958 F.2d 896 (9th Cir. 1992), 90-56010, G.S. Rasmussen & Associates, Inc. v. Kalitta Flying Service, Inc.
|Citation:||958 F.2d 896|
|Party Name:||G.S. RASMUSSEN & ASSOCIATES, INC., Plaintiff-Appellant, v. KALITTA FLYING SERVICE, INC.; Connie Kalitta Services, Inc.; Conrad A. Kalitta, Defendants-Appellees.|
|Case Date:||March 09, 1992|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued and Submitted Aug. 15, 1991.
[Copyrighted Material Omitted]
Michael W. Stamp, Joel Franklin, Stamp and Franklin, Pacific Grove, Cal., W. Montgomery Jones, Jones and Jones, Monterey, Cal., for plaintiff-appellant.
Robert H. Morse, Galland, Kharasch, Morse & Garfinkle, P.C., Washington, D.C.; C. Darryl Cordero, Weissburg & Aronson, Los Angeles, Cal., for defendants-appellees.
Appeal from the United States District Court for the Central District of California.
Before WALLACE, Chief Judge, GOODWIN and KOZINSKI, Circuit Judges.
KOZINSKI, Circuit Judge:
We shuttle back and forth between federal and state law in determining what legal protections--if any--are available to the holder of certain aircraft design permits issued by the Federal Aviation Administration.
A. The FAA is charged by Congress with promoting air safety, see 49 U.S.C.App. § 1421(a), and pursues this mission
vigorously and effectively in cooperation with the private aviation industry. One of the FAA's most important functions is to prescribe standards and to measure compliance with a multistep certification process for airplane design and production. See generally United States v. Varig Airlines, 467 U.S. 797, 804-07, 104 S.Ct. 2755, 2759-61, 81 L.Ed.2d 660 (1984).
Because the certification procedure is complex and expensive, the FAA certifies airplane types rather than individual planes. Aircraft manufacturers are required to test and analyze new airplane designs themselves; the FAA then determines the airworthiness of the design based on the manufacturer-generated engineering data and test results. 1 Once a manufacturer has demonstrated the safety of its design, the FAA issues it a Type Certificate. See 49 U.S.C.App. § 1423(a)(2); 14 CFR § 21.21(b). The manufacturer can then obtain a production certificate by proving to the FAA that each duplicate airplane will comply with the Type Certificate. See 49 U.S.C.App. § 1423(b); 14 CFR §§ 21.133-21.143. Finally, the manufacturer can obtain airworthiness certification for subsequent aircraft, without undergoing independent testing, by demonstrating that they conform to the Type Certificate. See 49 U.S.C.App. § 1423(c); 14 CFR § 21.183.
This case involves a closely related FAA certification scheme: Supplemental Type Certificates (STCs)--which, as the name implies, certify changes to planes already type-certificated. Anyone who wishes to make a major alteration to an airplane must obtain an STC. 14 CFR § 21.113. The STC serves the same function for alterations as the Type Certificate does for initial manufacture: It allows the FAA inspector to shortcut the airworthiness certification process by incorporating an approved design. STCs are obtained through the same arduous process as Type Certificates: The applicant must present engineering and test data sufficient to prove to the FAA the airworthiness of the proposed modification. See 14 CFR §§ 21.115-21.117.
B. George Rasmussen is an aeronautical engineer. He calculated safe airspeed parameters for DC-8 cargo planes carrying significantly more weight than they were designed for, and developed an aircraft modification that allows DC-8s to carry tens of thousands more pounds than permitted under their original Type Certificate. Based on hundreds of hours of engineering work, Rasmussen submitted volumes of technical data to the FAA. Having thus proved that it was safe for heavily loaded DC-8s to fly within his calculated speed range, he was granted an STC. 2
For a DC-8 owner to obtain airworthiness certification to operate a plane with the increased cargo capacity, he must meet three requirements: First, he must modify the aircraft by installing three instruments--two airspeed indicators and a maximum speed warning gauge; second, the plane must carry a supplement to the flight manual instructing the pilot how to fly the heavily loaded plane safely; third, Rasmussen's STC must be shown to the FAA inspector so he can verify that the modifications conform to a design that has been approved by the FAA as airworthy. Without Rasmussen's STC, the plane owner would have to obtain his own STC by independently proving to the FAA that the modification was safe.
Kalitta owns and operates cargo aircraft. In 1985, it bought a used DC-8 passenger airplane. It proceeded to convert the plane to cargo use, a use that would be uneconomical without the modification described in Rasmussen's STC. Rasmussen offered to license the STC to Kalitta for $95,000, but Kalitta declined. Instead, in the district
court's words, "Kalitta decided to 'pirate' the Rasmussen STC." Kalitta copied the supplemental flight manual from a Rasmussen STC-equipped DC-8 it already owned, 3 and obtained the three necessary instruments from sources other than Rasmussen. It installed them on the airplane and applied to the FAA for an airworthiness certificate; it typed the number of Rasmussen's STC on the appropriate line of the application, and included a photocopy of the certificate itself. 4 Kalitta's modification conformed with Rasmussen's validly issued STC. The FAA certified Kalitta's modified DC-8 as airworthy.
Taking the position that Kalitta was free-riding on his effort, Rasmussen sued for conversion of his STC and for unjust enrichment. The district court granted summary judgment for Kalitta, holding that Rasmussen had no protectable property interest in the STC and, in any event, that his action was preempted by the federal copyright and patent laws. 5
Is There a Property Right?
How property rights in new goods and services are established and defined is a question of considerable significance in a society, such as ours, where private ownership is the principal incentive for the creation and maintenance of commodities, and for their efficient allocation. The failure or inability to recognize private property rights in certain types of goods often leads to a variety of adverse effects. One phenomenon, known as the tragedy of the commons, is the over-use of public goods because individual users do not suffer the full cost of their consumption. A related phenomenon is the free-rider problem, where third parties enjoy the benefits of a good without having invested the time, money and effort of creating it. While the tragedy of the commons results in the overconsumption of existing goods, the free-rider problem discourages the creation of new goods. In order to avoid such inefficiencies, the law generally favors the establishment of property rights. See, for example, International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918).
Giving innovators the exclusive right to reap the benefits of their efforts compensates them for the costs of innovation, the risk of failure and the potential liability that can arise if the product proves defective. 6 If successful entrepreneurs are denied such exclusive rights, they will be less likely to invest the necessary time, money and energy into innovation. 7 It is with these considerations in mind that we turn to the unusual facts before us.
Rasmussen's interest is of a most interesting and peculiar sort, one that may become more prevalent as we continue to witness the expansion of the regulatory state: It has value only because it helps
secure a government privilege to do something that would otherwise be forbidden. The time, money and effort Rasmussen devoted to obtaining his STC would largely be wasted but for the fact that they generated the data necessary to satisfy the requirements of the Federal Aviation Act and the Code of Federal Regulations.
Under the applicable FAA regulations, an STC is granted upon the presentation of certain documentation, which normally can be obtained only through expensive and time-consuming design, experimentation and testing. 14 CFR §§ 21.115-21.117. Moreover, an STC is issued to a particular individual and entitles the holder to specific privileges. Id § 21.119. The STC is transferable and it may be licensed, in accordance with FAA procedures. Id § 21.47. 8
That this enumeration of rights and privileges is insufficient, of itself, to establish property rights is clear from the facts of this case: Kalitta had no trouble obtaining the airworthiness certificate by filling in the number of Rasmussen's STC and providing a photocopy thereof. 9 Whatever rights the regulations may provide, therefore, are not self-executing, and it is unclear whether Rasmussen could have challenged the FAA's action in issuing the airworthiness certificate to Kalitta. 10
There are many reasons why a federal agency would choose not to police property rights that might be created incidental to its regulatory scheme. Here, for example, the purpose of the federal aviation statutes and regulations is to assure air safety. Varig Airlines, 467 U.S. at 804-05, 104 S.Ct. at 2759-60. The FAA may well have contemplated that holders of STCs would have the exclusive right to obtain airworthiness certificates, but the agency may deem it too burdensome to keep track of the hundreds, perhaps thousands, of STCs outstanding; it may lack the facilities and the expertise to adjudicate questions of joint ownership, transfer, license and the multitude of other issues that routinely arise when property rights are involved. The FAA may have decided it could best pursue its mission by granting airworthiness certificates to whoever can show compliance with a validly issued STC...
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