It takes a bit of work to work your way through the Arizona statute being challenged in the U.S. Court of Appeals' opinion in CDK Globall LLC v. Brnovich, No. 20-16469 (Oct. 25, 2021). But we recommend you read the opinion and do the work nonetheless, because it tells us something about the way the Ninth Circuit views the right to exclude.
The statute, known as the "Dealer Law," deals with the way car dealers treat the data they obtain from their customers. Data like the cars themselves, parts, services and the like, but also things like credit history and social security numbers. Like pretty much every other thing these days, that data is managed by proprietary software. Not surprisingly, there are specialized vendors who license the industry-specific, proprietary software. According to the opinion, those vendors in the past allowed dealers to extract the data from the proprietary platform in order to share it with third parties who would reformat the data so it could be used on other platforms employed in other parts of the dealers' operations such as customer relations and marketing.
But "a few years ago, [the proprietary vendors] began to prohibit that practice [of reformatting data]." Slip op. at 6. Protection of their IP rights was the reason. In response, Arizona adopted the Dealer Law, which, according to the proprietary software vendors, has two main problems.
First, it limits their ability to get in the way of a dealer using the data stored on the vendors' software platforms. Third parties may therefore integrate that data into their own data-management systems. Second, the statute requires vendors to adopt and make available a standardized way of sharing the data. Lawsuit by the vendors challenging the statute for violating the Copyright Act, and the Contracts, Due Process, and Takings Clauses followed. The district court allowed only the copyright, Contracts, and Takings claims to go forward, and later denied the plaintiffs' request for a preliminary injunction prohibiting enforcement of the Act.
Next stop, Ninth Circuit (and keep in mind here this is a not a final disposition on the merits, but an appeal of the district court's refusal to enter the PI).
You can skip all the copyright stuff and fast forward to page 23 of the slip opinion for the takings analysis. The court rejected the vendors' Loretto physical takings claim, which argued that the statute requires "provides to allow authorized integrators 'to enter, use, and occupy" their software. Slip op. at 24. "But," the court concluded, "the analogy between Loretto and this case is misplaced for two reasons." Id.
First, there was no physical invasion at all because the requirement to disclose information -- although it might be described as "access" -- isn't really the type of thing we think about when we think "physical" invasion or access. "To be sure, there can be property interests in information, and those interests are protected by the Takings Clause. But [the plaintiffs do] not argue that such property interests -- trade secrets, for example -- are subject to a taking here." Slip op. at 24-25.
Second, the government hasn't required the plaintiffs to submit to a physical occupation even if there was one. While the statute may permit integrators "to write data to a [software] on a dealer's behalf, [the plaintiffs] voluntarily license[d] its software to dealers, and nothing in the Dealer Law compels it to continue doing so." Slip op. at 25. Get out of the kitchen if you can't stand the Dealer Law heat.
And no, you do not have a choice about who to let in or keep out: "[o]nce property owners 'voluntarily open their property to occupation by others,' they 'cannot assert a per se right to compensation based on their inability to exclude particular individuals." Slip op. at 25. Yes, the Yee v. Escondido rationale. That approach always has seemed odd to us. I can't say A can enter my property alone, and if I invite A in I can't keep B, C, D, and E out? Or at least I cannot require a categorical treatment, and as a consequence I have to suffer some kind of actual and substantial loss of use or value, and I have to show the "reasonableness" of my expectation of privacy (and the "character of the government action," maybe)? That doesn't seem right. Or at least the everyone rationale doesn't seem like the correct place to draw that line between categorical and ad hoc analysis.
Having dispensed with the physical takings argument, the court also made short work of the Penn Central claim. Minimal economic impact, you don't have any reasonable expectation of being free of the state's "high degree" of control over commercial dealings, and the character of the government action was a regulation designed to adjust the benefits and burdens of economic life and not, as noted above, a requirement to allow third party invasion.
So keep out, EVERYONE!
CDK Global LLC v. Brnovich, No. 20-16469 (9th Cir. Oct. 25, 2021)
