constitution prevents the government from taking property without providing just compensation, in order for the Takings Clause to apply, what was taken has to be deemed property in the first place. Where the government has passed rules and regulations to incentivize a specific private company to invest and develop innovative technology, the authorizations and created property should be found to be a property interest that can support a takings claim. By recognizing these interests as property interests, companies will be more inclined to partner with and support innovation that deals with pressing problems as they know they are guaranteed a certain level of protection.

Governments are increasingly partnering with private companies to create innovative technology to address a panoply of major problems.¹ These public-private partnerships can range from government contracts to more extensive collaborations. The government can use these more extensive collaborations to incentivize private companies to invest in solving public problems while still maintaining a higher level of control in the actual project. When there is extensive collaboration, private companies invest heavily in providing solutions, but their ability to profit or solve problems depends on various forms of governmental approval. Revoking these approvals can then cause catastrophic problems for the companies and undermine the government’s ability to encourage future companies to partner with the government and solve problems.

Private companies often turn to due process claims when authorizations are revoked to protect their interests. While these claims are important, in specific circumstances the Takings Clause of the Fifth Amendment to the United States Constitution should be considered as an additional avenue for relief because its clear compensatory claim works as insurance and incentive for private companies to heavily invest in government projects. It also still gives the government latitude to prevent actions it finds unwise or dangerous. This avenue is particularly productive where these partnerships reflect close relationships that depend on rules or regulations designed specifically for the company involved and that encourage the company to develop technology.

The government recognizing the authorizations or licenses necessary for these partnerships as property also promotes innovation by encouraging other companies to partner with the government. Companies look to protect serious investments, so fear of revocation may prevent them from engaging with the government if they will not have a way to recoup losses. If companies have the extra assurance of a potential takings claim, they may be more likely to partner, invest, and create inventive solutions. Thus, recognizing this investment as a property interest under the Takings Clause simply offers insurance for the huge investments private companies must make in the rare circumstance where they are in extensive partnership with the government, hereinafter referred to as “partnered innovations.”

Additionally, the government may not have legitimate reasons to revoke an equipment authorization or license. However, there is nothing in the Takings Clause that prevents the government from taking something so long as it is for public use.² Instead it simply requires that when the government takes, it must compensate.³ If the government prevents a company from using an equipment authorization in order to stop the company from moving forward with the created technology, it must compensate the company; however, the government is not required to move forward against its own judgement. In partnered innovations, a takings claim allows the government to maintain control over its projects while still incentivizing private companies to partner with the government.

When evaluating takings claims, courts must go through two distinct steps: “First, is the subject matter . . . ‘property’ within the meaning of the fifth amendment? Second, if so, has there been a taking of that property?”⁴ Often, the biggest hurdle for companies working in partnership with the government is establishing that what was taken is property.⁵ The Takings Clause is not typically used for the licenses and authorizations at issue in partnered innovation primarily because courts are hesitant to categorize licenses and authorizations as property for purposes of the Takings Clause.⁶ Still, where certain factual situations can satisfy the first two threshold requirements, licenses and authorizations associated with partnered innovation should be read to support a property interest. Recognizing a property interest in those circumstances will, in turn, encourage companies to partner with the government and promote innovation. Accordingly, this Contribution will focus on situations in which private companies should argue they have a property interest in authorizations and licenses that indicate the government will support their developments.

To contextualize, consider a hypothetical.⁷ Suppose the government wants to address the issue of orbital debris that interferes with satellite performance. In order to address this problem, the government partners with a company that then develops a vessel to clean up the space debris, but the vessel requires access to a specific spectrum to allow it to move through space. To incentivize the company to develop and build these vessels, the Federal Communications Commission (FCC) mentions the company by name in the proposed rules and regulations as the only entity ready to access the spectrum needed and grants them an equipment authorization to develop the vessel. Then, just days before the launch of these vessels, the FCC revokes the equipment authorization citing national security concerns. At this point the company has invested heavily in developing these vessels with the understanding they would be able to use them. The vessels, developed at great cost to the company, are ostensibly unusable. In those circumstances, this taken authorization should qualify as property under the Takings Clause because (1) it is not simply a privilege, (2) it is transferrable, and (3) the unique factual circumstances imply exclusivity.⁸

As a general matter, courts have been hesitant to recognize licenses, permits, and authorizations alone as property interests for purposes of the Takings Clause.⁹ If all licenses and permits were considered property rights “statutes would be ratchets creating rights that could never be retracted or even modified without buying off the groups upon which the rights had been conferred.”¹⁰ But instances of partnered collaboration are factually distinct and so minimize these concerns. Furthermore, recognizing a property interest here encourages companies to collaborate with the government when there are pressing problems to address.

Establishing a cognizable property interest for the purpose of the Takings Clause is distinct from other property interests, such as those protected by the Due Process Clause, because the standard is higher.¹¹ Although the quintessential example is real property, an equipment authorization would not be considered real property.¹² Instead, where the property at issue is not real property, courts turn to “existing rules or understandings that stem from an independent source such as state law” to determine whether there is a property interest.¹³ Since the Supreme Court has not articulated a specific test, the Federal Circuit and other lower courts have focused on three threshold factors: first, whether there is explicit statutory language preventing the formation of an interest; second, whether there is a right to transfer; and third, whether there is a right to exclude.¹⁴

When partnered collaboration satisfies the threshold issues, companies should argue there is a property interest. First, for there to be a property interest there must be no disqualifying language in the statute. This factor acts as a threshold question to prevent meritless claims and honor the intentions of the legislature. For example, in Hignell-Stark v. City of New Orleans, the Fifth Circuit rejected a claim that there was a property interest in a short-term rental license because it was expressly demarcated as a privilege in the statutory scheme.¹⁵ This factor ensures that courts are not expanding property interests beyond their statutory limits and also gives the government a clear way to signal to courts when there is no right.

Ambiguous language should satisfy this threshold issue. This first factor prevents property claims where the government has expressly stated that a license or authorization is a privilege. Thus, the standard in Hignell-Stark suggests that the language preventing the formation of a right must be explicit,¹⁶ which leaves open many authorizations that lack this explicit language.¹⁷ For instance, in the hypothetical there is nothing in any of the FCC’s statutes regarding equipment authorizations that expressly denotes them as privileges.¹⁸ Thus, where the statute is only ambiguous, the private company should satisfy this first factor.

The second factor, whether there is a right to transfer, is a “traditional hallmark[] of property.”¹⁹ Under this factor, courts often work backwards assuming that if there is transferability, something can be understood as property.²⁰ This is a common stumbling block: Licenses and authorizations fail to be deemed property because often they are not transferrable. For instance, in Conti, the court found that a regulation that rendered a fishing permit useless was not a taking because there was no right to transfer the permit.²¹ Given that property includes the right to transfer and there was no right to transfer, the fishing permit could not be property.

A prohibition on transferability limits whether a license or authorization can be seen as property.²² But, prohibiting transfers is different than merely regulating the ability to transfer. Again, in our example, although there are regulations on the ability to transfer, such as certain reporting and disclosure requirements for persons involved in the transfer, these regulations do not amount to a complete prohibition. The government regulates many transfers of property and if that alone was enough almost nothing would qualify as property for purposes of the Takings Clause. Thus, where the right to transfer is simply regulated and not completely prohibited, courts should still find that there is a property interest.

Third, companies involved in partnered innovation should highlight the unique factual circumstances to support an argument that there is a property interest in the authorizations or licenses. The last factor for establishing whether something is property for purposes of the Takings Clause is whether, based on the statutory language and surrounding circumstances, the right is exclusive.²³ This analysis is where the specific nature of partnered innovation is most important. In order to encourage the innovation and investment it takes to develop and design projects that can solve widespread problems, the government may be inclined to give exclusive rights or guarantee certain protections from competition. Further, within partnered innovation there are often rules and regulations passed specifically to support such innovation. Returning to the hypothetical, if the FCC partners with a specific company to develop a space vessel, that company should have protections for relying on the government to support their innovation. All these factual circumstances create the kind of exclusivity that is characteristic of property and is protected by the Takings Clause. Where these situations exist, courts should be receptive to finding a property interest for purposes of the Takings Clause.

Finally, while concerns for “rights ratchets” are legitimate, there are two factual findings within the third factor that courts should consider to cabin concerns of upward rights ratchets. First, there should be specific rules or regulations changed with the named partners in mind. This element prevents broad regulatory authorizations that simply benefit certain companies from rising to a property interest. For example, the hypothetical included a rulemaking that referenced the named company. This is more limited than recognizing all the equipment authorizations the FCC grants as property and effectively cabins it to only those licenses and authorizations that receive the extra assurance of a rulemaking.

Second, the license or authorization must benefit only one company. This element tracks the third factor’s interest in exclusivity specifically. Ultimately, in these cases the government stands to gain an advantage from the private company’s extensive monetary investments. Thus, where the government is partnering with one specific company and changing rules or regulations to support that partnership, there should be property protections for the private companies taking these risks. Again, in the stated example, the FCC noted specifically that only one company could use this rulemaking. That fact implies a level of exclusivity as that company is going to be the only entity in the market.

Ultimately, though this Contribution is primarily concerned with whether there are property interests that can support a takings claim, litigants must still prove their property interests have been taken in order to get just compensation from the government. Thus, simply recognizing authorizations necessary for partnered innovation as property does not guarantee a successful takings claim. However, recognizing these interests as property offers companies an avenue to protection when they invest in developing new technology.

Government partnership with private corporations is one way to ensure that the government effectively collaborates with private companies to work toward innovative solutions. When these partnerships are with one specific company and rules or regulations are changed to facilitate the partnership, companies should be afforded the extra protection of a recognizable property interest to incentivize partnership. This protection leaves open a valuable option as the government looks to find solutions while also encouraging private companies to invest in future problems.

* Heather Walker is a J.D. Candidate (2024) at New York University School of Law. This contribution is a commentary on the problem at the 2023 National Telecommunications and Technology Moot Court Competition, hosted by The Catholic University of America, Columbus School of Law. The question presented was whether a private company who worked in partnership with the Federal Communications Commission (FCC) could bring a Takings Clause claim against the FCC for revoking their equipment authorization. This contribution distills one side of the argument, and the views expressed herein do not necessarily represent the author’s views.

1. Under30CEO, How Private Businesses Can Partner with Government Agencies to Facilitate Change, Entrepreneur (June 12, 2023), https://www.entrepreneur.com/starting-a-business/how-private-businesses-can-partner-with-government-agencies/448538.

2. U.S. Const. amend. V.

3. Id.

4. In re Consol. U.S. Atmospheric Testing Litig., 820 F.2d 982, 988 (9th Cir. 1987).

5. See Conti v. United States, 291 F.3d 1334, 1341–42 (Fed. Cir. 2002) (finding that the fishing permit at interest was not a property interest); Am. Pelagic Fishing Co., L.P. v. United States, 379 F.3d 1363, 1373–74 (Fed. Cir. 2004) (finding the fishing permits and authorization letter at issue were not property interests); see also Kafka v. Mont. Dep’t of Fish, Wildlife & Parks, 201 P.3d 8, 20 (Mont. 2008) (recognizing the “dim view” courts have taken on “the notion that government-issued licenses are compensable property interests”).

6. See cases cited supra note 5.

7. This hypothetical is pulled from the problem at the 2023 National Telecommunications and Technology Moot Court Competition.

8. See Conti, 291 F.3d at 1340–42 (failing to find a property interest because the permit was a privilege, non-transferable, and non-exclusive).

9. See United States v. Fuller, 409 U.S. 488, 497 (1973) (endorsing the lower court’s statement that “permits are mere licenses which may be revoked and are not compensable as such” under the Takings Clause).

10. Ill. Transp. Trade Ass’n v. City of Chicago, 839 F.3d 594, 599 (7th Cir. 2016) (quoting Dibble v. Quinn, 793 F.3d 803, 809 (7th Cir. 2015)).

11. Robert Meltz, Takings Law Today: A Primer for the Perplexed, 34 Ecology L.Q. 307, 318 (2007). (“[C]ourts almost universally hold that the term ‘property’ is narrower for takings than for due process purposes.”).

12. Karen Powell, How Taxis, Peanuts and Assault Rifles Get You a Martini for Dinner: Examining Peanut Quotas and Taxi Medallions in Consideration of Whether a Fifth Amendment Takings Claim Is a Red Herring When Eliminating Alcohol License Quota Systems-Alcohol Licenses Under a Quota System: Non-compensable Regulatory License or Compensable Property Right in an Entrenched Legacy Market, 13 DePaul Bus. & Com. L.J. 433, 449 (2015) (distinguishing real property from government-issued licenses).  

13. Webb’s Fabulous Pharms. v. Beckwith, 449 U.S. 155, 161 (1980).

14. See, e.g., Kafka, 201 P.3d at 22 (“[T]o qualify as compensable property interests, the Licenses must be transferable, exclusive, and free of any ‘express statutory language precluding the formation of a property right.’”) (quoting Members of the Peanut Quota Holders Ass’n v. United States, 421 F.3d 1323, 1331 (Fed. Cir. 2005); Conti, 291 F.3d at 1340–42 (failing to find a property interest because the permit was a privilege, non-transferable, and non-exclusive).

15. 46 F.4th 317, 324 (5th Cir. 2022) (finding that because the statute explicitly stated the license was “a privilege, not a right,” the plaintiffs were not entitled to “money damages when their licenses were not renewed”).

16. See id. (noting that the “licensing regime was explicit” when finding there was not a property interest).

17. For example, the FCC’s statute 47 C.F.R. part 2 subpart J, which defines and determines the rules for equipment authorizations, does not include any specific language demarcating these authorizations as privileges.

18. See 47 C.F.R. § 2.927 (1974) (showing that the limitations on equipment authorizations do not include any explicit indication that they are only a privilege).

19. Conti, 291 F.3d at 1341.

20. Id. at 1342 (finding that because there was an “absence of crucial indicia of property rights” like transferability the permit was not property).

21. Id. at 1341 (“[Mr. Conti] could not assign, sell, or otherwise transfer the permit.”).

22. Id. at 1342 (finding that the permit was “a revocable license, instead of a property right,” in part because the license could not be transferred).

23. Kafka, 201 P.3d at 23 (“In the bundle of rights we call property, one of the most valued is the right to sole and exclusive possession—the right to exclude . . . especially the Government.” (quoting Hendler v. United States, 952 F.2d 1364, 1374 (Fed. Cir. 1991))).