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Business Rights Watch

Do Special Exemptions Protect Businesses' Freedom?

It’s good to see businesspeople fighting back against destructive regulations. But sometimes what they’re fighting for is less than glorious.

Take banker John Buhrmaster, from the village of Scotia in upstate New York. Three-quarters of what he does as CEO of a small bank there is now compliance, according to the Albany Business Review. “Since 2008, regulations have been popping up like crazy,” he complains. He wants to spend less time and money on rules and more on his depositors and borrowers. So he wants the government to get off his back.

So far, so good. But instead of arguing that banking regulations violate his rights and ought to be repealed, he’s asking for special exemptions for small banks. As chairman of a group called Independent Community Bankers of America, he’s backing “tiered regulation.” That means big banks and small banks would have different rules. They have “two different business models,” he argues.

Or take cigar maker Eric Newman, president of the last cigar company with a factory in Tampa. His employees make cigars on hand-operated machines, and he’s concerned that the FDA’s proposal to regulate cigars like cigarettes would put him out of business. His old-fashioned equipment would face scrutiny (remember what the FDA tried to do to cheese makers?). And in an industry that has come to rely on new products, he’d have to put every new product through 5,000 hours of tests.

So is he pushing to deregulate tobacco, arguing that people have the right to make and sell whatever recreational substances they want? Ha! He’s apparently not even trying to stop the FDA from regulating cigars. What he and local congresswoman Kathy Castor are seeking is to get Newman’s cigars included in a regulatory exemption for premium cigars. Nearly 300 comments, many using the same text, have been submitted to Regulations.gov specifically mentioning Newman’s company. Fifty of them, mostly anonymous but some signed by named individuals, call the factory a “working museum.”

So what are we to make of these efforts, morally speaking? Frankly, I’m not sure. There are things to be said for and against them.

It’s understandable why (relatively) small businesses like Buhrmaster’s bank and Newman’s cigar company would seek special protections instead of standing on the principles of rights: the administration obviously doesn’t respect the principles of rights, but it might be convinced to have mercy on small, community-based businesses.

And yet in the long run, special niches are vulnerable. The government can come along at any time and change them. If you want security, you need the principles of rights, and arguing for special privileges makes it harder to advocate those principles.

The pursuit of special exemptions is troubling because equality under the law is an important value. Exempting one business from an unjust law that harms another makes matters worse for the law’s victims, because they have to compete with a business that doesn’t share the handicaps imposed on them. And especially when an exemption is grounded in a business’s historic character, it amounts to treating some citizens as more important than others, which is proper for individuals to do but dangerous for governments to do. The greatest protection individual rights can have is the recognition that when the government violates one citizen’s rights, it threatens all our rights, and special exemptions undermine the recognition of this principle.

Yet unjust laws that nominally treat businesses equally can have unequal impacts. An additional paperwork burden for a big bank may be a matter of adding another lawyer, which, in its context, may be a small cost; for a small bank the same paperwork may take a large chunk of the CEO’s time. A testing requirement for new products may be little burden on a big cigarette manufacturer whose customers want to keep buying identical cigarettes, but a tremendous burden for a cigar company whose customers like trying new and interesting cigars. This is one reason big companies often support regulations: They can withstand them more easily than their smaller competitors.

More fundamentally, adding an exemption means some people don’t get their rights violated (in certain ways) who otherwise would. In that respect, exemptions are clearly good. Yet they are troubling because of the legal inequality involved.

Exemptions reflect the fundamental injustice of the regulated economy. When the law does nothing but uphold individual rights, there is no case to be made for special exemptions. Rights are the principles we need the law to uphold for each of us equally.

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Hobby Lobby: Corporations' Rights Protect Individuals' Rights

Pursuing a profit does not mean giving up your other values, not even if you do it by means of a corporation. That’s the most important meaning of today’s Supreme Court decision in Burwell v. Hobby Lobby.

And it is an important point. Business is part of life. Indeed, using your mind to produce the values that sustain you is of the essence of a human life.

In the Hobby Lobby case, three businesses owned by Christian families objected to Obamacare’s requirement that they pay for employee health plans that include (what they regard as) forms of contraception that can cause abortions. The business owners believe—wrongly—that abortion is immoral.

Under the Religious Freedom Restoration Act, the federal government may not “substantially burden” a person’s ability to practice his religion unless it’s the “least restrictive” way to serve a “compelling” government purpose. That religious practice includes following religion-based moral strictures, such as the one these Christians believe forbids them to pay for abortions. (The RFRA does not protect those of us who get our moral convictions from reason and reality, but that’s Congress’s fault, and it wasn’t at issue in today’s case.)

The contraception mandate did not literally and directly apply to the individual Christians who own Hobby Lobby and the other businesses involved: it applied to the businesses, which are corporations. So one of the questions the Court had to address today was whether the RFRA applies to corporations.

Justice Ruth Bader Ginsburg said it did not. Corporations, she said, quoting Justice Stevens’s opinion in Citizens United, “have no consciences, no beliefs, no feelings, no thoughts, no desires.”

The thing is, however, the people who own and run them do. And every act of a corporation is ultimately an act of human beings.

Justice Samuel Alito recognized that—and his was the majority opinion. “A corporation,” he wrote for the Court, “is simply a form of organization used by human beings to achieve desired ends... When rights... are extended to corporations, the purpose is to protect the rights of these people.”

The moral principle that individual rights apply in the business context is much broader than the contraceptive mandate. And it’s broader than the RFRA, though that law is all the Court was considering today. It covers the right to free speech and the right to property. It covers the right to make your products by your own standards and organize your business your way. It is, most simply, the right to live a productive human life.

Organizing your business as a corporation does not mean giving up the right to live your life.

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Take-Aways from When FDA Tried to Take Away Your Cheese

The FDA recently said it was illegal to age cheese on wooden boards; in the face of an outcry, it retreated -- kind of. It still says it plans to "engage with the artisanal cheese-making community to determine whether certain types of cheeses can safely be made by aging them on wooden shelving," which means it still might determine that they can't. Cheese fans beware: the threat still looms.

Writing at Forbes, Greg McNeal calls it a victory and a lesson:

When government officials make pronouncements that don’t seem grounded in law or policy, and threaten your livelihood with an enforcement action, you must organize and fight back.  While specialized industries may think that nobody cares, the fight over aged cheese proves that people’s voices can be heard.

But Walter Olson of Overlawyered points out that fine cheese has a particularly articulate and influential constituency interested in its product and knowledgable about it -- and not all industries have that resource. 

Sometimes fighting back over a particular product is successful. Sometimes, as we were recently reminded by the Buckyballs case, it isn't. And sometimes even a victory in one forum leaves regulators to fight in another, as when the IRS surrendered to the Institute for Justice in its court battle over licensing tax preparers, only to ask Congress to grant it the power the agency had claimed it already had.

In the long run, only a principle of individual rights can protect everyone. When we recognize that everyone has an interest in everyone else's freedom -- including everyone else's freedom to buy and sell products we ourselves don't want to make or use -- we know that we have reason to care about the issue even when the product in question doesn't interest us. If most people recognized that, the government would know it had to respect freedom, even in the case of products without influential constituencies. 

Many fans of fine cheese are progressives, and I hope they learn something from this: When the government looks out for your safety and not your freedom, it may try to take away things you value. Even if you fight back, you may lose, and even if you seem to have won, you may lose soon thereafter. And even if the fans of fine cheese succeed in protecting it, there is probably some other product you like that doesn't have so many influential fans. If you want to protect the things you value, you need the principles of freedom.

(H/T Walter Olson)

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The Buckyballs Settlement: A Loss All Around?

Craig Zucker, the Buckyballs CEO who fought back irreverently when the Consumer Product Safety Commission went after his product, has settled the case. The CPSC says the settlement’s "intended to protect children and teenagers." Zucker says he hopes the CPSC has learned a lesson. Both sides want us to think they’ve won. But Zucker lost, and so did the rest of us.

The CPSC was pursuing Zucker personally, perhaps because he publicly fought back, perhaps because he closed his company and it wasn’t available as a target anymore. Zucker claimed the agency had no business going after him individually—it was his company that had sold Buckyballs—but the settlement requires him to pay for a recall. And it requires him to give up any claims he had against the CPSC.

It’s tempting to say the CPSC lost too. The amount of money the settlement requires Zucker to pay is remarkably low: $75,000 for publicity, and up to $300,000 for paying and processing consumer refunds. It’s not even enough money to refund one in a hundred Buckyballs purchases. Zucker said the litigation cost more than the settlement.

But the CPSC is not a private plaintiff looking to strike it rich by suing a business. The agency has gotten away with destroying Zucker’s business, and it has proved that it can force an individual businessman to pay for selling products the CPSC later decides it doesn’t want on the market. If the agency wants to expand its power, or if it wants to drive products on which someone might possibly injure himself off the market, this is a win for the CPSC.

As for the rest of us, we lost in several respects. We lost the ability to buy Buckyballs, toys that many people liked—and we may have lost products we don’t even know exist because this case may scare other people out of bringing them to market. We lost because the fact that Zucker ended up personally on the hook may deter other businessmen from fighting back against product recalls. And we lost because, yet again, a federal agency has demonstrated that it doesn’t need to prove that the facts and the law are on its side: it can drive people out of business, force them to settle, and even declare products illegal, all without ever making its case in court.

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Let Tesla Compete, Say FTC Officials

Is the Federal Trade Commission for a free-market economy? A recent blog post by three of its top officials could almost make you think so. The directors of the FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics have a message for state regulators: Let Tesla compete!

Tesla Model STesla sells its cars directly to consumers, challenging the traditional model of selling cars through franchised dealerships. States such as New Jersey and Texas have made that illegal, and North Carolina’s state senate tried to do the same. The FTC blog post argues that these laws restrict consumer choice for no good reason. Tesla, it says, should get to use the business model it thinks best—and in the long run, what business models are used should depend on the same “competitive process” that determines which car models succeed. Let different businesses try different ideas, and the market will make its choices. The FTC staffers support their case by pointing to some of the great business achievements of the Internet age. You might well mistake these bureaucrats for free marketeers, and indeed, they defend the free-market view on this specific question: No, they say, governments should not stop Tesla from selling its cars directly to consumers.

Although the FTC, which has the power to enforce antitrust laws, can crack down on many anticompetitive measures, there's very little it can do about these regulations: there's an exception to antitrust for state laws. The blog post must be viewed as a sort of moral exhortation. Let us consider what moral code it displays. 

If you read the post with an eye toward its basic premises, you’ll notice that the whole case rests on the authors’ judgment of consumers’ best interests. Regulations that protect consumers are OK, they assume, it’s just that these particular regulations make consumers worse off. The rights of the producers don’t enter into it.

What we see in the post is the perspective of economic managers—the perspective of antitrust law. Often, as here, such a perspective shows reasons for the government to get out of a producer’s way. But if we accept that this is the perspective from which the economy should be governed, we accept that all our productive activities are subject to government management. Sometimes that management will be permissive. But not all the time.

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It Makes Guns Louder, but ATF Says It's a Silencer

If you can kill someone with a number two lead pencil, does that mean the pencil companies are actually in the weapons business?

Or how about Apple, if you arrange a hit via your iPhone?

The ATF is being sued for a decision only slightly more reasonable. Gun maker Sig Sauer created a product called a “muzzle brake,” which reduces the recoil when you fire the gun it’s attached to. The device makes the gun louder, the company says, but the ATF classified it as a silencer. That made it subject to heavy regulations that wouldn’t otherwise apply—and may make it difficult or impossible to sell. The reason: It is possible, by adding another part, to make the muzzle brake into a silencer. Thus, the ATF said the muzzle brake was a silencer part.

It gets dumber: The law the ATF was supposed to apply does not say that anything that can be used to make a silencer is a silencer. It says a part “intended only” to be used to make a silencer is a silencer. But as Sig Sauer pointed out, the muzzle brake has another purpose: to reduce recoil.

Sig Sauer responded to the ATF’s determination with thirteen pages of evidence and argument on the law and the facts. It discussed the tests it had done on its product, and it pointed out that similar products were already on the market—and not regulated as silencers. The ATF sent a three-paragraph reply that addressed exactly none of the evidence or argument before asserting once again that the company had produced “a part intended only for use in the assembly or fabrication of a silencer.”

It’s hard to see how this can be anything but evasion—and a reminder that whether a law is good or bad, it can be made worse when its enforcers fail to focus objectively on the facts.

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Suing Disney over Wait Times Takes Time. Why Is That Legal?

If the lawsuit over keeping disabled people waiting at Disney theme parks has merit, it should have been won already. The courts have kept it waiting for two weeks.

Granted, litigation normally takes much longer than that. But this whole case is based on the idea that it’s unjust and exclusionary to keep these plaintiffs and their families waiting. If a private company must accommodate them by letting them skip their wait, surely government courts have the same obligation.

The case, if you haven’t heard of it: Some mothers are suing Disney because it changed its policies towards disabled patrons at its theme parks. It used to be that if you had a disability, mental or physical, you could skip the lines at rides. Thus, for example, if you or someone with you didn’t have the ability to stand for an hour while waiting, you weren’t expected to wait for an hour at all. But media reports said people with disabilities were working as tour guides, in effect selling their line-skipping privilege, and this entrepreneurial activity was deemed an abuse. So Disney decided that disabled patrons should have to wait about as long as everyone else—but not on line. They’d get cards allowing them to come back and ride at about the time they’d have reached the front of the line anyway.

According to the lawsuit, that’s more than some developmentally disabled people can stand. “It is completely unreasonable for a family with a disabled member to check in at a ride, walk away and then go back,” said one plaintiff. Her son, she said, did not understand what was going on.

These patrons, the lawsuit argues, aren’t "able" to wait—so keeping them waiting violates the Americans with Disabilities Act. It denies them "access" to the rides.

But if a long wait denies these mothers’ kids access to rides, surely a much longer wait denies them access to the courts. And the principle of equal justice under law demands that everyone have access to the courts.

Of course, there are reasons court cases take a long time. One of those reasons is that there are lots of cases and relatively few judges to hear them—much as there are lots of Disney patrons and relatively few seats on rides. Also, it takes time for both sides to research the law and explore the evidence. There are a lot of factors to consider in keeping the judicial system organized. Indeed, courts need to consider the facts about litigation in general and make scheduling rules that affect cases wholesale before judges so much as glance at the particular facts of individual cases. Even given the principle of equal justice under law, the difficulty these plaintiffs and their kids have waiting doesn’t necessarily trump everything. Perhaps the courts should consider it, but they have to consider it in the context of all their priorities, just as Judge Colleen Kollar-Kotelly considered the deadline in the American Airlines merger case, but also considered the criminal trial she had scheduled. 

But if even the government, whose courts are bound to offer justice to all, doesn’t have to let these plaintiffs skip the wait, how could it demand that Disney do so? If the courts get to consider the plaintiffs' needs in the context of other priorities, why shouldn't Disney have the same freedom? 

I’m not saying, of course, that Disney shouldn’t be more accommodating. Maybe it should be. But Disney needs to be able to make rules and run its system as it sees fit. If the law says these families’ inability to wait trumps Disney’s right to organize its theme parks, the government that made that law has imposed on Disney restrictions it has not imposed on itself. Those who understand why the government can’t drop everything to attend to these plaintiffs should understand that Disney has other priorities too.

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Ladar Levison's Court Loss Leaves Privacy Issues Undecided

If you were hoping that Ladar Levison’s court fight over his refusal to expose users of his secure email system, Lavabit, to government surveillance, would produce a shining judicial defense of privacy and business rights, today the Fourth Circuit let you down.

If, on the other hand, you were afraid that the appellate court would uphold the contempt ruling a federal judge made last year against Levison and his company and thereby deal a serious blow to any businessman’s ability to offer online privacy—well, that didn’t happen either.

The Fourth Circuit did uphold the contempt citation. That’s bad news for the man who is, perhaps more than anyone else, the opposite of the NSA. But the court explicitly refused to consider the constitutional questions involved in the case, and it only looked at the questions about online search-and-seizure laws through a very limiting procedural filter. This case has created no very helpful precedent either for privacy-conscious businesses and their customers or for government officials who want their information.

Levison didn’t leave the issue of email privacy just to litigation: businessmen and programmers like him have their own weapons to bring to their battles.

Instead of giving serious consideration to the core issue in the case—whether the government was entitled to force Levison to turn over his encryption keys so that investigators could get one customer’s metadata, even though that would have meant giving the government access to all his customers’ metadata and email contents—the court decided the appeal on the ground that Levison had failed to raise his arguments in the trial court. You’re generally not allowed to ask an appellate court to say a trial court got something wrong unless you gave the trial court a chance to get it right. You aren’t allowed to raise whole new issues in the appeal. And that’s what the Fourth Circuit said Levison was trying to do.

The Fourth Circuit’s decision teaches us nothing about email privacy. What it does do is remind us of the importance of the division of labor, including in battles over rights. At a key hearing (see pages 50-64 of this file) when Levison should have raised his statutory and constitutional arguments, he represented himself and did not raise them. That cost him. If he’d had a lawyer, that lawyer would have been aware of the risk of failing to raise arguments, and (one at least hopes) would have known the important arguments to raise.

But Levison didn’t leave the issue of email privacy just to litigation: businessmen and programmers like him have their own weapons to bring to their battles. By building Lavabit in the first place, Levison provided unusually high security to his customers for 10 years. By shutting down Lavabit, Levison the businessman protected his customers’ privacy despite turning over his encryption keys. And with his new project, Levison the programmer and businessman is working on new ways to secure individuals’ private communications. Meanwhile, the legal and constitutional issues the Fourth Circuit didn’t get to today await another day—and more work by lawyers.

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IRS Still Fighting to Regulate Tax Preparers

After two court defeats, the IRS is still at it. A federal judge in D.C. said it couldn’t license tax preparers. The D.C. Circuit said it couldn’t license tax preparers. Now the agency is going to Congress and saying: let us license tax preparers.

You don’t need anyone’s permission to do your own taxes. I just did mine. But the IRS is trying to make sure you need the IRS’s permission to make a living preparing other people’s taxes. IRS Commissioner John Koskinen made the case to the Senate Finance Commission this week.

Koskinen argued that oversight would ensure that preparers provided good service. And committee Chairman Ron Wyden, Democrat of Oregon, pointed out that some tax preparers commit typos—or even fraud. But crimes and mistakes are possible in all sorts of productive activities, and that doesn’t mean you should need the government’s permission to make a living. And if Congress really wants accurate tax returns, there’s no solution but to make the tax code simpler.

The courts’ decisions can't stop Congress from giving the IRS the power to license tax preparers: the courts only ruled that existing laws did not already give it that power. Congress could give it that power in a new law.

What could stop Congress from giving the IRS the power to license tax preparers? In the long run, the same thing that can protect hair stylists, dairy farmers, and transportation providers: a culture that affirms everyone’s right to live, and to make a living, without having to get the government’s permission.

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Stopping Business and Due Process

Imagine if when prosecutors accused a person of a capital crime, the government stopped his heart and said: We’ll let your friends try CPR if you win at trial.

That bears a striking resemblance to the kind of due process some businesses get. Recently, Reason and the editorial page of the Wall Street Journal called attention to two examples.

Let’s start with some blueberry growers in Oregon. According to a Journal editorial, the Department of Labor, showed up, looked at their books, substituted their own notions of worker productivity for the records the companies kept, and concluded that the growers were paying less than minimum wage. So the bureaucrats decreed that their blueberries couldn’t be shipped across state lines unless the growers paid the back wages they allegedly owed and waived their right to appeal.

In other words, before the question of whether the growers had violated the law was ever litigated, a core aspect of their business—selling their product—was stopped. Like a person’s life, a business’s existence is a process of action: stop it and the business starts dying. To get their business moving again, and to get millions of dollars’ worth of their crop to market before it rotted with their investment, the businesses had to comply with the bureaucrats’ demands.

According to an agricultural newspaper, the Department of Labor says that was OK: It had the legal right to do what it did, and you can’t place someone under economic duress by doing what you have the legal right to do. So it claims the waiver counts.

In a way, though, the blueberry growers were lucky. The bureaucrats’ demands were costly but relatively simple; the growers were able to comply, and when they did, the bureaucrats let them get back to business.

As Reason tells it, some small bus companies haven’t been that lucky with the Department of Transportation. The legal procedures that apply aren’t made clear either by Reason or, so far as I can tell, by the Federal Motor Carrier Safety Administration’s website. But the companies have ended up making their arguments after being forced off the road—which means racking up costs while being cut off from revenue. Even if the government was in the wrong by its own standards, and even if the companies have the evidence to prove it, they may run out of assets and die before they can prove their innocence.

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