Seventh Annual Executive Branch Review Conference

Dean Reuter:  Good morning. Good morning and welcome. Thank you all for being here this morning. Welcome to The Federalist Society's Seventh Annual Executive Branch Review Conference. I'm Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. We've got a packed schedule this morning, so I'm going to be very brief with my opening remarks.

      First, thank you for enduring a few scheduling changes and some security we put on here today. We very much appreciate your flexibility. I want to also welcome those of you watching and joining us on the live stream and/or C-SPAN. Now, I just mentioned that this is our Seventh Annual Executive Branch Review Conference, and The Federalist Society is very proud to be hosting it. The Society, through the Executive Branch Review Conference and the Regulatory Transparency Project, continues to shine a light on what some call the fourth branch of government, the administrative state.

      We use the Executive Branch Review and the Regulatory Transparency Project to monitor not only recent developments coming from the administrative state, but to discuss the broad legal principles and important questions concerning the structure of the administrative state and its use of power in adopting regulations and subregulatory rules, conducting investigations, bringing enforcement actions, overseeing adjudications and appeals, and much, much more, all while being intentionally insulated from the most direct and familiar forms of political accountability. Today's exercise, today's conference, though several addresses and panel discussions, will reflect that focus on the administrative state.

      I'm going to say no more about the contents so we can get right to the experts. I'm very pleased to introduce the moderator of our first panel, which is going to give us an insider's account on the administrative state from the perspective of five big agency general counsels. Adam White, our moderator, is a Research Fellow at the Hoover Institution and Director of the C. Boyden Gray Center for the Study of the Administrative State at the George Mason University's Antonin Scalia Law School. I took a breath before venturing into saying that.

Prof. Adam White:  It's a long business card.

Dean Reuter:  It is. Welcome, Adam. He also teaches administrative law at the law school. He's a member of ACUS, which should mean a lot the ad law folks here in the crowd today. His legal career began at Harvard Law School, after which he clerked for Judge Sentelle right here in Washington D.C. on the D.C. Circuit Court of Appeals. He's been a long-time leader among The Federalist Society's many, many members. Please join me in welcoming Adam White.

Prof. Adam White:  Well, thank you, Dean. Thank you to The Federalist Society for organizing today's discussions. It's a real privilege to get to moderate this opening conversation.

      From its opening days, the Trump administration and President Trump prioritized a regulatory reform agenda, beginning with executive orders charting a course for their agencies, and then followed by action within the agencies themselves. More than two years later, it's a worthwhile point at which to stop and take stock of the reforms as they've progressed and as they continue to progress. In the agencies, general counsels play a unique and crucial role in regulatory reform. They operate at the intersection of law and policy, working not just to advance the agency's policy agenda, but also to adhere to the rule of law. And so we're honored and privileged to be joined today by several of the Trump administration's general counsels and deputy general counsels to discuss the regulatory reform agenda so far. Let me briefly introduce them in the order that they'll speak, and then we'll move quickly to the conversation.

      First, we'll hear from Steven Bradbury. Steven is General Counsel for the U.S. Department of Transportation. He served previously in the Bush administration Justice Department's Office of Legal Counsel. He has extensive experience in private practice, practicing on regulatory and constitutional issues.

      He'll be followed by George Fibbe, the Energy Department's Deputy General Counsel for Litigation, Regulation, and Enforcement. Before joining the administration, he practiced with the firm of Yetter Coleman, was head of litigation for an international mining corporation, and was General Counsel for a private solar power company.

      Next, we'll hear from Steven Vaden. Steven is General Counsel for the U.S. Department of Agriculture. He previously practiced law with Jones Day. He also, I'm happy to say, serves on the Executive Committee for The Federalist Society's Administrative Law Practice Group.

      Then, we'll hear from Brent McIntosh. Brent is General Counsel for the U.S. Department of the Treasury. Previously, in the Bush administration, he served as the White House's Deputy Staff Secretary under the White House Counsel's Office and in the Justice Department's Office of Legal Policy.

      Finally, Matt Leopold is General Counsel for the U.S. Environmental Protection Agency. He previously served in the Justice Department's Environmental and Natural Resources Division, and he was General Counsel for Florida's Department of Environmental Protection. So please join me in welcoming our speakers.

      Let's begin the conversation with a very broad question: What are each of your agencies doing to advance the regulatory reform agenda? What should the audience and the other agencies know and learn from your experience? Steven?

Hon. Steven Bradbury:  Great. Well, thanks, Adam. And I really want to thank Dean and Leonard and the whole Federalist Society for inviting me to participate in this panel.

      I guess greetings from inside the administrative state. We're spending most of our time trying to comply with the law and do things in a better, more efficient way, and a big part of that is regulatory reform. I'm happy to be the regulatory policy officer for DOT, so as Adam said, there's a real intersection of law and policy in a big regulatory agency like the Department of Transportation. And one of the big initiatives we focused on is process, tying to implement the President's executive orders on administrative reform. And one of the things you may have seen is we put out an extensive order on the rulemaking process at the Department of Transportation. It's a comprehensive restatement, reset, and reform of all of our rulemaking procedures from soup to nuts, so the entire process.

      And it's available publicly on our website. I invite you, if you haven't looked at it, to take a look. It summarizes the regulatory reform task force structure put in place under the President's executive orders, the policies we apply in undertaking rulemaking, the reform which is very significant in our department of requiring that all regulations, both significant and non-significant, come up through the General Counsel's Office for approval, and up to the Secretary for approval, with very few exceptions. It makes it very clear that our policy is wherever permitted by law, the benefits, the estimated benefits of a rule must outweigh the costs of the rule. It puts down in clear language the requirements of the Information Quality Act that we're going to rely on the best data, the best scientific information, etc. And it provides clear rules for sufficient and adequate public participation in rulemaking, advance notices, and sufficient comment periods.

      And then, very importantly, we have some new policies we put in place for the most expensive rules, rules that we categorize or that OIRA has categorized as economically significant with a very high dollar impact of at least $100 million a year on the U.S. economy and high impact rules where the impact is going to be $500 million dollars or more on the U.S. economy or significant net loss of jobs. And for these rules, we've provided by policy that there will be extra procedures, more extensive opportunity for public participation, and then opportunity for formal hearings on disputed issues of fact, complicated fact like scientific fact, economic questions, etc., that will really have a material impact on the analysis or the outcome of the rulemaking.

      And we're having the opportunity for interested parties during the comment period to request that those issues go to a formal hearing before an administrative officer at DOT. And then, the resolution of that issue, the findings of that administrative officer will go into the rulemaking record and have to be considered by the agency. And the agency will need to make a decision whether to change the proposal, stick with it, drop the rulemaking, etc. And that needs to be explained in the rulemaking record. And that does not eliminate or negate OIRA's ability to review the whole process for OMB. So we also provide updated rules for contacts with interested parties during the informal rulemaking process. So again, I invite you to take a look at that. It's on our website.

      And just a final note, we also issued two general counsel memos in recent months on guidance documents. One is on guidance documents, making it clear that they're not going to have the force and effect of law, that they're going to be put out for public comment, at least in an informal way, and when they're significant, and that some cost-benefit assessment will be done. And then, finally, a general counsel order on enforcement actions at DOT to ensure due process is provided in enforcement actions. All three of these documents are on our website, available for the public to see. And it's our intent, Adam, that later this year, we're going to undertake rulemakings to codify all three of these policy statements, these procedural requirements in DOT rules. So that one of the things that we're doing.

Prof. Adam White:  Great. Well, thank you, Steven. Next, from the Energy Department, George Fibbe.

George Fibbe:  Thank you, Adam. And I'd also like to thank The Federalist Society and Dean for inviting me to join the panel.

      Just briefly, on the Department of Energy, I will say that one of the most interesting and challenging things as a lawyer at the Department of Energy is the wide range of issues that we deal with in the Office of General Counsel, which many folks don't know all of the different things the Department of Energy is involved in, from the safety and security of our nuclear weapons to environmental cleanup issues, cyber security, the electric grid, our strategic petroleum reserve, LNG export authorizations, national labs, as well as energy efficiency and renewable energy issues. So it's a broad range. And so as you're looking at the Department of Energy, for me as a traditionally commercial trial lawyer, one of the most interesting things is to be able to dig into many new issues, and the Department of Energy certainly provides them.

      The area where -- one of the areas, rather, where we actually function as a more traditionally regulatory and enforcement agency is in the area of commercial equipment and home appliance energy efficiency standards. And so a lot of folks -- it's not necessarily common knowledge. Certainly, people in the manufacturing industry and other areas are very familiar with this role for the Department, but it's less well known. But that's one of the areas where regulatory reform, in particular, is important. And we've been doing some of the same types of activities that Steve alluded to at the Department of Transportation.

      So at the Department, when I talk about energy efficiency standards, we regulate energy efficiency for a wide range of products from dishwashers to home air conditioners to the, of course, refrigerators, and even kegerators, I'm told. And so as we looked at our processes and our procedure for how we do this, we looked very hard at what DOE calls its own process rule. And we've issued a proposed update to the process rule that, again, addresses a lot of these same issues in terms of how much discretion should the Department build into its rulemaking process, and where should it build that in, as well as issues like opportunity to be heard early in the process, whether we are going about the rulemaking process in an efficient way.

      So for example, at the Department, when it comes to these efficiency standards, we issue both the standards themselves as well as test procedures because if you're going to have a standard, some of you need to know how to measure it. And so whether we sync those up timing-wise in a way that makes sense for the industry and sort of makes logical sense is one of the issues that we're grappling with and have put out in this rule.

      When I was in private practice in-house, one of the issues that I would always look at with our internal legal budget was are we spending our money where our risk is, and do some analysis, and come up with metrics for how do we really do that. Are we overfocused on some issues and under on others that are important? And so, similarly, with the rules at the Department of Energy and the standards for energy efficiency, one of the issues that's discussed in our proposed rule is how do we look at significant energy savings? And so is our process geared and do we have our internal resources geared toward those areas where we can determine that we're going to be able to achieve the most good in terms of energy savings and maybe less bureaucratic churn on issues where there's less to gain.

      So that's one of the issues that we're dealing with at the Department, as well as on the enforcement side considering issues like due process and is there enough process and opportunity to be heard early in the process for regulated parties. So that's just a quick overview, and I look forward to the conversation. Thanks, Adam.

Prof. Adam White:  George, I think I speak on behalf of everybody when I say please don't overregulate kegerators.

[Laughter]

Prof. Adam White:  Next, from USDA, Steven Vaden.

Hon. Steven Vaden:  Well, let's see if I can get that on. Can you hear me? Okay, good.

      Well, at USDA -- one of my predecessors, Marc Kesselman, said that the Department of Agriculture is kind of like the federal government for rural America. If you can think of an agency that exists for the rest of America, we have a mini version of it in the Department of Agriculture that is focused on rural America. So the breadth of issues that we see in terms of regulations in the Department of Agriculture are almost mind-bogglingly broad. Many of my colleagues are going to talk about specific reforms to processes and things that they have instituted in their department, so I thought that I would share with you today two concrete examples of how these changes in processes work, and what we have done with regard to specific rulemaking proceedings at the Department of Agriculture and how they come into play.

      And I think the key theme of these two rulemaking proceedings is transparency because the key requirement of the Administrative Procedure Act, when you boil down all the legal language, is the agency needs to tell you what it's doing and the actual reason that it's engaged in it. And that reason at least needs to make some type of common sense based on the record that it's reflected. As we know, that's not always been the case, which is the reason why there has been such a focus on regulation. So I'm going to focus on two regulations that we dealt with at the Department of Agriculture and show you how these values that we hold came into fruition with regard to these two rulemaking proceedings.

      The first is the Organic Livestock and Poultry Practices Rule. That is a rule that was put out by the prior administration which sought to set standards for everything from how much square feet a chicken had if it was going to have an organic standard in terms of its living space, including whether or not it got to go outside to see the sun, and how much space a calf or a cow would have if it was going to be transported by truck to slaughter. What we found when looking at this rule, which was caught in suspension by then-Chief of Staff's previous executive order ordering all regulations which had not gone into effect to be placed in suspension, was that there were some problems with it. Now, as a new administration coming in, obviously, we have the option of withdrawing the rule. But before we did that, we wanted to put out for notice-and-comment what we thought were the problems so that in case we had made a mistake of the type that the prior administration has made, we could be called upon it by the public.

      There were three key mistakes with the rule as we saw it. First, there was a math problem. In terms of doing the cost-benefit analysis, the rule as put forward to the public claimed that the costs outweighed the benefits marginally. In going back and looking over the numbers, we determined that they did the math wrong. In particular, the mistake that they made was they had failed to discount the value of the benefits that were supposed to be gained in the future in order to reflect the current value of money. That resulted in, of course, the benefits being inflated in terms of their value versus the costs, which most costs of regulation come on the front end rather than the back end. When we did the math correctly and discounted so that the dollars were both current dollars rather than future dollars compared to current dollars, what we found was the costs outweighed the benefits. But we put this out for public comment, including showing the mathematical computations in case we had made a similar error.

      Second, there was a  problem with Executive Order 12866 which, if you recall from the Clinton administration, still is in existence and kind of sets some key ground rules for all federal agencies when engaged in regulations. One of the least remembered parts of Executive Order 12866 is it says that typically, agencies should only regulate if there has been a market failure. If there hasn't been a market failure, the market is doing its job in terms of being a private regulator, and agency should typically stay its hand. With the organics industry, one can hardly say that it is an industry which is suffering from a market failure. Indeed, organic farmers are booming. The National Census of Agriculture, which was released by USDA just a few weeks ago, revealed that this is the area of agriculture which is growing the greatest in terms of dollar amount and in terms of number of farmers entering the market.

      There are numerous private industry groups which set independent standards in order to be able to display their seal on their products for all types of things. If you care about animal welfare, if you care about transportation, if you care about whether or not if it's produced in a foreign country, if you care about whether or not the people who actually produced it were paid a living wage, there are seals for all of this available in the private market. If USDA moved into this space and regulated it and said, "This is the standard we want you to meet in order to be able to put the organic seal on it," arguably, what we would be doing is freezing this progress in place because all of a sudden, there would be a stamp from the government that would say, "You can go this far and you needn't spend another dollar to improve the quality of your good. You get to put this seal on it." We would freeze innovation rather than spur it on.

      And there was a third problem. There was no legal authority to issue this rule. If you go to the statute that governs the National Organic Program, it unsurprisingly specifies on what USDA may issue regulations about. And it talks about the things that you would expect there to be if you care about organic agriculture; namely, whether or not pesticides or other chemicals were used being the primary one. Were there hormones injected into the animal? There is nothing in there, my colleague from the Transportation Department will be thrilled to know, about transportation and how much space in the truck the cow has to have. Nothing at all, not even a reference to transporting it. And yet, this gigantic regulatory scheme was going to be put down on producers, and they were going to have to abide by it if they wanted to place the USDA organic seal.

      So we put all this out for public comment. We asked for -- tell us that we're wrong in regard to how you interpret the law. Tell us we can't do math, either. Tell us that Executive Order 12866 doesn't say this. And then after taking all those comments into account, we ended up withdrawing the rule. And I think that even though there were people who obviously would have rather not gone through that rigamarole, going out and doing it the right way and giving the actual reasons why were taking the action, it was important for the public and it was important for organic farmers to know the reason why we did this is not because we have any particular animus toward organic farmers. It's because we've got to follow the law, and we don't want to get in your way in terms of new innovations that you may come up with to improve the quality of your produce and your animal agriculture.

      And then the other example -- and I'll be quick here because it won't take that long. There has been much interest in the press recently about antitrust issues and agriculture and large mergers. The prior administration put out a rule, known colloquially as the GIPSA rule, which sought to provide farmers an easier route to court if they wished to claim that the large companies to which they sold their poultry, to which they sold their hogs, the IBPs, the Tysons of the world, were treating them unfairly and not paying them a fair market price. There was one problem with this as well. It went against 75 years' worth of case law. And not just any case law. It went against case law from circuit courts around the country, not all of them, but the majority of them, that said, "We find that the statute requires that in order to show a cause of action, there must be harm to the market as a whole," a familiar concept to those of you who may practice antitrust law, not just harm to an individual producer.

      This regulation put forth by the prior administration tried to overrule those precedents. The administrative law practitioners in the room know if a court finds that a reading of the statute is required by the plain words of the statute, you cannot overrule that with a regulation. The only way to do that is for Congress to pass a statute to change the words that's actually in the text. Yet, the prior administration put that out in the hopes that one of the few circuits that had not opined on this issue might go their way, and then it would go up to the Supreme Court, and that would be the only body that could decide the issue. Meanwhile, if you're a farmer who thinks you're getting squeezed, posit whether you're going to have the means that it takes in order to get your lawsuit all the way up to the Supreme Court. It was certainly a "make lawyers wealthy" scheme. I don't know whether it would put an extra dollar in farmer's pocket.

      We ended up explaining in our proposed rule to pull it back all of this 75 years' worth of legal history, citing case, after case, after case showing why, at the very least, this was going to do nothing but tie up the courts. And I'm happy to report that when this was challenged in the Eighth Circuit at the end of last year, the Eighth Circuit found, unsurprisingly from my point of view, that it was not arbitrary and capricious for an agency to refuse to try to stimulate a circuit split that only the Supreme Court could solve.

Prof. Adam White:  All right. Next, from Treasury, Brent McIntosh.

Hon. Brent McIntosh:  Thanks, Adam. And I want to thank The Federalist Society for having us all here today.

      I have nothing so sexy as the Organic Livestock and Poultry Practices Rule, but I would like to just quickly address three, I think, distinct and perhaps unorthodox challenges that we grapple with at Treasury in dealing with the administrative state. The first is that a lot of the administrative actions we take actually arise in the national security space and the law enforcement space. When you look at things like -- we have at least three major topics there. One is the investment security regime, CFIUS, which has recently been the subject of a thoroughgoing reform bill. The second is our sanctions practices, and the third is Anti-Money Laundering and Bank Secrecy Act practices.

      So those are three spaces where, when you look at the cost-benefit analysis, the cost-benefit analysis is not susceptible to easy quantitative analysis because what is the benefit -- if you take, for example, the sanctions regime. What is the benefit of peeling off members of the Venezuelan military from Mr. Maduro to Mr. Guaidó? Or if you look at the money laundering space, what is the benefit of preventing a terrorist attack, or detecting early an Al-Shabaab plot, or something like that? And so we have to be creative in attempting to discern the costs and benefits of administrative actions in these spaces because they are not things where you can easily look at the numbers, and do the math, and just look at the costs, for example, on American industry and the benefits to Americans.

      And so we've done things like in the money laundering space, for example, we're actually bringing in outside consultants to help us focus on where the risks actually lie in our Suspicious Activity Reporting regime. And similarly, we're working with private industry to say to banks, for example, in the SAR reporting regime, "What are innovative ways that you can comply with your responsibilities here and still get us the information we need without the same set of burdens that have been imposed on you for 40 years? How can we be more effective and more efficient?" And one of the things we're doing there is we're actually getting together the Treasury components that work on these issues, like, for example, FINSA and the bank regulators who interact with private industry and trying to get them talking about how the burdens and benefits map onto one another and where we can be more effective and more efficient.

      The second challenge that I think is somewhat unorthodox is in the financial regulation space. We were tasked early on in the administration by the President in an executive order to look at the set of financial regulations in America post Dodd-Frank under a certain set of what he called core principles, things like empowering Americans to make informed choices, ensuring American competitiveness, ensuring that regulations are tailored to the actual problem that they are attempting to address.

      Why is that particularly difficult for us? The truth is because we're not, in most of these cases, the actual regulator. We were looking across a regulatory space where the regulations are often set by a set of banking regulators, only one of which is a part of Treasury. In many cases, the markets regulators are involved, the SEC and the CFTC. In many cases, the states play a very substantial role in our federal system in these matters. And also, this is a place where there is very substantial importance for regulatory harmonization across international boundaries. And so we are working with our partners and allies across the world in the U.K., the E.U., Japan, and other places to ensure that we're not allowing regulatory arbitrage that would create risks in the financial system.

      So we put together a series of reports over 2017 and 2018 to evaluate and make recommendations as to the reform of financial regulation. And some of the recommendations were things we could do ourselves, some of them were recommendations to Congress, and some of those recommendations actually ended up in S.2155, the bill that made changes to the financial regulatory laws last year. And then some of them are recommendations that are still pending with Congress. And some of them are recommendations to the regulators, some of which are getting uptake at the regulators, but we're keeping track of where we are having successes there.

      And we think a number of them have been well received by the regulators, but we don't have the power to force those on the regulators. We do have sort of convening authority through the Financial Stability Oversight Council. We think that's a role that the Financial Stability Oversight Council really actually can beneficially play is to get the regulators together and talk about where regulation can be more effective.

      The third unorthodox challenge I think we're facing is, with regard to the administrative actions, vis-à-vis taxes and the Internal Revenue Code because the Internal Revenue Code presents a set of, I think, unique challenges because it is much more than most areas of statutory law. It is highly proscriptive, and it is mandatory on all Americans. All Americans have to engage in mandatory compliance every year. And that's really not a thing that is true of most areas of law.

      And so we find that with the Internal Revenue Code, when it comes to putting out guidance there, it's not the case that people are trying to avoid regulation in this space. They are often clamoring for guidance as to how the tax code works. And so we routinely put out -- the IRS routinely puts out guidance that is demanded by private industry, private individuals, saying, "How do I comply with this highly proscriptive, mandatory, arcane tax code?" And so when you look at the set of things that we put out there, they are routinely put out as a -- we find ourselves getting demands in and demands that we do it now, and so we're pushing things out regularly.

      That is even more difficult in a situation where we have the most thorough overhaul of the tax code since 1986, and the set of regulations we've had to put out over the years and change since the passage of the Tax Cut and Growth [Jobs] Act has been probably the largest regulatory effort in the history of Internal Revenue Service. And people want it done fast, and they want answers to all their questions because there are really hard questions, especially with regard to pass-through entities and the international tax scheme.

      At the same time, we're trying to look back at the old set of regs that are on the books and say, "Where can this be modernized? What can we withdraw because it's no longer in effect? What is unduly burdensome?" So early on in the administration, we proposed to actually pull 300 regulations off the books that actually, although they sat in the Code of Federal Regulations, had literally no effect. They did not have the force of law anymore because they were implementing statutes that were no longer effective. So they were nothing but a dead weight loss for tax law firm associates trying to figure out what is law and what is not.

      And then last in that space, we did put out, in addition, a sort of statement of good regulatory hygiene for the Internal Revenue Service's administration, much along the lines of what Steve and his agency did to ensure that people understand what set of pronouncements by the IRS are binding on taxpayers because they've been promulgated by notice-and-comment and what set are binding only on the Internal Revenue Service because we've committed to take a certain action. But because we haven't done it by notice-and-comment, you're welcome to challenge that in litigation. You're welcome to take a different position, but we will commit that that is our position, and we will not deviate from it. You can hold it against us. So we're trying to get to a place of good regulatory hygiene, and with that I'll cease.

Prof. Adam White:  Thanks, Brent. And finally, from EPA, Matt Leopold.

Hon. Matthew Leopold:  Thank you. Can you hear me? Yep. All right. Good morning, everyone. And I echo the thanks to The Federalist Society for inviting me here. It's always a pleasure.

      We are a small agency, relatively in size, to some other federal agencies. We have about 14,000 employees. But we are an incredibly potent agency in terms of our effect on the American economy. And I just wanted to start with a few statistics today and assure you that the deregulatory initiative is alive and well, and we at EPA consider ourselves to be the tip of the spear for the President's dereg initiative.

      So as of yesterday—I just got these stats—we have finalized 39 major deregulatory actions in this administration that will save Americans $3.9 billion in regulatory costs. That's a tremendous accomplishment coming out of EPA. We are working on another 40 deregulatory actions that, when implemented, will save another $100 billion. And it's incredible to think that that much has been done and in the pipeline in a couple short years. And we expect to conclude many of those even by the end of this year. We are rebalancing how the agency considers costs and benefits, and we're planning to issue a rule that would tell the agency how it needs to consider the cost-benefit analysis when weighing environmental protections and costs to the economy.

      And so for those who are pro-deregulation, you might be applauding that. But our critics say, "Well, great, EPA. I'm glad you're saving the economy money and you're cutting the regulatory burden, but you're doing this at the expense of human health and the environment. And that's the external cost that we're all paying as Americans." So I wanted to throw out a couple stats as well on how we're doing as a country on environmental protection.

      And I routinely, when I speak publicly, talk about this -- we are actually doing incredibly well in environmental protection. And I think if you read the articles written about our agency every day, you would never know some of these statistics. So since 1970, since President Nixon created the EPA, criteria air pollution, which are the six major air pollutants that are common from burning fossil fuels, they have declined 73 percent since 1970. The Clean Air Act has been a raging success in terms of human health protection. You don't hear that statistic, but EPA has routinely put that out in Democratic and Republican administrations. Those stats haven't changed.

      For those who are interested in carbon dioxide and controlling carbon dioxide emissions, we have reduced, as a country, total carbon dioxide emissions by 14 percent since 2005. According to the U.N., we have reduced our relative carbon dioxide emissions by percentage more than any other developed country, so very contrary to what you might hear in the press. Let me talk about water for a minute. Our administrators said water's the biggest crisis that the planet is facing. The World Health Organization says we have the best access to safe drinking water of anywhere in the world.

      And so I want to level set because in the context of the deregulatory discussion, we always have to emphasize that our main mission is to protect human health. And we have returned back to basics: safe drinking water, clean air, and cleaning up contaminated lands are three of the key elements that the EPA has to undertake. And we are doing that, and the President has given us direction to do it in a way that doesn't unnecessarily burden the economy. And so I wanted to talk about just a couple of our biggest deregulatory initiatives, and they're ones that you may have heard about. And I want to frame it in the context of rebalancing the relationship with the states.

      For those in this room, you'll be glad to know federalism is alive and well at the EPA, in large part thanks to Congress. Our statutes are unique in that Congress really envisioned a co-regulator role between the federal government and the states in protecting the environment. But unfortunately, sometimes the federal government has overstepped its role. And a lot of our deregulatory approach is to return the power to the states as Congress envisioned. So let me just talk about a couple of contexts where that's happening.

      First, what we call our Affordable Clean Energy rule. This is the replacement for the previous administration's Clean Power Plan that regulated coal-fired power plants. That regulation had three building blocks. It said to make power plants more efficient. It also told the states to substitute natural gas generation for coal-fired generation because natural gas is 50 percent cleaner than coal in terms of carbon dioxide emissions. And then it said to substitute all fossil with renewable. Those are their three building blocks.

      Well, they hung all this on a paragraph in the Clean Air Act that was little interpreted and poorly understood. And they basically said that EPA could regulate the entire energy economy and determine the fuel mix for the country in what we call generation shifting. And we didn't see that, and the litigants in that case didn't see that in the statute. And so many of you know, for the first time in U.S. history, the Supreme Court issued a stay of a regulation, of any federal regulation, before any lower court actually heard argument and decided on the legality of the regulation. And that was ongoing at the D.C. Circuit.

      That's historic, and it set us on a path which we've now proposed to determine that, indeed, EPA does not have the statutory authority to become the nation's energy regulator. Our friends at the Department of Energy have a role in that. The states have a clear role in their public service commissions and rate payers determining their energy mix that's right for that state that brings energy security as well as environmental protection. So we are rebalancing that with our rule. And we're making sure that, yes, EPA has a role in setting a standard, which we call the best system of emissions reduction, but states are the primary implementers of that and what's called in the statute standards of performance. That's one.

      The other major rule you probably heard about is the Waters of the United States definition, another thorny, difficult statutory interpretation problem. Justices of the Supreme Court have called, I believe, the Clean Water Act's definition vague. And indeed, it is tough. And we've engaged in a 40-year battle in this country to determine what is the limit of federal jurisdiction. But there's a key word in that statute which is navigability. And we believe navigable has to mean something. We propose to say it doesn't mean just the traditional navigable waters like the Mississippi River, but it also doesn't mean a pond in your back yard that's not connected -- there's no significant connection or surface water connection to a traditional navigable water.

      So the way that we propose to rebalance the relationship with the states is there is a provision in the Clean Water Act that makes sure that states -- their local land development authority remains with the state. And that really, when you look at the Waters of the United States definition and the permitting process around that, it's a form of land use regulation. If your land is wet and the federal government says you can't use it, it really can extend over into telling the states how to use their land. And we are appropriately balancing the twin goals of the statute, which is cleaning up the water and protecting the physical, chemical, and biological integrity of the water with the states' historic role in land use.

      And I'll just mention one, quickly. The other thing that we've done recently is we've issued some guidance on a long-standing question that's now before the U.S. Supreme Court in the County of Maui v. Hawaii Wildlife Fund. The Court has granted cert on that case, an in anticipation of that, we issued an interpretation which we're planning to codify, depending on the Supreme Court guidance, that makes sure that the line -- the question is whether pollution that's discharged on the land that may go into groundwater and ultimately end up in one of those traditional navigable waters, does that need a federal permit or is that a state issue?

      For many years—we went back to 1973—the General Counsel of EPA issued an opinion that groundwater is the regulatory jurisdiction of the states. There's other indications. The Clinton administration in '94 issued a statement that it was unclear that the federal government had authority to regulate groundwater in this way. We looked at the legislative history where members of Congress indeed said even though the water is hydrologically connected to ground and surface, they tried to amend the proposed law, and they failed.

      And Congress drew a jurisdictional line, whether it made sense or not, between ground water and surface water as the line between state and federal jurisdiction. We issued a guidance making that clear, drawing a clear line, and we're hopeful that the Supreme Court will look at the logic of what we've proposed and, ultimately, adopt that logic in the County of Maui case. So those are some of the big actions at EPA.

Prof. Adam White:  Great. Thanks, Matt. And thanks, everybody. We have time for audience questions. You'll see there are microphones in a few of the aisles, so if you have a question you'd like to ask, please line up.

      While folks are lining up, let me just ask a very general question. This administration from the very beginning was very forward-leaning in issuing executive orders, not just across the board, executive order on controlling regulatory costs, but also subject specific EOs like the core principles on regulating the financial system, the executive order on promoting energy independence and economic growth. I'm just curious -- what has it been like inside of the agency taking those sort of new and, in many ways, sort of unprecedented or groundbreaking executive orders and implementing them for the first time? What's the experience been? What have the challenges been? Anybody? Steven?

Hon. Steven Bradbury:  Can I go first? I'll use this also as an opportunity to brag a little bit the way Matt did, I think. Yeah. So two of the President's executive orders in the early days of the administration required that for every -- one of them, 13771, required that for every significant  new regulatory rule imposing major costs on the economy that an agency adopts, it has to identify at least two deregulatory actions it's going to take, relaxing other rules to compensate. And also, agencies have to achieve a zero net increase in costs as a regulatory budget in their planning for regulations.

      And these have been challenged in court, arguments that this interferes with the statutory obligations of an agency to do it's rulemaking. We have not found that to be the case at all at DOT. This has not been difficult to meet these requirements. It has not interfered or interposed any non-statutory considerations in our rulemaking agenda. It's been quite easy to identify rules that are outdated, that no longer serve the purpose they were intended to serve, that are overly restrictive given developments in the marketplace. And so in fiscal year 2018, when the President announced his fall agenda last October, Department of Transportation announced that we were at that time 23 to 1, not 2 to 1, but 23 to 1 in terms of deregulatory actions for significant new rulemakings. As of today, we're at 46 to 3.

      In the fall agenda last fall, Department of Transportation accounted for one-fifth of all of the deregulatory actions that were identified in the President's agenda. Accumulatively, since the beginning of the administration, as of now, we're approaching, at DOT, net cost savings for the U.S. economy in our rulemaking of $3 billion dollars. And I hasten to point out that that number has not yet been audited by OIRA at OMB, so they may have some adjustments in it.

      Let me just tick off quickly some of the major actions we've taken. Let me start with the major, the significant regulatory actions because we are a safety enforcing agency. Safety is our top priority, and we're not going to do anything in the regulatory space that compromises safety. We don't balance safety in these calculations. So we have issued three significant rules. The Federal Transit Administration has required that transit agencies put in place safety plans for their transit systems. For railroads that transport crude oil, we've required that they have oil spill response plans in place. And also, we've put restrictions on how and when lithium batteries can be transported by airplane, a key safety issue. Those were statutory mandates, but we issued them in compliance with statute, doing an appropriate analysis of the costs and the benefits and following our procedures for rulemaking.

      But in terms of major deregulatory rules, our Pipeline and Hazardous Materials Safety Administration has issued a rule allowing greater use of plastic piping in gas transmission. There's new, innovative technologies available that make plastic pipes safer than they used to be for transmission and much more cost effective. We've issued a rule that resets the testing standards for higher speed passenger train sets to allow a greater use of different technologies and testing parameters from around the world. We've also issued a rule that revoked a previous rule that required electronically controlled pneumatic brakes in trains. Congress was very skeptical of the benefits of this previous mandate and required that we undertake a new cost-benefit analysis, and that analysis clearly showed that the costs of this rule far outweighed the benefits and that industry knew best when and how to use this new ECP brake technology, so we revoked that old rule.

      Let me just mention a few of the rules that are currently in our agenda that we're working on that are not yet final, but very, very exciting regulatory new ways to approach regulation. In commercial space, we're issuing a major rule at the direction of the President to streamline commercial space launch and reentry licensing. And this is a major, major reform of rules for FAA that go back to the 1970s and that are pretty obsolete. We're going to have a new scheme in place for a more streamlined and efficient approval of those launches. Drones over people -- FAA has issued a proposed a rule on unmanned aircraft systems and when then can fly over people and at night, loosening up and regularizing broader use, particularly of commercial drones.

      Along with Matt's agency, EPA, our National Highway Traffic Safety Administration, NHTSA, is undertaking a joint rule that will be a comprehensive reset of the fuel economy standards for new motor vehicles. We call it the SAFE Vehicles Rule; safer, affordable, fuel-efficient vehicles. This is a huge reset and change of the really unrealistic fuel economy standards that were previously put in place in 2012. This rule alone, if finalized as proposed, will achieve hundreds of billions of dollars of cost savings for U.S. consumers and the U.S. economy. And finally, we're working on an exciting rule for energy distribution which will allow for liquified natural gas, LNG, transport by rail in new technology available for tank cars.

      So these are some of the things we're doing, and extremely exciting and having a real impact, I think, on the U.S. economy.

Prof. Adam White:  Since folks are lined up, why don't we go straight to audience questions. We'll start here and we'll alternate side to side. Since this is being recorded and broadcast, please identify yourself and please be as efficient as possible in your question so we can get to as many folks as possible. Karen?

Karen Harned:  Hi. Karen Harned with NFIB Small Business Legal Center. And just on behalf of the Small Business Center, we really appreciate the regulatory efforts of this administration. A question I have, though, is on how this is working for you guys. Any obstacles you're encountering, particularly since we've seen such a slow walk of so many political nominees? Is that having an impact on how quickly you can get these deregulatory efforts out? And on that front, too, as you're going through the deregulatory process and finalizing that, are you needing to do aggressive oversight, or are you finding that the career attorneys are complying with trying to put new priorities of deregulation in place?

Hon. Brent McIntosh:  I'll take that. Obviously, we would like people to be confirmed more quickly. There's no question about that. We think that Leader McConnell's doing a nice job recently. But let me say, with regard -- from my perspective, when I look at the career attorneys and the career experts we have, I think they're actually remarkably expert and remarkably responsive, even in places where we are doing 180-degree reversals on former policies. The federal workforce really is a dedicated and expert workforce. Our workforce in particular, I think, is terrific.

      Now, there is a natural human instinct when you tell someone, "I know you just spent the last several years dismantling our Iran sanctions program. I need you to re-mantle it, as it were." And people look at that and they think, "I spent years of my life doing this, and now you want me to reverse that." And so there's a natural human instinct there, but people will salute and work hard on that, even where they feel, like, "Gosh, I spent time doing this one mission, and now you're giving me another mission." So I've been very impressed with the federal employees, and how they work on these things, and their willingness to take direction in the way that is democratically accountable.

Prof. Adam White:  Anyone else?

Hon. Steven Bradbury:  Totally agree.

Prof. Adam White:  Okay. Let's go next here.

Dr. Will McCauley:  Dr. Will McCauley with the Animal Health Institute. My question is for Mr. Vaden. And let me start by saying it's a real privilege and a pleasure to work alongside USDA on some really important topics. And I appreciate you mentioning transparency in your opening comments as being important to the regulatory reform process. I would posit that it may not be as transparent as it may seem from the inside looking out. I know my members, we've made submissions to the process, and it's kind of a black box. We kind of put something in the front, and we wait 12 months, and maybe something comes out the other end, or not. But it's very -- it hasn't been clear as far as how our submissions are being evaluated, if they are being evaluated, what the timeline is. And so I would ask that the USDA redouble its efforts to maintain that transparency. And if there's more we can do, more we can submit, we're very open to that.

Hon. Steven Vaden:  Well, we always welcome public submissions, and we cannot do our job adequately if we don't have the maximum level of participation from those who are affected and, indeed, those who have an interest. One thing that may be a difference from prior administrations and how they ran their regulatory processes which may, to those who are used to the prior procedures, be frustrating but are necessary in order to keep it fair is we tend to abide very closely by the ex parte rule when it comes to a rulemaking proceeding.

      So before anything is put in the Federal Register, we're willing to meet with anyone and everyone who may have an interest in an issue that they think the Department of Agriculture should take interest. But once we put something in the Federal Register and say, "This is our proposal," we really do try to keep meetings to basically zero with stakeholders who have an interest in that. And we require all interested parties to submit their thoughts in the record that every citizen has access to on www.regulation.gov.

      And while we understand that that may be frustrating for certain groups that have the means and the ability to hire lobbyists and others who could have a one-on-one interaction with an agency official to more directly state their concerns and their hopes and wishes for the regulatory proceeding, it is necessary to keep it fair because there are millions of citizens who have interests in those proceedings who do not have the financial means to hire lobbyists and others to come meet with us in Washington D.C. personally. And they should, according to the Administrative Procedure Act, have their comments and thoughts considered in exactly the same form or fashion and in exactly the same level of seriousness that someone who does have such means does. And so that may be one of the reasons why there is some frustration because I will say—I'll plead guilty to being the bad cop—I am the person who goes around and tells the agency, "No, you may not take this meeting."

      But I can give you my personal assurance, if you submit a comment, and your comment is dealing with one of our rulemaking proceedings, it gets read. We respond to it, and if your comment is what I'll term original for lack of a better term; in other words, it's not a form comment, it's not one of these 25,000 postcards that we get in the mail that all say the same thing. And we respond to those too, but only once, not 25,000 times. If you do that, you will get a response from us. And the attorneys in my office who are wonderful, they spend their time looking through your comments and making certain that the agency does give you some type of response. I can't guarantee you're going to like the response, but I can guarantee you, you will get a response. And under the Administrative Procedure Act, that is what we owe you.

Prof. Adam White:  I'll just interject a related question. And maybe Brent, you have some thoughts on this too. But on the question of transparency and the interactions between the agencies and the public, a few of you have mentioned guidance documents. And Brent, as you mentioned, it's a very challenging subject because on the one hand, the regulated community wants guidance on how the law will be enforced. At the same time, we don't want guidance to become a substitute for what should be done through notice-and-comment rulemaking or other vehicles. A lot of the agencies have been very forward-leaning on this. The Justice Department itself has been forward-leaning on this. I'm just curious how your agencies have grappled with the issue.

Hon. Brent McIntosh:  One thing -- I referenced the fact that in the tax base, we put out a statement of, for the lack of -- I think I called it regulatory good hygiene, but it's basically our administrative procedures. We don't for example, ever ask for Auer deference or Chevron deference for anything that's done in a subregulatory way. We want to be explicit when we put out subregulatory guidance that you can rely on it. You, the taxpayer, can rely on it, but it does not bind you. So the IRS cannot do its job without putting out guidance to taxpayers because they are routinely responding to every bespoke situation that a taxpayer comes in with. So we can't do our job without subregulatory guidance. But we also need to be very clear and explicit that when we're going to purport to bind a taxpayer, we're going to do it through the APA process.

Prof. Adam White:  Anyone? Matt?

Hon. Matthew Leopold:  If I could just add kind of the way we think about it at EPA, and it generally comes up in the enforcement context. We like to think of guidance as a shield, not a sword. So people are looking for the safe harbor that, "Hey, if I conduct my business in this manner, you're not going to take enforcement against me." And it is important to give people those assurances. But when we're going to affirmatively enforce, we require statute or regulation to bring those actions.

Prof. Adam White:  Next question?

Dominic Hofstetter:  Dominic Hofstetter, Legal Affairs at the Embassy of Switzerland. First off, thank you so much for taking the time to share these insights into regulatory reforms and what's being spearheaded at the moment.

      This question kind of ties into what Professor White also asked, and it concerns mostly Mr. McIntosh. Recently, OFAC released a framework concerning sanctions compliance, and my question would be in that framework, OFAC detailed a few elements which would constitute an effective sanctions compliance program. And my question would be whether the Treasury is looking into some type of assurance for U.S. companies as well as foreign companies subject to U.S. jurisdiction as to whether their sanctions compliance programs and their undertakings and transactions are indeed compliant. And this kind of ties into the theme of regulatory predictability as well as accountability, if you could perhaps venture a comment on that.

Hon. Brent McIntosh:  I think, really, to get a concrete answer to that, you'd have to address it to OFAC because they're the experts on this. I think it's difficult for us to make an evaluation of every company that might be touched by OFAC sanctions because there are a massive quantity.

Prof. Adam White:  Next question. Sir?

Nick Kleesis (sp):  Hi, my name is Nick Kleesis, and I'm directing the question to Mr. Bradbury. I'm kind of looking between the lectern over there. Infrastructure projects that -- one previous President lamented that there's no such thing as a shovel-ready project. And just as an example, the Port Authority of New York and New Jersey wanted to replace the Goethals Bridge. And I understand that it took ten years to get all the permits in line, and there were some really arcane rules. So part of the question is how much do you think the approval process has been shortened by the new regulatory regime in effect?

      And the second point is that there are so many certain points in the regulatory approval process where activist groups that want to oppose something like, for example, in Montgomery County, there was the Purple Line light rail line, and some people were complaining about some trees that would be cut down. And I just can't believe that environmentally activist groups would actually oppose a mass transit line. How much can the regulatory regime changes reduce the points at which projects might be blocked? And I say that because the points of this litigation sometimes just add on cause to an already approved project, meaning that they're funded -- the cost increase may be by 50 percent or 100 percent.

Hon. Steven Bradbury:  Yeah. Well, I don't think we yet have statistics in this administration to quantify how close we are to achieving the goal of dramatically shortening, permitting an approval processes for major projects like infrastructure projects, but we're certainly trying very, very hard. It's a high priority for the President, as you know.

      Two things we're doing: one is helping with other agencies to implement the "One Federal Decision" executive order of the President which says when multiple agencies of the federal government are involved in permitting approvals for a project, there's going to be one lead agency. It's going to be the one that drives that process, and so we're trying to work out how to implement that. Number two: within our own department, we are doing major reform of our NIPA procedures to try to capture efficiencies so that all of the multiple sub-agencies within DOT that go through the NIPA process of environmental assessments and environmental impact statements will get the benefit of best practices from among all the agencies. So for example, categorical exclusions from one agency may be applicable to the practices of another agency.

      And obviously, with NIPA, these projects can take a long, long time, and litigation is obviously a major factor. And a lot of that is keyed off of the CEQ, Council of Environmental Quality, regulations implementing NIPA. These go back to the ‘70s, to the Carter administration. I think one of the things the administration is doing under Mary Neumayr at CEQ is going to be taking a look at a very significant reset and reform of the CEQ regulations. And if that can be successfully done in a responsible way, that can have a material effect on unreasonable litigation and delay.

Prof. Adam White:  Next question?

Steve Gannon:  For Mr. McIntosh, Steve Gannon from Citizens Bank. In the March 5th policy statement, you quite clearly, I thought, made a pledge that in litigation, your agency would not attempt to claim judicial deference under Auer or Chevron for interpretations that were based on subregulatory guidance. So the question is will the other general counsels on the panel make the same pledge, number one, and number two, does FSOC have a role in driving consistency across financial services agencies for similar concepts regarding guidance?

Prof. Adam White:  Right. Can you start with the FSOC, and then we'll double back to Chevron.

Hon. Brent McIntosh:  Yeah. Sorry, guys. The FSOC, I think, does have a role, but, look, the FSOC is -- this is the Financial Stability Oversight Council created under Dodd-Frank which spent the Obama administration mostly designating financial institutions as systemically important. We think the FSOC has an important role to play in convening the financial regulators and the markets regulators, including some non-federal participants and getting them together to talk about issues in the financial space, whether it's particular stability concerns or things like that. But one of the things that could be on that agenda would be these sorts of regulatory good hygiene matters. It hasn't been yet, to my knowledge, but certainly the sort of thing we could talk about. I will say that a number of the financial regulators have taken, although not that particular point, they have taken steps toward ensuring that they are in compliance with best practices, administratively.

Prof.  Adam White:  On the deference question, you've all been on both sides of the table over the course of your careers. You see the impact of judicial deference doctrines on the regulated community, on the public at large, but also from the inside view, you see the statutes or regulations that you're administrating are often written in very broad terms, and your agency does have expertise that you bring to bear in a special way. How have you gone about sort of striking the right balance on whether and how to invoke these deference doctrines in your litigation? Sure, Matt.

Hon. Matthew Leopold:  I'll give it a shot. Chevron and Auer often come up at EPA, and I think the way that we think -- certain deference is appropriate. And not to the statutory interpretation of the agency, per se. I mean, if I see Chevron  being amended, you could see courts rebalancing how we look at -- whether the agency is truly in a better position to interpret the statute. But at EPA, we do defend the deference of the agency to make technical judgements. And so when we say, for example, the administrator has discretion to determine whether conduct or a pollution standard is safe for human health, and we have scientific record and expert record, it is frustrating if courts substitute their judgement for that. And we see that all too often in the courts that hear our cases, and so I think the core of deference for us is on technical matters. And we are not claiming Auer deference in our pieces of litigation at EPA.

Prof. Adam White:  Anyone else? George?

George Fibbe:  Just very briefly, interestingly enough, I've looked into this question at the Department of Energy and was actually unable to find any instance in which the Department had claimed Auer deference.

Hon. Matthew Leopold:  Bless you.

George Fibbe:  However, we did have at least one opportunity to do so and declined.

Prof. Adam White:  I think we have time for one more question. I'm sorry for folks who have been so patient.

Questioner 6:  Hi. When President Trump got into office, he issued an executive order to consider what regulations might be better less restrained in some way of walking them back reasonably. And Treasury had issued a great report on that where they had recommended that the Volcker Rule be limited for those banks with less than $10 billion or small trading assets. Congress implemented what Treasury had asked for, but when it came time to put in those regulations, Treasury, at least in our opinion, seemed to ignore its own suggestions and the language of the statute, which really confused us as to why Treasury went this way.

Hon. Brent McIntosh:  I think you're -- I don't think the premise of the question is correct. Actually, the Volcker regs are not our regs. They are a set of interagency regulations promulgated by the various regulators.

Prof. Adam White:  Maybe one more?

Mark Chenoweth:  I'd actually like to follow up on Adam's question about guidance and subregulatory guidance. There's been quite a bit of deregulatory activity in this administration, but so much of it has been done by guidance that it will be undone almost immediately in the event that a new administration takes over. What can be done to get more of these deregulatory efforts done not through guidance, but through rules? I forgot to identify. Mark Chenoweth, New Civil Liberties Alliance. We have sixteen petitions and counting pending with all of your agencies except Energy—and it's on the way—asking for the deregulatory efforts that you are making to be made via rule rather that be a guidance. What prevents that from happening?

Prof. Adam White:  Steven?

Hon. Steven Bradbury:  Well, if you take a look at the order we did on guidance documents, one of the things to address this is guidance in the past has been just too easy to issue. It's a quick and easy, almost cost-free exercise for agencies. And often, the excuse is, "Well, industry wants clarity, and so let's tell them what they should do." But if you look at one of the things that we're doing with our process is we're imposing new requirements for the review and clearance of guidance documents, so it's not so easy and there's some clear rules of the road.

      So number one, it's very clear that guidance documents do not have the force and effect of law, so we're not going to rely on them to take enforcement action against anyone. Number two, it's easy to say, "Well, the regulated entity should do something, and if you do that, then we'll deem you in compliance." So for example, if the rule says you've got to have reliable accounting for your actions, and the agency says, "If you hire two sets of independent accountants, we will deem you in compliance and we won't question that." Well then, regulated entities will start hiring two sets of accountants to get that safe harbor. Well, that's a cost.

      So the next reform is you have to take account of the fact that guidance documents, even though not legally binding, can impose costs. And you have to make a good faith effort to estimate those costs, and if you think they're going to be significant, put it out for comment before it goes into effect. So these are simple procedures that achieve a degree of hygiene, as Brent says, and actually make it more likely that the agency will, in fact, take action through a formal regulation.

      And let me say just one more quick thing about Chevron because that was brought up. One of the things we put in our policy statements is we are not going to use Chevron deference to define how far we're going to go with our regulations or our enforcement actions. We're not going to try to go to the outer bounds of what we think a judge might conclude is a reasonable interpretation and say that's where we're going to go with our full enforcement authority. We're going to make a good faith effort to interpret the statutes we administer and the rules we've promulgated so that they're reasonably interpreted, and achieve the purpose for which they were adopted, and not use a judicial deference doctrine to try to define the scope of our power. That's a doctrine to limit what a judge might do to overturn an agency's judgement. It doesn't define how we are properly administering our authority. So I just wanted to add that on Chevron. Thanks.

Prof. Adam White:  Richard, I'd hoped we'd get to your question, but we're up against a hard break. I've been asked to tell everybody please remain in your seats so we can reset very quickly and go on to our next speaker, the Acting Chief of Staff of the White House. But please join me in thanking our speakers.

Dean Reuter:  [Sound not working 00:05:40- 00:06:33] …so he can leave the room and leave the building. I’m going to tell you only about his most recent, impressive contributions. They say here in Washington that OIRA, The Office of Information and Regulatory Affairs, is the most important office that nobody has ever heard of. OIRA itself is housed within OMB, and as director of The Office of Management and Budget, overseeing OIRA is but a fraction of Mr. Mulvaney’s responsibilities.

In addition to heading OMB, for some significant period of time, he also served as the acting head of the CFPB, The Consumer Financial Protection Bureau, one of the most controversial agencies in the federal government, and consequently, one of the most difficult to lead. And he has served as acting White House Chief of Staff since January of this year. He’s also whip-smart and known for his high level of energy. One of my favorite observations I’ve heard from Mick Mulvaney is a simple, yet important insight, just simple numeracy, the ability to understand and work with numbers. About the GDP, the Gross Domestic Product, he compares 2 percent GDP and 3 percent GDP. That sounds like a slight gain if you just gloss over that, but he notes that 3 percent GDP is not a mere 1 percent better than 2 percent. No, 3 percent GDP is 50 percent more than 2 percent GDP, an enormous gain when you stop and think about it. So, I look forward to hearing his insights today. Mr. Mulvaney.

Hon. Mike Mulvaney:  Thank you. By the way, that story about GDP is actually true. That’s a real conversation I had with my dear friend, Trey Gowdy. I was trying to explain to him about the economy because it’s numbers, and Trey’s not good with those. [Laughter] And he was the one who said, “What’s the bid deal? It’s only 1 percent.” And I’m like, “This is why we don’t let you do budgets. You’re on TV talking about the law.” Because he’s really, really good at that.

They’ve asked me to deliver some formal comments today before I take the Q&A. I don’t like delivering formal comments, honestly. Mostly because I’m not very good at it. It requires me to tell a joke at the beginning, and I’ve learned -- and I think there’s a couple of folks in this audience who’ve worked for me. Is Blankenstein here some place? One of my favorite lawyers ever at CFPB. They know I don’t have a sense of humor; I’m a budget person. Yeah. So, I don’t tell jokes. So, what I’m going to do is I’m going to steal a joke from someone else and explain to you why I don’t do jokes.

It’s Mitt Romney’s joke. He helped me in 2010, and we were doing a fundraiser as I was running for Congress. We’re backstage, and I’m like, “Look, Mitt, I don’t know how you do this. You’re so good at public speaking, and I’m terrible. I mean, you always seem witty, and you always seem quick, and you’ve got a great sense of humor.”

And he goes, “Oh, you like my jokes?”

And I’m like, “Yeah, I do.”

And he goes, “What joke do you remember?” Of course, you never remember jokes, right? I actually remembered one.

And I said, “The joke you told about how you were talking to your wife late one night in bed during the campaign, and you turned to her, and you said, ‘Sweetie, did you ever, in your wildest dreams, think that we’d be running for president?’ And she turned back to me and she said, ‘Mitt, sweetheart, you’re not in my wildest dreams.’”

[Laughter]

So, that’s the story. It’s a really good joke. It’s a great one. And I told this, and that’s a great joke, and he goes, “Oh, you like that one?”

And I said, “Yeah, I do.”

And he said, “You like that?”

And I said, “Yeah.”

And he said, “That one cost me $30,000.”

I’m like, “I’m sorry. What?”

He said, “Yeah. We hired a comedian to go with us on the tour, so we always had topical stuff for a particular town.”

This is why I’ll never run for president; I’m too cheap to pay people to do that.

So, they want me to talk a little bit about dereg, which is one my favorite things. So, I’ll talk for a few minutes about that. We’ll talk a little bit about the balance of power in Washington, D.C. We’ll talk two seconds about the economy, and then we’ll take questions.

Dereg. To say it’s a priority for the administration—I can prove to you it’s a priority to the administration because I’m leaving here, the reason I do have to leave on time is that we have a Cabinet meeting this morning. And the first thing on the agenda is going to be what the various agencies are doing to help deregulate the economy. It is a constant theme. In fact, the very first Cabinet meeting I was at, as the Acting Chief of Staff, is they came and I said, “Look, I’m new. You guys know me from OMB. I’ve talked to the President about what he wants he wants out of the cabinet. We’re going to do a couple of things. First and foremost, you’re going to be judged based upon how much you can deregulate. That’s it. If you want to be successful in this President’s eyes, come in and show him what you’re doing to get rid of all the crap that previous administrations have layered on this economy. Get us a way to help us; this is your part. Even if you’re in the Department of Agriculture, or EPA or whatever, this is your contribution to getting us to 3 percent economic growth on a sustained basis. So, do it.”

And they got that message. They come in and out of my office once or twice a year, just about every other quarter to go over what they’re doing. I’ll talk a little bit about what’s happening there, but it’s absolutely a priority. The President even goes so far as he’s getting regular briefings now on the deregulatory agenda from OIRA. I don’t run OMB anymore. Russ Vought does, a tremendously capable guy. But I don’t know if y’all know Paul Ray. Paul might actually be in the room, but Paul is a Hillsdale grad, a Harvard Law School grad; he’s about as geeky as you can get. This is the guy who is the Acting Director of OIRA now that Neomi Rao got put on the D.C. Circuit.

So, Paul, in his very first trip into the Oval Office last week -- I’m not making this up. I’m going to tell this story forever. He goes in to brief the President on the update for the deregulatory agenda to prepare for the cabinet meeting. And he goes through all the stuff, and it’s very, very dry, by the way. If you’ve never been through deregulatory stuff, it’s not the most scintillating material. But interestingly, if you come to talk to the President, 99 times out of 100 it’s boom, boom, boom. It’s back and forth. It’s a very sort of energetic conversation. He’s engaging you. He’s talking to you or moving around the room. You get your couple of minutes, and boom, it’s questions to you; he’s interrupting you. You’re interrupting him. It’s a free-flowing conversation. Paul talked to him for like seven minutes straight, and the President never said a word. I’ve only seen that like once or twice since I’ve been there. And at the end of Paul’s presentation, the President leaned back and said, “You love this job, don’t ya?”

[Laughter]

And Paul said, “Yeah. Yes, I do.”

And he said, “No, no. For you, for you, this is the perfect job. This is the job you’ve always wanted in your entire life.”

And Paul said, “Yes, I think it is.”

And the President took it another direction, and he goes, “So, would you rather be you doing this? Or would you rather be, say, Tiger Woods from ten years—not Tiger Woods from last week—Tiger Woods from ten years ago when he was winning all the tournaments, and he was on top of the world, and he was number one. Would you rather be him or you?”

And Paul Ray -- and I am not making this up. The most boring guy you’re ever gonna meet looked right at the President and said, “Mr. President, once we achieve all of these things that I have on this piece of paper, Tiger Woods is gonna want to be me.”

[Laughter]

I can’t do any better. I’m surprised he didn’t offer him the Chief of Staff job right there. So, it’s paying off. The commitment that we’ve had is paying off, and I know I’m on open press here, so I’m going to refer to some numbers, so I don’t screw them up. But the proof is in the pudding. When we first got here, the President said, “Look, I want two for one, and I want zero dollars.”

What does that mean? Every new reg you want to put on, you have to get rid of two, and net, of all the ins and the outs, you cannot increase the dollar burden. So, even if you get rid of six, and you want to put back on one, you can’t do it if the one costs more money than the six that you got rid of saved. It’s been a tremendous success. Even at the most conservative measure, we’re doing 4 to 1, and that’s on the big, heavy-duty ones. If you want to just talk about regs across the board, I think, as of last count, which was October—we’re getting ready to update this in the next couple of weeks—it was 12 to 1. So, all things told, every time we’ve put a new reg on in the first two and a half years of administration, we’ve gotten rid of 12 old ones. The numbers are just astounding. It’s almost, I think 2,000 regs that we’ve cleared off right now.

One of my favorite stories that deals with my first couple of weeks at OMB, when I was talking to the career staff about the dereg agenda. There’s not pushback, but we haven’t done it for a long time. So, it’s a muscle memory thing. We haven’t really deregulated in a long time. In fact, I remember stories about some agencies not having people who had ever done it before, and some agencies not having a piece of paper to start a deregulatory action versus regulatory action. But I remember talking to OMB because I knew they ran OIRA, and I said, “Look, what can we do to help these agencies?” And one of the answers from the OMB career staff, who I adore to death—these are the hardest working committed bureaucrats, and I don’t say that negatively. They work as hard for President Trump as they did for President Obama, and they said, “Well you can start by looking at the secret list.” And that wasn’t the official term of it, but that’s what they call it. And I said, “Well, I’ve never heard of that.” And they said, “Yes, it worked. Didn’t it?”

Apparently, several years into the Obama administration, they realized they had not been doing enough to sort of satisfy their left wing. So, they started talking about regs to sort of satisfy that extreme faction in their party. But they also realized they had to go through a reelect in 2012 and didn’t really want to be too public about it. So, what they did is, they told the Lefts, “Look, we’re going to do this, but we’re going to leave it over here on this pending list. We’ll call it the secret list, and we’re not going to make it public. But we are working on it. They won reelection, and it worked so well, they left it on there, and they kept adding to it. That list was over 700 regs by the time we took over. And once we exposed that to the sunshine in the first couple of months of this administration, all of those went away. And by the way, we don’t have a secret list anymore. We’re not doing that. That’s not how government should function.

[Applause]

The cost savings has been tremendous. I think, as of October of last year, we’re saving about $33 billion on a net present value basis. In terms of what we’ve done, all of the deregulatory actions taken that level of burden off of, in most cases, the private sector. So, it is absolutely working, and it’s going to continue to work. I’ll go down the list of what we’re working on right now. We’re going into our second NPRM on opportunity zones. If you don’t know what that is, you’re missing the biggest piece of the tax bill. This is Tim Scott’s initiative. He worked with President Trump on this. The President has absolutely bought into it whole hog. This is the change in the tax laws that allows you to grow assets inside certain economically depressed areas tax free. It could be one of the most dramatic and dynamic things that we’ve done in the tax code in a very, very long time.

I was just at the Milken Institute seminar in California—I lose track of the time—but they did entire segments on just that. Now we’ve already seen 8 percent, 8 percent, wage growth in opportunity zones the first six months that these things have been in place. You’re seeing home values rise in areas that are traditionally areas where poor families own their homes. They’ve owned them for a long time, and they’re seeing increases in their equity in their homes, which is going to unlock tremendous amounts of capital for them, which is just a tremendous opportunity that we have, for lack of a better word.

The CAFE comment period has closed. We’re working on that, by the way. The estimated range of savings on just the CAFE standards is between $120-240 billion dollars. DOL is working on three big ones: the joint employer rule, the overtime rule, the regular rate. And Interior is working on trying to figure out a way to fix the endangered species protection so that it no longer impairs.

One of my favorite stories about the Endangered Species Act was we had a bat down where I live down in South Carolina, and the bat contracted an infection. The infection was brought over from overseas; I think it was from Africa. The bat was dying out at a very aggressive rate because of this invasive disease, and because it ended up being either threatened or endangered—I can’t remember what the status was—you couldn’t cut down any trees in its habitat area. Which makes absolutely no sense. The lack of trees, the lack of nesting area, was not the reason that the thing was endangered. It was the illness from overseas. But the penalty on private industry, and on private landowners, and on private business, was to take away large portions of their economy, and in certain circumstances, people’s ability to make a living. It’s a completely non-sensical sort of outcome, and we’re trying to reduce those. So that will continue. It is an absolute priority for the administration, and I think our actions there speak even louder than our words. It is something that we will continue to push.

We’ll push there because the balance of power in Washington really is screwed up, and I’ll talk about that very briefly. Then I’ll be quiet and take your questions. I gave a speech. I gave the Imprimis speech at Hillsdale and talked about how the Executive Branch of government doesn’t have enough power. I got a stunned response, as you can probably imagine, especially from that group, and probably from this group. But here is the lay of the land. Things are completely out of whack here. Why? Because we have too much authority where we shouldn’t have it, and not enough authority where we should.

Why have we been able to be so successful in our deregulatory efforts? Because Congress has given us all of this authority. Because they don’t want to do the work. I mean go through just the Affordable Care Act, and I can’t remember how many thousands of times it says, “The secretary shall…, the secretary shall…, the secretary shall…., because they are just too lazy to make law. And they give it to the full-time bureaucrats, so they—and I say this as someone who used to do this—can go home every weekend and every other week. They don’t take the time to legislate. They give us the authority; that’s wrong.

At the same time, the power they keep from themselves and deprive us of, is just as wrong, and that’s the ability to run the government. I cannot tell you the number of times we’ve wanted to do something as the Chief Executive—the President as the Chief Executive Officer, us as the Executive Branch—to find out Congress won’t let us do that. I can give you lots of examples.

You may have seen, and if you were watching this on C-Span, you need something better to do with your time. [Laughter] We had a cabinet meeting where the President asked me to sort of go over some government restructuring ideas. One of the ideas was that we wanted to restructure the Army Corps of Engineers. You talk to any private folks in the infrastructure business, states, counties, towns, and they’ll tell you that the Army Corps of Engineers, when it deals with its civil work—I’m not talking about what it does militarily, I’m talking about the civil works stuff—is one of the greatest impediments to getting infrastructure built on-time and on-budget in this country. So, we had come up with this idea to take little pieces of Army Corps, and if it was environmental, dealing with wetlands and stuff, we were going to move that over to the EPA or Interior. If it was approval of roads and bridges, deep water ports, that kind of stuff, we were going to move it over to DOT because that’s what they do. It was a reasonable idea. It was a sound idea. It was based on good information, good work, and it was an Executive execution. This is the part of the running of the government. It’s what we’re supposed to do. Congress doesn’t let us do it.

Congress slipped one line into an appropriations bill that says, “The administration shall spend no taxpayer dollars, shall not be allowed to appropriate any funds…” for doing what I just talked about. Tying our hands to actually run the government. I can’t tell you how hard it is to fire a federal employee. In fact, it came up one time at one of my positions. I called the lawyers, and I said, “Look, this person just did this. I need to talk about firing this person.” They laughed at me. The career staff laughed at me when I raised the possibility for firing somebody for malfeasance. It’s nearly impossible for the Executive to be the Executive. And until we get that fixed, take away some of our regulatory authority, but please, please, please, give us the power to be the Executive, which is what people elect a president to do, and things might actually get a lot better.

Lastly, I promised I’d talk about the economy because I just love it, and it’s going so well, speaking of things that are getting better. We continue to think it’s going to be very solid. First of all, a lot of the naysayers said we couldn’t get to 3 percent growth. They were wrong. Now, they’re saying we can’t stay there; we still think they’re wrong. We continue to see data that reaffirms for us that this is a structural change. This is not a sugar high. It’s not a stimulus. We have fundamentally changed the nature of investment, capital, taxation business in this country. And we see it in the data. What’s one data point that I see? And I know Republicans talk too much about numbers, but this is one number that I think it speaks well more than just figures, and dollars, and cents, which is the quit rate. It’s something that we track.

Everybody follows the unemployment rate. Everybody follows the new hiring and firing, job creation. You know when how many people lose their jobs every single month or quarter—month. We also see—it’s available to you, but no one looks at it—the quit rate, which is people who are separated from their job by their own will. They quit. They quit to go do something better. They quit to move to another town to take a better job. They quit to move to a competitor to get another job. They moved to start their own business. That rate is at historic highs under Donald Trump. And I think that speaks of a confidence that people have, not only in themselves, which has always been there, but it’s a confidence in this country, and a confidence in this government, and a confidence in this economy that frees them up to take those kinds of chances. That’s a dynamism that we’ve been missing for far too long, and we think, at many, many levels, it can continue.

My favorite line about our efforts to fix the economy comes from Paul Krugman, and sooner or later, I think they’re going to realize that you can be wrong enough to where they take away your Nobel Prize. [Laughter] He was one of the ones who said we couldn’t get 3 percent. In fact, he was famous for saying the day of the election that the markets were crashing, and that they were never going to come back; we were going to be in permanent recession. Then he said we could never get the 3 percent. You’d never get productivity up, which we did. And my favorite line from him is that -- and this is a quotation from him. I’ll get it a little bit wrong, but this is close enough. He said, “You could make me complete dictator of the country, and I could do everything I know to do, and I could only get your GDP up a couple tenths of a point.” I believe to be that a true statement, by the way. [Laughter] But luckily, he’s not the dictator of the country. Donald Trump is president, and we’re better off for it. So anyway, thanks for having me. I look forward to having a chat.

[Applause]

Dean Reuter:  We’re going to take questions if folks could line up at the microphones. We’re going to start with a lighting round of questions. If you could make your questions as brief as possible, identify yourself, and we’ll alternate back and forth between the microphones. Go right ahead, sir.

Questioner 1:  You spoke a lot about reducing regulations. This has been an objective for many years. My question is are you simply trying to -- the appearance is created that the objective is to reduce the number of regulations without looking to the bigger picture. Are we making the government more efficient? Or are we just reducing the number of regulations? I worked for OMB a few years ago for [inaudible 00:25:13] and they had about fifteen PhDs at that time in evaluation who reviewed the government for the purposes of reducing regulations and making the government more efficient. So, what’s the ultimate goal? Making the government more efficient, whether we cut two per one, do we cut regulations?

Hon. Mike Mulvaney:  Don’t think I’m going to dodge your question, but I think I’m going to give you an answer you might -- they’re not mutually exclusive. A really efficient government would be better at deregulating, right? So, the two things do go hand in hand. But I would think that if we put the deregulatory efforts in one category, you can put the efficiency arguments in the other category. The example I just gave of the Army Corps of Engineers is an efficiency argument; it doesn’t deal with deregulating. The other example I give, and I’m not making this one up, but I always get it wrong. Let’s see, frozen cheese pizzas in this country are regulated by the FDA, but as soon as you put a pepperoni on it, it’s governed by the USDA. If you have a chicken, and again, I get these backwards. The egg is governed by the USDA. It’s born into a chicken; it becomes the USDA. You kill it, and it’s a piece of meat, it’s back to the FDA. It goes back and forth several times. That’s inefficient. The word I use is stupid. [Laughter]

So, we’re trying to fix that, but we can walk and chew gum at the same time. At the end, if Congress will let us do these things -- they won’t let us fix any of those, by the way. There are other limitations in our spending bills that won’t let us do those, just like there are for the Army Corps of Engineers. But we’d be better at regulating and better at deregulating, so the two actually do go hand in hand. Thank you.

Dean Reuter:  Let’s go to this side.

Bradford Frisby:  Hi. I’m Bradford Frisby with The National Lime Association. Our members make chemical lime. I know that you guys have done a great job in deregulating all the agencies, and OMB has a lot of powers to oversee that, but one thing that, I think, often gets overlooked is the Paperwork Reduction Act. The fact that every regulation, or many of them at least, have a large component of information collection that’s a part of it, have you talked to your staff at all about using that authority a little bit more vigorously at OMB to try to make sure that agencies are collecting information that makes sense from the public?

Hon. Mike Mulvaney:  Yeah. Actually, it’s probably one of our primary tools. So that doesn’t get a lot of attention, and people say, well Paperwork Reduction Act, so it’s just designed to reduce paper. It actually does a lot more than that. We’re going through a major analysis right now. Real short version: you want to put out a reg, we make a determination if it has a certain impact, and if it does, then it falls in sort of a different category, and you have to do a cost-benefit analysis. The Paperwork Reduction Act plays into that regime, and we use it every single day. So, while you don’t hear much about it, it is one of our primary authoritative pieces of legislation that we do use. You can use it as a weapon. You can use it as a tool, but we use it every single day. Thanks.

Nick Klissas:  Hi, my name is Nick Klissas, and I wanted to ask you what you think about Congressional notifications and how it ties the hands of the executive agencies. I’m very familiar with USAID, and before we could do any major procurement, we would have to notify Congress, “Hey, we’re about to spend this money that you already gave us to do such and such a thing.” And then we’d have to wait two weeks. We’d have to report when did the notification clear. But it seems to me that it’s not proper, in terms of the Constitutional architecture that we have.

Hon. Mike Mulvaney:  Yeah. We deal with it. You’re absolutely right. If you didn’t understand the question, it’s not like they just send us the money, and then we get to go out and buy airplanes. We have to tell Congress the different steps along the way, and it’s absolutely inefficient. It just is. It’s another chance for them to, sort of, pretend to be president, right?  Which is what they do. The power of the purse is extraordinarily powerful, and it’s supposed to be, right? I mean the Founders put it in Article 1 for the right reasons. But again, I don’t think it’s intended to be a constant impediment to the functions, the proper functions, of Article II. So, we do deal with it. There’s actually a couple of things we actually have to get their approval on. Not only do we have to notify them, we have to get their approval. That becomes even more troublesome, but we deal with those. That’s a great example of the overreach for the legislature.

Dean Reuter:  Last question.

Ben Taylor:  Ben Taylor from Arlington, Virginia. What are three things the Federal Government does well?

[Laughter]

Hon. Mike Mulvaney:  We kill things and blow things up. [Laughter] We do, and that’s something the military will tell you. That’s what we pay them to do, and they’re damn good at it. And you have to have people who are really, really good at it. We’re extraordinarily proud of what the military does, and they are excellent at what they do. What else?

Dean Reuter:  Count that as two.

Hon. Mike Mulvaney:  Yeah, count that as two. That gives me one left.

[Laughter]

Generally speaking, we are good at bureaucracy, and I know that sounds wrong. But let me explain that for just a second and see if I can convince you of it. I have now run three agencies. I’ve run the Office of Management and Budget. I’ve run what I used to call the Bureau of Consumer Financial Protection; that name didn’t stick. That’s fine. And now I run the Executive Office of the President. What I can tell you is that 99 percent of the people who work for you in the bureaucracy are really good bureaucrats. How do I define that? I define that as working as hard for the last administration as they do for this administration, as they will for the next administration. They understand how to transition from one to the other.

The story I told about OMB, some of the people who helped me deregulate, and really threw their lives and souls into it, were the folks who were helping Obama regulate on the way out the door. We do bureaucracy really well on a large scale. The problem is that other 1 percent. The folks who really are deep state, who are taking advantage of their position to try and frustrate the agendas of an elected official that they don’t like. That’s the one you hear about, mostly, and rightly so. Because they are effectively trying to undo the impact of an election. I try to convince all the people that work for me that if you want to be a good bureaucrat, I don’t care if you’re a Democrat or a Republican, I just need you to leave that at the door when you come in, and 99 times out of 100, that happens. So, we do that extraordinarily well. I’ll take that as, how about two out of three? So, I think I’ve got time for one more. Always take the lady with a hat, right?

Bhatia Zara (sp):  Thank you. Good morning. My name is Bhatia Zara, and I’m a comparative intellectual property lawyer. This morning’s panel, right before you spoke, spoke a lot about the effective deregulation transferring some rights more back to states. I’m curious about the administration’s position with respect to deregulation and whether or not that will indicate an increase in states’ rights.

Hon. Mike Mulvaney:  The question regards devolving authority back to the states, something that we have taken up on many, many occasions. The three I’ll bring to your attention are healthcare. We were looking for ways to get the states more involved, have more skin in the game. Keep in mind, what’s the big difference -- I’ve been in state government. The big difference between the state government and the federal government is that the federal government has a printing press, and the states don’t. So, if you put the states in charge of more of it, they actually will have some type of motive to balance a budget. Motive? They have to do it. So, there’s that fiscal responsibility that we sort of lack. So, we looked at that on healthcare.

Education. The President has been very, very straightforward about the fact that he wants education to be run more by the states. Not just for the fiscal reasons, but for the administrative reasons. I’ve never understood, and when I was in Congress, I used to have people come in all the time and they’d say, “I want you to vote this way on education.” And I’m like, “Where are y’all from?” And they’d say, “We’re from Idaho.” And I’m like, “Why would you ever care what I think about what you do with your schools in Idaho?” And really what they’re doing is looking at the federal level of government as a Court of Appeals because their state and local government didn’t do what they wanted to do, so they and try and get somebody else to overrule them. And that’s where the system completely breaks down.

So, we’ve looked at it in healthcare. We’ve looked at it in education. We’re looking at it right now in infrastructure. Keep in mind, most of the infrastructure in this country is built by non-federal entities. Mostly state and local governments. Most of the infrastructure in this country is owned by the state and local government. Do we have a role to play? Absolutely. Do we have a leadership role to play? Yes, we do. Are we oftentimes the biggest problem in getting stuff built? Absolutely, that we are. Just go ask your county and town managers about repaving a road and what they have to do to satisfy the federal government. So, we have a role there, but we do think to derive efficiencies there, there’s more opportunities for the states to get involved, and we’ll continue to talk about that as part of our infrastructure approval.

Thank y’all very much for having me. I hope you enjoyed the day. I’m going to a cabinet meeting.

[Applause]

Dean Reuter: Thank you, Mr. Mulvaney. A reminder to our audience, please stay in your seats while he leaves the room and the building. We’re on a break now, so we’ll have plenty of time to get to our next sessions. Thank you all.

Mr. Jesse Panuccio:  Good morning, everyone. Thank you for being here. If everyone can just grab their seats, we’re going to get this panel started. Welcome, or a continued welcome, to The Federalist Society’s Seventh Annual Executive Branch Review Conference. Our topic at this panel this morning is “How the Federal Government Litigates Cases.” I have, just having left the Justice Department five days ago, have a pretty fresh take on that subject, having spent about two and a half years overseeing a large swath of that litigation. So I thought, to kick off our conversation today, I would offer two themes born out of my own experience there and then introduce our panelists and kick the conversation over to them.

First, there is the question of the federal government changing legal positions in particular cases, an issue that most often arises when the federal government is the defendant and one that typically generates much public debate. Now, I want to put this in some perspective. The overwhelming majority of defensive litigation handled by the Department of Justice is comprised of day to day cases of limited national significance. For example, if a national park employee in Alaska brings a wrongful termination claim or a patient at a federally funded health clinic in St. Louis loses a kidney and brings a medical malpractice claim, DOJ defends the United States. That work in the federal government’s litigation positions and legal views remain basically the same over time, regardless of the administration in power.

Accordingly, these cases don’t often capture the headlines and usually are not the subject of expert panels like this one. Though, the private party, federal agency, DOJ, and judicial incentives created by the existence of a limitless judgement fund probably is a topic worthy of more attention than it gets. In any event, other litigation at DOJ is very high-profile. For example, defending an agency’s marquee regulatory program from an APA challenge or defending presidential action. Elections, changes in administration can have a significant effect on these marquee cases. The most notable cases are those in which DOJ has simply come to a new legal judgement, requiring a frank reversal in position.

There were a few of those in 2017, such as the Murphy Oil case about the enforceability of class waivers under the Federal Arbitration Act. But perhaps even more tricky are the litigation postures that arise in the first months of a new administration as agencies shift, sometimes dramatically, from one policy choice to another. A common situation we faced in 2017 was as follows. The Obama administration had promulgated a regulation on an important or high-profile issue. A party sued, claiming the regulation is unlawful in some respect. The litigation remained pending in district court or appellate court, often with the regulation enjoined or stayed in some respect.

Under the Trump administration, the agency sought litigation stays to permit regulatory change while the plaintiffs pressed to lock in legal victories. We saw this situation merit in many areas. One example is the APA’s Waters of the United States rule. The challenge in such situations is that the federal government, now contemplating regulatory change, does not want to say too much in defense of the old rule because such arguments might undermine the coming defense of any new rule. At the same time, the federal government doesn’t want to say too much in derogation of the current rule, both because of DOJ’s general duty to defend existing law but also because the federal government wants to avoid later APA claims that it had pre-judged any issues while it was considering a new rule.

Presidential transitions can always result in these difficult litigation postures, but the increasing prevalence of the nationwide injunction has exacerbated the issue. Perhaps our panelists will have more to say about that topic in a few minutes.

The second theme I think is important to today’s topic concerns the federal government’s general practices in affirmative litigation. Here, if you indulge me for a moment, I want to harken back to some founding-era thought. James Madison, famously lamenting in Federalist 51 that men are not angels and, thus, need a government, explained “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and . . . next . . . oblige it to control itself.”

Our government is adept at creating rules to control the government, but it sometimes fails to control itself. This is as true for the Department of Justice as it is for any other governmental agency or organ. Over the last two years, several of the policies announced by DOJ were part of an effort to force the agency to, as Madison said, control itself. Examples include the memorandum issued by Attorney General Sessions, barring inclusion of third-party payments in settlements, and the memorandum issued by Associate Attorney General Brand, barring certain uses of sub-regulatory guidance documents in affirmative litigation. The later memo was an attempt to rein in the use of what some commentators call regulatory dark matter.

A third example, and a very significant one, is the memorandum Attorney General Sessions signed on his last day in office: principles and procedures for civil consent decrees and settlement agreements with state and local governments. The consent decree is another practice in the regulatory cosmos but one that is even less visible than the dark matter of guidance documents. A consent decree is a binding court judgement and can serve an important function in a range of cases and enforcement areas. But some consent decrees are voluminous in their requirements and have virtually perpetual life.

The Antitrust Division, for example, started an effort over the last two years to dissolve ancient, but still operative, consent decrees. And it found some noteworthy targets. There was, for example, a decree still in existence from 1914 concerning rubber hoof pads for horseshoes, another one from 1921 related to music rolls for player pianos, and yet another, my personal favorite, controlled the market for horse-buggy whips. The continued existence of these old decrees is not what you would call careful regulatory action or good government. This is ancient, cosmic junk, unnecessarily floating around the regulatory atmosphere. Consent decrees are, in effect, a set of regulations for a single party, overseen by the Department of Justice, a federal judge, and, quite often, a private party monitor appointed by the court.

In practice, consent decrees can result in one or all of these entities directing the day to day operations of a business or a local or state government agency, for years on end. It should be obvious from the description such a regime can be as intrusive as, if not more intrusive than, a comprehensive set of regulations. Take for example the consent decree that now governs the Chicago police department, a decree that DOJ objected to in a filing last year but one that is similar in substance to many that DOJ agreed to in years past.

Regarding the Chicago decree, DOJ noted the decree is a 226-page document governing virtually every facet of CPD operations in excruciating detail. The decree’s 799 paragraphs and hundreds more sub-paragraphs cover community policing, impartial policing, crisis intervention, use of force, recruitment, hiring, promotion, training, supervision, officer wellness and support, accountability, transparency, and data collection. That is regulation of a local government agency. And so Attorney General Sessions’ memo noted that, while consent decrees are sometimes necessary and appropriate to secure compliance with federal law, federal court decrees that impose wide-ranging and long-term obligations on state or local governments are extraordinary remedies that raise sensitive federalism concerns.

And the memo set out to place some controls in the department, both in the approval process and the substance. One of the most important limits being that a consent decree must not be used to achieve general policy goals or to extract greater or different relief from the defendant then could be obtained through agency enforcement authority or by litigating the matter to judgement. Imposing conditions that could not be obtained through litigation to judgement is similar to creating regulations beyond the bounds of law. And just because a court imposes such a decree does not make it appropriate or wise. Courts, like Executive Branch agencies, can exceed their powers and distort constitutional norms. There’s much more to be said about this topic, but, for now, I’ll leave it there in the hope that it generates some discussion among the panelists.

And so let’s turn to our panel. We are very fortunate to have a distinguished group joining us this morning. They each merit a five-minute introduction, but I will provide only brief biographies so that they can get to the substance of their remarks. Our first speaker this morning is Gene Schaerr. Mr. Schaerr is a partner at Schaerr Jaffe LLP where he specializes civil appeals. He has argued a broad range of cases in the U.S. Supreme Court, every federal circuit, numeral federal district courts, and state appellate courts. From 2005 until 2014, Mr. Schaerr was the chair of the nationwide appellate practice at Winston & Strawn. He teaches as an adjunct professor at the Brigham Young University law school. He clerked at the Supreme Court for Chief Justice Burger and Justice Scalia and at the D.C. Circuit for then Judge Starr. He’s a graduate of Yale Law School.

Our next speaker will be Scott Keller. Mr. Keller is chair of Baker Botts’ Supreme Court and constitutional law practice. He is the former Solicitor General of Texas, and he has argued numerous cases before the U.S. Supreme Court. Mr. Keller also served as Senator Ted Cruz’s chief counsel on the Senate Judiciary Committee. He clerked for Justice Kennedy and Judge Kozinski and was a Bristow Fellow in the Office of the Solicitor General of the United States. He’s a graduate of the University of Texas School of Law.

After Mr. Keller, we’ll hear from Neil Eggleston. Mr. Eggleston is a litigation partner in the Washington, D.C. office of Kirkland & Ellis LLP. He has a distinguished record of public service, having held a number of senior government roles. Most recently, from 2014 through 2017, Mr. Eggleston was White House Counsel to President Obama. Earlier in his career, Mr. Eggleston served as Associate Counsel to President Clinton, as the Deputy Chief Counsel to the U.S. House of Representatives Select Committee Investigating the Iran/Contra Affair, and as Assistant U.S. Attorney and Chief Appellate Attorney for the Southern District of New York. He also clerked at the Supreme Court for Chief Justice Burger and at the Third Circuit for Judge Hunter. Mr. Eggleston is a graduate of Northwestern law school.

And our final panelist will be Paul Clement. Mr. Clement is a partner also at the Washington, D.C., office of Kirkland and Ellis LLP where he specializes in high-stakes appeals and strategic counseling. He served as Solicitor General of the United States from 2005 through 2008 and as Acting Solicitor General for an additional year before that. Mr. Clement has argued nearly 100 cases before the Supreme Court, including 30 times in just the last five terms. Mr. Clement is a distinguished lecturer in law at the Georgetown University Law Center and a distinguished lecturer in government at Georgetown University. He clerked at the Supreme Court for Justice Scalia and at the D.C. Circuit for Judge Silverman. Mr. Clement is a graduate of Harvard Law School. Thanks to each of these distinguished lawyers for joining us today. Mr. Schaerr, the floor is yours.

Mr. Gene C. Schaerr:  Well, thank you, Jesse, for your kind introduction and for your excellent comments. It’s a pleasure to be with all of you today. Early in my career, I had the privilege of working closely with someone that some of you may still remember, as I look around the room. He was a man named Rex Lee, who was the father of Senator Mike Lee from Utah. Now, he had been a professor and the first dean at the BYU law school where I now teach part time. And as a law professor and dean, he had been a very vocal economic and social conservative. For example, he wrote a book in the 1970s that was widely credited with helping to defeat the Equal Rights Amendment.

And when Ronald Reagan became president in 1981, Rex was selected as his first Solicitor General, and he took a lot of heat at the time for a lot of the things that he had written as a law professor and as a lawyer, prior to that. So it was a bit surprising to many of his fellow conservatives when, as the Solicitor General, he politely declined to try to find an abortion case in which he could urge the Supreme Court to overrule Roe v. Wade, which he viewed as a judicial abomination. But nevertheless, he was not anxious to bring that kind of a case to the Court, and his reasoning was simple. He knew the Court quite well, having clerked for Justice White and having litigated a few cases there after his clerkship. And he knew the Court was not ready to overrule Roe.

And so to those who said he should still take a swing at Roe and at least educate the justices on why it was wrong, he replied, “Well, I’m the Solicitor General, not the Pamphleteer General.” And unfortunately, or fortunately, his successor took a different approach. And that decision brought us Planned Parenthood v. Casey. And whatever one thinks of abortion as a matter of policy or whatever one thinks of Roe V. Wade, the Casey decision was, I think it’s fair to say, a significant blow to both federalism and the separation of powers, which are the twin subjects of the practice group that is sponsoring our presentation today.

So the temptation to be a pamphleteer rather than a serious lawyer seems to be an occupational hazard for government lawyers, regardless of party affiliation. You may recall, for example, that late in the prior administration lawyers in the Justice Department Civil Rights Division teamed up with some political appointees in the Education Department to require schools around the country, under the banner of Title VII, to let students who identify as members of the opposite sex use the bathrooms assigned to the opposite sex. And that was despite very clear language in Title VII itself that allows schools, and any institutions covered by Title IX, to have separate bathrooms for the two biological sexes.

But in a case known as G.G. v. Gloucester County, two Democratic appointees to the Fourth Circuit sustained the Education Department’s interpretation under the soon to be buried Auer deference doctrine. And I and a now confirmed Fifth Circuit judge were hired to represent the school board in that case. And not too surprisingly, we were able to get the Supreme Court to stay the Fourth Circuit’s decision and then to grant certiorari on both the Auer deference issue and the substantive Title IX question in the case. And as luck would have it, the old administration was replaced by the current administration. And the new Education Department decided to follow the statute and revoke the prior bathroom guidance.

Well, to me, Gloucester County is a classic example of a Justice Department in a left-leaning administration leaving the role of serious government lawyer and allowing itself to become a pamphleteer for a political cause. Did they really think they could persuade five justices to ignore the plain language of Title IX on a question as sensitive as bathrooms? Or did they even think they could persuade three justices to do that? And by the way, the Gloucester County case is also an example of the challenges and opportunities faced by a new administration in dealing with pamphleteering by its predecessors. When the new administration took office, merits briefing in the Gloucester County case was already well underway.

So the new Education Department and the Justice Department had to decide very quickly what they wanted to do about the case. And they made a wise choice. It was disappointing for someone who was hoping to argue another case at the Supreme Court. But they made the wise choice to moot the case and to save the fight over Auer deference for another day.

Well, another example of government lawyers succumbing to the pamphleteering temptation was a case called EEOC v. Hosanna-Tabor, a Supreme Court case involving the ministerial exemption to anti-discrimination laws. Now, certainly, the government in that case could legitimately argue, albeit incorrectly I think -- but they could legitimately argue that the rights of a religious organization’s employees to be free from discrimination trumped the organization’s religious freedom rights. But the Solicitor General’s Office in that case went a big step further.

It was apparently trying to establish the position that’s popular in academic circles that the First Amendment’s Free Exercise Clause extends no further than freedom to worship. It doesn’t actually include exercising religion outside of worship spaces. So the Solicitor General’s Office argued not only that the religious organization there hadn’t made a sufficient case for an exemption under the Free Exercise Clause, but the office argued that the Free Exercise Clause, quote, “had nothing to do with the issue.” Now, not surprisingly, Justice Scalia, when that argument was made at oral argument, bellowed, “That’s remarkable.”

And surprisingly, Justice Kagan, who just a few months earlier had been the boss of the very people who were making that argument, agreed with Justice Scalia that the government’s position was remarkable. And not surprisingly, the Court squarely rejected that position by a vote of 9-0, thereby once again illustrating the cost of abandoning sound lawyering in favor of pamphleteering.

Perhaps the most amusing example of this phenomenon is a case that I’ve been handling for the last several years on behalf of the North Carolina legislature defending two North Carolina laws dealing with the rights of transgendered persons in public bathrooms. This was another case in which the Civil Rights Division in the prior administration, joined by the ACLU, tried to impose its view of sound bathroom policy on recalcitrant state and local governments. Well, during a hearing in that case on a motion before a very genteel, Southern Republican appointed district judge, my friend, Paul Smith, who successfully argued the Lawrence v. Texas case in the Supreme Court, was representing the ACLU at this hearing. And Paul took the very reasonable position that, although he felt his client’s right to use the bathroom of their choice trumped the state’s interests in limiting access to women’s bathrooms to biological women, the state, Paul acknowledged, at least had a legitimate interest in protecting women’s bodily privacy.

But the Justice Department lawyer who was at the hearing, apparently unable to resist the temptation to be a pamphleteer, took issue with Paul on that point. And she thought that Paul was giving the state legislature too much credit. And she argued that, in fact, there is no legitimate state interest in separating the sexes in public bathrooms. And to illustrate, she pointed to the private school to which she sends her own children. And this school apparently boasts a kind of unisex throne room where children of both sexes gather to do whatever they need to do and just learn to embrace their bodily differences.

And so she said, “My kids’ private school does this, and it works out just fine.” Well, our traditional Southern judge just looked at her in disbelief, as though to say, “Wow, you Yankees have lost your senses to a greater degree than I had imagined.” And not surprisingly, he ruled against her a few weeks later. And fortunately, the new administration soon dropped the lawsuit and left it to the ACLU to continue it.

Well, the moral of these two stories is twofold. First, if you’re representing the government, I would urge you just to be a good lawyer and resist the temptation to be a pamphleteer for your administration’s favorite political causes, however worthy they may be. But secondly, if you’re opposing the government in litigation and your opponent can’t seem to resist the temptation to be a pamphleteer, don’t get in their way.

Mr. Jesse Panuccio:  Thank you -- well, that’s not working. Thank you, Mr. Schaerr. Mr. Keller, you’re up.

Hon. Scott Keller:  Thank you. I’ve heard a lot of various opposing counsel call their adversaries in litigation many different names, but pamphleteer -- I think that’s the first time. So I think we’re going to add that to the lexicon here at today’s Federalist Society conference. Thank you very much for the invitation to be here and to my co-panelists. In some ways, the fact that I’m on this panel, having been the Texas Solicitor General, may seem a bit odd in the sense that we’re talking about how does the federal government litigate cases. And of course, I would not have had a direct seat at the table for those cases. But what I did have was a close vantage point from the other side.

And today, in my brief remarks, I want to hit on three different points from that vantage point of seeing, from the other side, how the federal government really litigates cases, in particular from the state plaintiff side. First is just where did this phenomenon of state plaintiff lawsuits come from? We all take it for granted now, but it wasn’t always this way that there was a bevy of state plaintiff lawsuits. And related to that, then my second and third points are going to be, particularly under the Trump administration, not only the quantity of state plaintiff lawsuits but also the remedial nature -- the nationwide injunction explosion that we’ve been seeing.

So I’ll start first with where did all these state plaintiff lawsuits come from? Because obviously when a single state or a bunch of states band together as plaintiffs and they sue the federal government and they challenge a federal policy, the Department of Justice -- the federal government is going to be defending that lawsuit. So you’re in a posture where state AG’s offices are litigating against DOJ. I’ve heard some people say that maybe this kicked off a little over a decade ago in Massachusetts v. EPA, where the Supreme Court recognized that states had, quote, “special solicitude,” unquote, in the standing analysis. And some have suggested that maybe that opened the courthouse doors in a way that hadn’t existed before, in that states could get into court as plaintiffs under looser Article III standing doctrines.

I’m not sure that’s right. And since Massachusetts v. EPA, I’m not sure that there’s actually been a case where a court has said a state has special solicitude. That’s why they have standing. And the state would not have had it under ordinary or, at least, pre-existing standing principles. The Fifth Circuit DAPA case that we litigated, the Deferred Action program in the Obama era -- the Fifth Circuit did recognize that states do have special solicitude in the standing analysis, but that was a third or fourth layered argument after going through just the ordinary, concrete injury analysis. So I’m not sure that that’s actually what is having the effect of all the new state plaintiff lawsuits.

I actually think that it may very well be attributed to the development of state Solicitor General offices. These offices have not been around for all that long. In the last few decades, many other states have created state Solicitor General offices. Sixth Circuit judge, Jeff Sutton, was the Ohio Solicitor General.  Greg Coleman in Texas is now Senator Cruz’ Texas Solicitor General. But those offices are actually pretty recent. The Texas Solicitor General’s office is celebrating its 20^th anniversary this year. It’s only been around for a few decades. And the reason I bring that up is these offices are, of course, created for appellate expertise, for representation of the state in the U.S. Supreme Court, the state Supreme Court. But I think a collateral consequence of the development of state SG’s offices is actually that the state’s AGs come to rely upon their SGs for all sorts of litigation advice, even beyond just, “Hey, what do we have up at the U.S. Supreme Court?”

So I think the advent or the creation or the growth of state SGs may very well have been what’s caused this additional state plaintiffs litigation. So that brings me to the experience that the Department of Justice has faced with state plaintiffs’ litigation in the Trump administration. And I’ll give you some statistics just to put this into context. In the first two years of the Trump administration, there were more state plaintiff lawsuits against the Trump administration Department of Justice than in the entire eight years of either the Obama administration or the George W. Bush administration.

To put that in further context, there have been, in the first two years of the Trump administration, more state plaintiffs’ lawsuits against the administration than in President Reagan, H.W. Bush, and the Clinton administrations combined. In the first year alone, the Trump administration was sued 35 times by state plaintiffs. And to put that into context, that’s about the total amount of state plaintiff lawsuits that the Obama administration saw in its second term in full. Now, this of course -- and we’d love to hear from some of my co-panelists about this. I would think not only would it divert resources, but these are going to be higher profile cases. These are going to be challenging federal policies that are probably of paramount importance to the presidential administration. And so the more lawsuits that are raised by state plaintiffs challenging these big federal programs, it only heightens, I think, the policy stakes.

Now, again, I’m not sure that this is necessarily the system that our Founders would have envisions that a bunch of state AGs sue the presidential administration when they’re of opposing parties. But this seems to be, possibly, a new normal. And if this is a new normal, I think the Supreme Court is very quickly going to have to clarify when do you get nationwide injunctions. Nationwide injunctions have been a recent, more heavily debated issue. And from at least the Texas perspective, we were very careful about when to ask for a nationwide injunction when we were bringing lawsuits challenging the Obama administration’s policies. Of course, we obtained a nationwide injunction in the DAPA Deferred Action litigation.

But there, we were also careful to say the reason that a nationwide injunction was proper in that context was because you can’t have an immigration system where someone is lawfully present in one state but not another. You need a uniform immigration system throughout the entire nation. But the DAPA case was not the first time that this nationwide injunction issue had come up. I know some of my co-panelists can talk to this. The nationwide injunction issue was raised prominently at an early phase of the NFIB v. Sebelius Affordable Care Act litigation.

But the DAPA case, I think, because it was challenging a major Obama era program -- and we obtained a nationwide injunction, I think that put on the map the idea that you could go to federal court and, at least in some cases, you could block a federal policy across the country. But now, and we saw this at the tail end of my time as Texas Solicitor General at the beginning of the Trump administration, courts are now citing that DAPA case for the proposition that any time a state challenges a federal agency action and invalidates it and obtains an injunction that that injunction should be nationwide. Well, first of all, that’s not what the Fifth Circuit’s DAPA decision said, and there are reasonable arguments, I think, on both sides of this issue.

On one hand, injunctions should not be overbroad. Typically, you’re only supposed to get relief that remedies your own injury. Now, at the same time, the Administrative Procedure Act says that courts should, quote, “set aside,” unquote, unlawful agency actions. Well, maybe this is an exception, where, if you’re challenging a federal administrative action under the Administrative Procedure Act, maybe Congress has spoken and said that agency action should be set aside in full. There are good arguments on both sides of that issue. And there’s a lot of academic commentary on it right now. I think the Supreme Court is going to have to take a case pretty soon to clarify that.

But what I would say is the rule is going to be uniform going forward, I would hope. And the rule for challenging policies of a Republican administration will then also, and should also, be the same rule challenging policies of the Democratic administration that could potentially come in the future. So that’s to say, I think, when it comes to nationwide injunctions, the debate is either between do you set them aside under the APA in full, or do you do a more nuanced test that looks at the traditional test of is this broad enough to grant full relief to the plaintiffs but tailored enough to go no further?

And I know the courts right now are debating where exactly that line should be drawn. And I’d love to hear from my co-panelists some more on the nationwide injunction issue. Thank you.

Mr. Jesse Panuccio:  Thank you, Mr. Keller. Mr. Eggleston?

Hon. W. Neil Eggleston:  Thank you. I’m Neil Eggleston. I think when he was referring to co-panelists, he was actually referring to me, since I was White House counsel, in fact, for many of the cases that he discussed. So let me just get right to them. So I mean, this is an example, I think, of one of these principles that happens in law all the time, which is sometimes it’s not the principle. It’s whether you’ve won or lost. And I definitely agree that the aspect of states suing the federal government -- it didn’t start in the Obama administration, but it certainly sped up in the administration. It has been -- that increase of speed has certainly increased in the Trump administration.

I’m not sure, if you look at all the cases, whether statistics actually tell much of a story. I think you probably have to look at what the individual cases are about in order to determine whether the statistics are actually meaningful if you just go through number of cases. But we had a whole series of cases on issues that matter enormously to President Obama, which were stopped by litigation by the states. I’m going to mostly talk about DAPA, then another case. But we had the Clean Power Plan that was stopped. The President cared enormously about the Clean Power Plan that was stopped through litigation and various other labor, environmental and other issues that the President personally cared a lot about that were stopped by litigation brought by the states.

But let me spend a minute on the DAPA case because I agree with my co-panelist that, in some ways, I do think it became the model for what happened subsequently. I frankly think that the Fifth Circuit was pretty uncareful in its reasoning. And sometimes judges forget there might be a change in administrations. And a reasoning that looks good on one side may not look so good to you if you’re going to end up on the other side. There are a few things, I think, that happened -- and just to remind everybody -- I can’t remember if you did.

But just to remind everybody, this was the President’s program to provide deferred action for a period of two or three years to parents of American citizens or lawful and permanent residence holders. People forget what the program was actually about, but that’s what the program was about. Texas sued. Texas claimed standing because of an impact on its subsidized driver’s licenses. I thought that wasn’t sufficient, frankly. And various judges along the way, including 4-4, I think. We don’t know why the Supreme Court ultimately didn’t choose to review that case when it got it, but the vote was 4-4. I think probably 4-4 on the standing issue, although that’s just a guess by me.

I was troubled at the time, frankly, because this is one of these cases where a bunch of states -- I think we were about evenly divided. About 20 states came in on behalf of striking down the program, and about 20 states came in on the other side. And the states that came in on the other side put forth evidence saying, “No, we think this program will be an economic benefit for us. These people will pay taxes. They will be participants in our society. We think it’ll be a law enforcement benefit because these people will be able to come out of the shadows and assist law enforcement and not worry about, if they do so, being grabbed by ICE and deported.”

And so there were sort of tensions on both sides. But one aspect of this—and I was quite sensitive of this at the time—is that as a result of the nationwide injunction, the states that wanted it were deprived of it because the states that didn’t want it sort of didn’t want it. And the Fifth Circuit didn’t really address that, except to say there’s no offsetting of costs. And even if Texas would have benefitted economically, as I remember, the Court said that, for standing analysis, you essentially don’t offset costs. There were a few peculiar issues about that I think are a little -- that case. I think my colleague would have to acknowledge the red states have a better ability to place cases with actual specific judges than the blue states did. Certainly that’s what happened in the DAPA case.

Let me just talk for a second about Massachusetts v. EPA. I do think this may be a little bit of an example -- I think the citation by the Fifth Circuit to Massachusetts v. EPA is probably actually incorrect. I think the case had more to do with a statutory analysis than a standalone special solicitude. But again, if you’re going to unleash that dog, the dog may come back to bite you. And I think that’s something that the Fifth Circuit has seen in that particular case.

So I acknowledge that this trend has certainly increased during the Trump administration. But as I say, I think that I felt it pretty intensely during the Obama administration, as well. Before I get to the other nationwide injunction case, I’m going to deviate just for a second and talk about a recent study that’s in the NYU -- I don’t think the law review. I think it’s in an NYU study group -- that I think is interesting with regard to lawyering by the Executive Branch. So they’ve done a study that in the rollback of regulation cases -- let me just say I’m not warranting this study. I haven’t gone in to see if it’s accurate or not accurate. It’s public in the sense that people have disagreed with it. They have the ability to write in.

But on the rollback of regulation cases, the analysis they’ve done is that the Trump administration has lost 39 of those cases and won 2 of those cases. So I teach at Harvard Law School part-time, as well. And periodically, one of the things I talk about with the students is sort of the quality of Executive Branch lawyering. And you kind of think to yourself, “How could that possibly have happened?” Typically, in these kinds of cases, the win rate by the administration is in the 75 percent level. I think what ultimately ended up happening. I think most of these cases turn out to be cases where the administration sought to delay the implementation date of regulations that had already gone into effect and had a start date -- had an implementation date.

And the law is pretty clear. I think that if you looked at who the judges are, you’d find there are some, many appointed by Democratic presidents and many appointed by Republican presidents. And it’s because the law is quite clear that, if you’re going to undo a regulation, you have to do it by regulation. You can’t just do it by announcing -- the administration doesn’t have the power simply to amend a regulation that was promulgated by a regulation. And sometimes, I kind of wonder where the Executive Branch lawyers have been as that process has been going forth.

So just on a nationwide injunction point -- because I want to give an example going back the other way -- actually, also brought by Texas. And look, I get this. There’s the pain of the lose. And then when the lose also comes with a nationwide injunction, that feels like an even worse lose. And I basically felt that sort of several times when I was White House counsel. But let me just talk about the case that, I think -- and I’m sure my colleague will explain to me why I’m wrong. But I think is probably the worst example of the entry of a nationwide injunction.

It arises out of the transgender bathroom situation. It was a case brought in front of Judge O’Connor in Wichita Falls, Texas. And I’m not going to talk about the merits. I think the merits on all these cases are kind of hard. I’ll just say I don’t think I’m making news. But I actually did not think the administration -- I did not actually think the Department of Education should have come out with guidance on how it was going to enforce this area.

I thought it made a target, and it should just go off and do what it was going to do and not sort of create a document that would give an opportunity for somebody to sue because, ultimately, your enforcement priorities and who you’re going to go against isn’t actually doing anything yet. It’s just announcing sort of what your enforcement priorities were. I actually thought that was a mistake, and the Department of Education should just bring their cases or not and either win them in court or lose them in court. And by giving entities like Texas the opportunity to attack a policy, I thought that that was a mistake, and I thought it was a mistake at the time.

But what happened is a number of states and school districts brought an action before Judge O’Connor, who’s the same district judge who decided the ACA case that’s getting so much attention over the last several weeks. And they sought to enjoin the application of the policy. And what Judge O’Connor did -- so he has individual states. Frankly, I don’t understand why states other than Texas are suing in Texas about a Department of Education policy. I’m pretty sure they all have their own federal courts.

I don’t know why school districts outside of Texas are suing in front of Judge O’Connor. They all have their own federal courts, but they all decided to get together and bring this action in front of Judge O’Connor. So what he did is he found that this policy was a violation of Title VII and enjoined the Department of Education -- nationwide injunction against the Department of Education from implementing its policy anywhere in the country. Now, to me, if there was ever a case -- first, it’s not APA action. But if there’s ever a case where he could have given remedy to the parties in front of him -- mind you, I think there were parties in front of him who didn’t belong in front of him. But he certainly could have given remedy to all the parties in front of him without a nationwide injunction. And I think it was quite inappropriate.

And just an example, he entered the injunction, which included the Fourth Circuit. And as our colleague has just said, at the time, the Fourth Circuit, relying on that guidance, had affirmed the application, and it affirmed the Gloucester case. It was before the circumstances. So what he ultimately did -- a district judge in Wichita Falls, Kansas -- enjoined the application of policy guidance that judges in the Fourth Circuit court of appeals had determined were completely appropriate. Now, I don’t remember anybody from a red state complaining that that was an inappropriate use of a nationwide injunction.

And as we go forward, I think we just have to think through sort of whether this is a principled position or whether you take the position that you like it or don’t like it, depending on whether or not you had the injunction entered against you. I might say -- and I think I’m right on this. Although, people may disagree with me on this. I’ve seen -- partially because I teach this class, and so I keep on all the latest cases. I’ve seen a number of courts in some of these cases -- excuse me -- court of appeals pay more attention to the scope of the injunction and have been limiting the nationwide injunctions by some of the district courts. And I think that’s probably -- I think to the extent that this discussion has focused some attention on just what the scope should be, I think that’s quite appropriate.

And I think it will continue to see some activity. Just a final comment, and part of the comment is against my interest. I think, probably, in cases like DAPA, like the travel ban case, I think it probably would not make any sense to have anything other than a nationwide injunction. If you think about the travel ban case, you could hardly say it’s okay for people to come into California but not come into Texas. That would be a policy that just didn’t really work and probably the same on DAPA.

So I think on those kinds of issues, I think it probably works. But I think that the courts have to be a lot more careful as they go forward. And again, so I think we’ll definitely continue to see some more development on that. I don’t know that we need the Supreme Court yet. I think the courts of appeals are starting to focus on this issue themselves. So thank you very much.

Mr. Jesse Panuccio:  Thank you, Mr. Eggleston. Mr. Clement?

Hon. Paul D. Clement:  Thank you, Jesse. It’s great to be here. I’m happy to be here. I didn’t come here to disagree with my law partner, so I’m not going to do that. I am going to try to sort of frame up a couple of issues at a high level, just to maybe give people something to think about, and then talk about a couple of the issues and give you a few of my own thoughts on them. But I think, in sort of watching separation of powers issues play out in Washington, D.C. over the couple of decades I’ve been here, there’s really two ways things can go. One observation I would make is I think it’s really hard for the political branches, in particular, to figure out sort of whether they really -- what they really think of a separation of powers issue until both party’s oxen have been gored.

It’s all really fun to see the other side get kind of hunted down by an independent counsel who’s responsible to no one. But then when the independent counsel statute gets turned on your administration, you start to see the wisdom of Justice Scalia’s descent in Morrison v. Olson a lot more clearly. And I think that the independent counsel statute is really a nice example of how, sometimes, after both party’s oxen are gored, you can actually get to the right result from a separation of powers standpoint and have the independent counsel statute lapse. But of course, there’s a contrary tendency when both party’s oxen have been gored. And that you have a race to the bottom or a race to the top, depending on your perspective.

But each succeeding party just kind of takes a phenomenon that proved somewhat useful to the last party and take it, in the immortal words of Spinal Tap, to eleven. And I think, with respect to a couple of the issues we’ve touched on, including nationwide injunctions and sort of questions of duty to defend acts of Congress, I think we’re a little bit at an inflection point, and it could go either way. We could either go towards, okay, that wasn’t fun for us either, so let’s get to a sensible result. Or we could get to the point where, all right, if you’re going to do that, we’re going to do that plus 12. And we’ll see what happens on these issues.

But let me start with nationwide injunctions and give you some thoughts on that. Shockingly, this is a phenomenon that goes all the way back to the Bush 43 administration. And what I would say is we started to see nationwide injunctions when I was in the Solicitor General’s Office. We didn’t think much of them. Part of that was, from the standpoint of the SG’s Office, when you’re defending the federal government, you tend to be the subject of the nationwide injunction. You don’t get, as Scott did, the pleasure of going out and getting one. And to be clear, as long as courts are handing them out, states and others should be out there seeking them. Why not?

But that does raise the question of whether courts really should be handing out these nationwide injunctions. And I think there’s a special problem with nationwide injunctions that you’re seeing -- that I saw even back in the day in the SG’s Office. But I think you’re really seeing it in what’s going on between the current Solicitor General’s Office and the Court. And one of the problems with nationwide injunctions is they really put a lot of pressure on the Supreme Court because the way the system’s supposed to work is that district courts are supposed to decide certain things. Courts of appeals, regionally, are supposed to either affirm or reverse. And then, once you get to the point where the circuits are split, then the Supreme Court weighs in on an important and potentially divisive issue.

But the problem with the nationwide injunctions is you have one district court judge in -- pick your administration. It could be Texas, could be Berkley -- depending on the administration. But you have one district court judge probably in one not terribly representative district who’s enjoining the policy nationwide. And I think from the Supreme Court’s perspective, at least, that’s supposed to be the Supreme Court’s job -- to decide as a uniform nationwide policy whether some important governmental policy is unconstitutional or not.

And so when a district court judge sort of takes it upon himself or herself to enjoin the policy nationwide, it certainly makes sense for the Solicitor General to go to the Supreme Court and get some kind of interim relief. And the Solicitor General has had to do that on a number of occasions, either before or after the circuit court has declined to do anything about the nationwide injunction. But it puts a lot of pressure on the system. The Supreme Court is being asked to weigh in on cases before there’s really been any serious development in the case, let alone the kind of mature deliberation you get when one circuit has gone one way and another circuit has gone another way.

So I do think this is an issue that’s going to be sort of squarely addressed by the Supreme Court in the next couple of years. And I’d venture a guess -- and maybe it’s a hopeful guess. But I do think that the Supreme Court is going to put some serious limits on this practice of issuing nationwide injunctions. Maybe they’re will be exceptions for certain things like immigration policies, as Neil and Scott both alluded to. Though, frankly, I think the system actually could operate in a way in which the district court basically has territorial jurisdiction over the district and can enjoin the government’s policy in the district, but nowhere else. That’s kind of an antiquated notion of district court jurisdiction, but I kind of like it. But we’ll see what the Supreme Court ultimately does in these cases.

But I do think that’s something where, maybe with both party’s ox being gored and with a lot of help from the Supreme Court, who may feel like its own job is being made more difficult, that this is something where we’ll get to what, at least in my view, would be a better solution.

The second thing that I’ll talk about where maybe I’m a little less optimistic is the duty to defend acts of Congress that you don’t very much like as an administration as a policy matter. And this sort of directly affected my life in the context of the last administration’s decision not to defend the Defense of Marriage Act.

But you now are seeing another manifestation of it with respect to the Justice Department’s decisions to really not defend the Affordable Care Act. And I think, as my litigation past shows, I’m not a super fan of the Affordable Care Act as a policy matter or as a federalism matter. But I think there’s an argument to be made that in both of those cases the Justice Department should have stayed with its traditional policy of defending acts of Congress, even though they’re quite unpopular politically with the administration that’s in place at that point. And I think that there are costs to the system if the Justice Department doesn’t engage in and doesn’t kind of uphold its traditional duty to defend.

And I do worry that this is something where I think we could get into a race to the bottom or the top. I think this is an issue where you can make a coherent theoretical argument that the duty to defend is overrated and the Executive Branch should just only defend statutes that they like as a policy matter or that they think are constitutional just as a straight up 50/50 matter. But that hasn’t been the policy of the Justice Department for, essentially, ever. The tradition has been that, in cases that don’t implicate executive power, you make an argument, if there is a good faith argument to be made in defense of the statute.

I think that that policy, if you think about it long and hard, is the right policy from a separation of powers standpoint because I do think that the responsibility to defend acts of Congress when they’re challenged as unconstitutional is part and parcel of the executive authority vested in the President in Article II and that it’s not part and parcel of the authority vested in Congress in Article I or the state AGs who are happy to jump in and defend, as well, in the case of the ongoing litigation over the ACA. And I guess the last thing I’ll sort of say just on that point is one of the more memorable lines from one of my clients in the DOMA litigation was one of Speaker Boehner’s staffers when I was talking to her about the litigation in DOMA. She told me, “Look. I’m built for legislation. I’m not built for litigation.”

And I think that was basically right. And the Justice Department, by contrast, is built for litigation. So I do think that it would be a shame if we get into kind of a continuing process of administrations defending less and less of the statutes that are challenged as unconstitutional.

The last thing I want to say is just about this question about changes of policy, changes of legal position across administrations. I don’t remember, Gene, all the details of the Hosanna-Tabor case, but I seem to think -- at least, I would draw a distinction between what I remember about that case, which is, at the time that the SG got involved in that case, I thought the EEOC had already sort of made its enforcement position pretty clear.

And maybe I’m misremembering that. But just as a general matter, to me, there’s a big difference between the SG going into the Supreme Court on what may look like a suicide mission to defend a policy that has been formally taken by an agency. And it’s a lousy policy, and it’s hard to defend. But by the point that it gets to the Supreme Court— and that has clearly been the Executive Branch’s policy—I think it’s kind of a mistake to blame the Justice Department or the Solicitor General’s department. And that really comes back to the question of, when you have a transition between administration and administration, there is going to be an appropriate change in some policies.

But I do think -- and I’m not suggesting that either the current administration or the last administration didn’t adhere to this. But there is sort of a right way and a wrong way to change position. The right way to change position is to get the relatively politically accountable agency that’s responsible for a particular policy area to change their position -- to formally withdraw the regulation, to promulgate a new regulation, to change the guidance, whatever it is. But then there’s a wrong way to do it, which is to sort of keep the guidance in place and just have the Justice Department sort of flip its litigation position. And when I was in the SG’s Office, from time to time, somebody would be coming into the office and complaining about some government rule and urging us not to defend some government rule.

And I always thought the appropriate thing was to, depending on the agency, scribble down and address and hand it to the person complaining about the rule and tell them, “Look. Here’s the department of X. Run down there. If you can get them to withdraw the regulation, I would be delighted because I’ve got enough other things to do.” But the right way to change a position is not to have the Justice Department not defend some on-the-books, promulgated regulation that’s been applied by one of the other agencies when the issue is more in their expertise. And frankly, in the cosmic scheme of things, I think that department is more politically accountable for the policies in its bailiwicks than the Justice Department would be politically accountable for those policies.

Mr. Jesse Panuccio:  Thank you. All right. Let me first -- is this microphone working? Okay. Good. Well, thank you all. A lot to unpack there. We have about 15 minutes left, so let’s do this. For those who want to ask questions, please line up at the mics. I’m going to just start it off with one or two questions for our panel here, and then we’ll turn to the microphones. So let me just do this. One question for each table, actually.

So Mr. Schaerr and Mr. Keller, you have been plaintiffs against the federal government for a long time. So what I want to ask you is how did you deal with changes in administration? Did you -- were you ever surprised, when you were dealing with a piece of litigation that straddled two administrations, that you didn’t get what you thought you would get in the change of administration?

And then the question I’ll pose here for after that is, to both of you, having been in government in the last decade, how did you deal with requests to change positions? And how about your views on -- as opposed to, what I alluded to at the beginning, sort of just a straight legal judgement of the department of justice versus what you were alluding to, Paul -- the change in regulatory position? How did you deal with those? So I’ll kick it over to that table first, and then we’ll take that question here.

Mr. Gene C. Schaerr:  Well, I actually haven’t seen the situation in my own personal practice where I was surprised by a decision that a succeeding administration made. But if I could just -- let me take a minute to pick up on the point that Paul made about the Hosanna-Tabor case. I agree with Paul that the SG’s Office was doing the right thing in defending the EEOC’s policy. The point I was trying to make is about the way they went about defending it. They took an extreme and indefensible, I think, position in defending that policy. And I think they actually could have gotten a couple of votes from the Court in that case, if they had not taken such an extreme -- what I called the pamphleteering position. So that’s that.

Hon. Scott Keller:  So Texas had a series of lawsuits against Obama-era policies. The Trump administration came in, and these lawsuits are hanging out there. And some of these lawsuits remain pending today. I think, in many of those lawsuits, you didn’t know exactly what was going to happen. You needed political appointees to be able to be put into the DOJ positions to make the decisions. And then the decisions were okay, was DOJ going to stay the course? Was DOJ going to change position? If DOJ was going to change position, what was the new position going to be? So that’s all to say, yeah, from the outside, even when a new administration comes in, this is the federal government. Trying to turn the Titanic, even when you want to turn the Titanic, takes a lot of time. And I think it takes a lot of resources.

Mr. Jesse Panuccio:  And just to this table, you both probably had to deal with, as you said, Paul, a request to change positions that might have comported with the policy preferences in the administration. How did you generally approach that issue as lawyers for the administration and for the government?

Hon. W. Neil Eggleston:  So I’ll go first and somewhat quickly because I was there for the last three years, and I was largely defending our policies. So by that time, to the extent we were going to make changes in policy, that didn’t largely happen. So I didn’t have that too much. But I have sort of just a couple of comments that are related. I’d like to tell a quick story. Don Verrilli—and I don’t know how many people, other than Paul here, are going to know this case—but talks about the Solicitor General defending U.S. v. Bond.

And Bond was that crazy case where the girlfriend -- no, the wife put some sort of chemical agent on the doorknob of the girlfriend intending to hurt her. And the wife -- I may have the parties confused, but it doesn’t matter for this purpose. So whoever did it was indicted for chemical weapons charge. And so Don talks about -- and he’s the Solicitor General at the time this happens. And he talks about now what do I do because of the duty to defend? And he decided this is not a case he would have been involved in earlier.

It was indicted by the district court. It was affirmed, I think, by the Third Circuit. So he’s in the Supreme Court, and he has to decide what am I going to do. And he decided, “Look. I have a duty to defend this. And I’m going to lose badly.” And so his entire goal was to try to figure out how to lose not so badly. And I think he actually -- to him, thought the case was kind of a success because he didn’t lose badly. He sort of lost on the statutory issue, which was a dead loser. There’s some sort of interesting treaty power cases that the descent brought up -- some of the descents brought up, but that’s been -- but then the second piece I just want to mention is that -- and I’m going to do this a little light because I’ve never really talked about my communications with my successor, Don McGahn.

But there’s one case I said to him, “Look, you know” -- which is a fast and furious privilege litigation. I said, “Look. This is Eric Holder being sued --” Eric gone by then. By then, it was Loretta Lynch being sued by the House over producing these fast and furious documents. “And your friend’s with that -- they’re now Republican in the House. They’re going to come to you and say that you should roll over on this case.” And I said, “Look. You’ve got to remember the Obama administration started with a Democratic House and a Democratic Senate and ended up with a Republican House and a Republican Senate. So you’ve got to remember precedents like this matter to this administration.”

I’ve worked for two Presidents, and I care about this stuff. I said, “Don, don’t roll over on this. You’re going to want this.” So I’ve sort of lost track what happened, but they’re going to want this today and for a lot of days because it turned out to be a very powerful opinion. The Court ended up, on kind of a waiver theory, requiring the Justice Department to turn over the documents, none of which I cared remotely about, frankly. But the principle of executive privilege applying to that kind of material was strongly upheld by the district court. And I said, “Don, look. You know, life can change here, and look at little bit ahead.” So in some sense, the reverse of that happened with me.

Hon. Paul D. Clement:  So just a quick few comments. I was actually the opposing lawyer for Ms. Bond in the Bond case. So I know a little bit about this case, and I think Neil’s exactly right that the DSG’s office did the right thing in the end by defending the position that was taken by the U.S. Attorney. But I will say the fact that Don can spin a case that went to the Supreme Court twice and the government lost both times 9-0 -- the fact that Don can spin that as a limited success I think is a testament to lawyering and lawyers.

The second thing I’ll say is we had a very similar situation to what Neil described at the beginning of the Bush administration where Representative Burton was still looking for some documents that had to do with one of the last scandals of the Clinton administration. I’ve now forgotten what the scandal was. But we recognized, then, that that was a great opportunity at a transition time to continue to defend the position of the Executive Branch that the documents were privileged because, if you get a second term, what that means is you’re going to spend about 75 percent of your eight years in power in defending your own messes, where any exertion of executive privilege is going to look entirely self-serving—and just read today’s newspapers—sort of precipitate claims of a coverup.

It’s only at the very beginning of an administration that you can actually take the principled position of defending the executive’s position in the context of defending somebody else’s mess. So there are some kind of unique opportunities at the beginning of an administration to not change position but to keep a position that is in the long-term interest of the Executive Branch and really argue it in a way that, in a weird way, can be stronger than the previous administration making the same arguments.

Mr. Jesse Panuccio:  Thank you all. All right. We have about five minutes because the lunch panel starts right after this one. So I just ask panelists -- questioners keep your questions succinct. And we’ll be able to get to some answers. So why don’t we start over here.

James Young:  James Young, National Right to Work Legal Defense Foundation. I was actually in the Court when they announced Hosanna-Tabor about to argue my second case. It’s good karma since it was my denomination, and I ended up winning. But my question, I guess, would address -- I won’t convert this into an ethics credit for CLE folks. But I’d like the generals on the panel to address the ethics -- in the marriage cases, we had the spectacle of Attorneys General in Pennsylvania and California refusing to defend the duly enacted statutes of those states.

In Virginia, the spectacle was even worse where we had an Attorney General -- a newly elected Attorney General who actually switched sides. Could you address the ethical considerations, if any, or do you feel comfortable addressing those?

Mr. Jesse Panuccio:  Scott, do you want to start with that from a state perspective, and then --?

Hon. Scott Keller:  I guess I’d just echo a lot of what Paul had to say. The duty to defend, whether you’re talking about as the United States Attorney General or a state Attorney General, how that is going to play out is going to answer those questions. And do you want a system where you have to defend everything, period? Well, there are going to be some things that maybe are way over the line that you’d say, “Well, that’s just blatantly unconstitutional. Why should we defend that?”

The problem is, as soon as you start to draw the line anywhere else, this is where this leads. I know Texas Attorney General Ken Paxton thought there was a difference between a legislature passing a statute and an agency taking an action. And maybe there is a hard and fast duty to defend statutes that maybe, if it was an agency action, that could be different. But of course, that is one person’s view on the topic. And I think reasonable people can disagree about this.

Hon. Paul D. Clement:  I think there are some ethical issues, but I do think there are probably more kind of interesting separation of powers issues than purely ethical issues because, presumably, the reason there’s not a square ethical problem is you have a conception of who your client is that allows you to say that not defending it is actually sort of following your client’s advice in some respects. I will say one of the things -- and I think this was a deliberate choice that is backed up by a Walter Dellinger OLC opinion.

But I think one of the strangest things about the administration’s position as to DOMA was, at the same moment they were deciding that they weren’t going to defend the act in Congress, they continued to execute the act. And that, to me, seems just about 100 percent backwards, which it seems to me the executive does have the ability to independently say, “Oh, this is an unconstitutional statue, and we’re not going to take executive action that we think violates the Constitution. So we actually won’t, for example, deport somebody who could stay in the country if we thought that their same-sex marriage was recognized.”

But the administration was taking the position -- and, again, they were doing it deliberately, and they were backed by an OLC opinion, just one I happen to think is kind of backwards, that says that it’s okay to implement a statute you think is unconstitutional but at the same time not defend it in court. And I do think that’s backwards.

Mr. Jesse Panuccio:  Thank you. Sir?

Michael Daugherty:  Okay. My question’s about political accountability and what that looks like. And I don’t mean a tsunami like Trump. But when you’ve got agencies that will drag it out so long -- in my case, with the FTC, they argued in the Tenth Circuit after six years that they can adjudicate during a case -- they can make new rules during adjudication due to Chenery and Bell Atlantic. And they throw this out in the bottom of the ninth, and that’s a nine-year game. How can you hold that politically accountable? By this time, no one’s paying attention.

Mr. Jesse Panuccio:  Thank you. We’ll take short answers to that, and then I’m going to have to dismiss the group for lunch. Who wants to take that?

Hon. Scott Keller:  Well, it’s not a great answer. But I will say part of the reason you have all the state plaintiff lawsuits against federal agency policies is because they’re federal agency actions. It’s not Congress passing laws. And if Congress were passing laws and setting the policies, there wouldn’t be this ability to go into court to override them. It’s not an answer to your question. But it’s acknowledging the problem.

Hon. Paul D. Clement:  The only thing I would say -- I share your frustration. I’m dealing with a comparable situation right now. But the question on all of these things is politically accountable compared to what? And if the alternatives are further empowering the Article III judiciary or further empowering Justice Department people who are supposed to be in their positions not because they know anything about FTC policy but because they’re good litigators, I still think it’s a lousy set of choices. But I still think, of the three, having the FTC do it and own it is the most politically accountable.

Michael Daugherty:  I agree. I just didn’t know that happens. So we’ve got to figure out how that happened. Thanks.

Mr. Jesse Panuccio:  Well, please join me in thanking this very distinguished panel for their excellent comments. Thank you all very much.

Matthew R. A. Heiman:  Good morning. Thank you all for coming to today’s panel, “Corporate Responsibility: Maximizing Shareholder Benefits v. Social Justice.” My name is Matthew Heiman. I am currently with the George Mason University’s National Security Institute. But recently I was a corporate secretary at a major public company, so I have a particular interest in this topic. And I’m delighted that we were able to put together a terrific panel to talk about it.

Let me give very brief bios for each of our panelists, and then we’ll get into the conversation. The first panelist, sitting directly to my left, Paul Atkins is Chief Executive of Patomak Global Partners, LLC, a financial services consultancy, where he leads client work for the financial services industry. Mr. Atkins regularly serves as an independent compliance consultant and a court-appointed monitor in settlements involving the Department of Justice, the Securities and Exchange Commission, the Commodity Future Trading Commission, and the Financial Industry Regulatory Authority.

Prior to founding Patomak, Mr. Atkins, from July 2002 to August 2008 served as Commissioner for the U.S. Securities and Exchange Commission.

Jonathan Macey, who is sitting on the opposite side of the dais from me, is the Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale University. He’s also a professor in the Yale School of Management.

From 1991 to 2004, Professor Macey was the J. DuPratt White Professor of Law and also the Director of the John M. Olin program in Law and Economics at Cornell Law School. He was also Professor of Law and Business at the Cornell University Johnson Graduate School of Business.

Professor Macey is the author of several books, including the two-volume treatise, Macey on Corporation Laws. He’s also written Corporations: Including Partnerships and Limited Liability Companies and Banking Law and Regulation.

And finally, sitting next to the podium is Andrew Schwartz. He joined the Colorado Law faculty in 2008 and was promoted to full professor in 2017. He teaches and publishes on corporate securities and contract law and is an internationally recognized expert on securities crowd funding.

In 2017 Professor Schwartz served as a Fulbright Research Scholar and Visiting Professor at the University of Auckland Law School in New Zealand. Before entering academia, he practiced corporate law with Wachtell, Lipton, Rosen, & Katz.

Just to frame this issue a bit, The Modern Corporation and Private Property was a book written by an Adolf Berle and Gardiner Means in 1932. And it remains a highly cited work by management theorists. It espouses a stakeholder theory of corporate governance that argues the purpose of a corporation is broader than simply creating shareholder value. The stakeholder view of management held sway until the 1970s when academics and policymakers began to push in a different direction.

Perhaps most famously was Milton Friedman, who in 1970 argued that the only social responsibility of a business is to increase its profits. Today the idea that corporate governance should take into account not only shareholders but also stakeholders is again in vogue. BlackRock CEO, Larry Fink’s April 2019 memorandum to CEOs stated that, “BlackRock would be taking into account corporate social responsibilities in investment decisions because, quote, ‘profits and purpose are inextricably linked.’”

Which approach should company practice and legal policy take? Should we attempt to reconcile social justice in maximizing shareholder value as Mr. Fink suggests? Each of our panelists will make brief opening statements. We’ll then have some discussion amongst the panelists and we’ll reserve some time for audience Q&A. I’d like to begin with Mr. Atkins.

Hon. Paul Atkins:  Okay. Well, thank you, Matthew. It’s great to see all of you this morning and great to be here. I look forward to the rest of the conference as well. So with respect to our topic here about corporate social responsibility or corporate responsibility in general and to whom do they owe a duty, I think you have to step way back to where corporations came about. And there’s a little book that came out right after Sarbanes-Oxley was passed. This was about 2003 by two economists of a newsletter -- a newspaper of the economists but two reporters, called The Company. And it’s a real little book, maybe 150 pages or so long. It gives a really good, quick overview of where corporations come from. They trace them all the way back to the Sumerians and all the way through Sarbanes-Oxley. It’s obviously a way for society to organization people, to produce a product, and to aggregate capital. And so I think throughout all of this debate we have to remember where does capital come from and why do we have all of this, and what is the good that comes out of companies.

So if you go to -- fast forward to Adam Smith -- from the Sumerians all the way to Adam Smith’s time in 1776, he really didn’t like the public limited company. He thought basically that it was a product of monopolies, and he was looking at Crown companies and those sorts of things. And so he was much more focused on a sole proprietorship or a partnership where there’s not the agency problem between management and the owners of the company and where there’s a direct responsibility all told. But he didn’t live in a time of plaintiff’s lawyers and that sort of a thing, so limited liability was -- which he viewed as a subsidy, which one can argue that it is. But that really allowed a lot of aggregation of capital to do things like exploration, the East India Company, those sorts of things that the British Empire pioneered. And then, of course, in the United States we adopted that from the English legal system.

So as far as to whom the corporation owes a responsibility, obviously the primary one should be to the shareholders who are risking everything. They're the ones at the end of the day who are holding the bag, and if the company fails -- and they're the ones through the board of directors who appoint the management of the company and ultimately are accountable for everything. So I think that’s how we have to read Milton Friedman’s exposition there in 1970 to refocus on where does capital come from and why is that so important because nothing is immutable.

Corporations don’t have really any certainty of survival. If you look at the Dow 30 today, for example, versus 80 years ago back in 1939, there are only three companies that are left in the Dow 30, and two of them are oil companies. And if you go back to 1920, there are none left that were back there in 1920. And even just 40 years ago, there’s seven left. So you can see how this changes over time, and there’s no guarantee that Microsoft will be the highest capitalized company because there’s competition and new inventions and all of that.

So in that regard, when we look at some of these proposals coming from Elizabeth Warren and others, I think you have to focus on where does the capital come from. You can be, like, in Germany, for example, where they have what’s Mitbestimmung, which is where she is getting her idea of a certain percentage of the board that should be reserved for employees. That was imposed in Germany by the Occupation, actually, and maybe Americans had something to do with that. But that was a way of trying to break up the big German conglomerates that, at least the Allies thought, helped lead to two World Wars.  

So in the United States, basically if you look at corporate law, it’s focused by the states on the shareholders. And I have to say, personally, if a company is making money and building good products, and obviously it has to do things legally, but if you happy customers, you’ll have happy shareholders because people will be buying the products. If you have happy employees, you're going to have happy shareholders because the employees will be working hard and being efficient and producing good products. And hopefully management is looking after that. If you have a happy community, you're going to have happy shareholders as well because of course a company has to work within the ambit and the environment of its community, and be a good neighbor and produce good things. Does that mean it has to build a baseball field or whatever? I mean, those are the things that are up to the board and, obviously, up to the shareholders.

But with respect to what is a stakeholder, the trouble with that is it’s very ill defined. And where do you put the boundaries around that. You can, as you build it out, you get to people who have no real, pecuniary interest in the success or failure of a company. And I think that will lead to bad public policy ultimately in the end.

So anyway, with that let me pass it on and we can sure have a discussion now.

Matthew R. A. Heiman:  Thanks, Paul. Jonathan?

Prof. Jonathan R. Macey:  So this topic has caused me to think a little -- to recall a famous line by F. Scott Fitzgerald that people should have the goal of being able to hold in their minds, simultaneously, two contradictory ideas. And the two contradictory ideas I have are about the merits or the wisdom of a panel on this topic because I simultaneously think that on May 8, 2019 this topic is both silly, a kind of uninteresting -- but at the same time, I also think it’s very important. So these are obviously contradictory notions that I want to just spend a couple of my five minutes explaining why I hold these two contradictory views.

First, with respect to the idea that this is kind of silly, my argument is very simply as follows. Markets work. So the professoriate like myself or the political class, like Elizabeth Warren, can pontificate all they want about the merits of expanding the traditional rule which gives fiduciary obligations exclusively to shareholders and expanding that to broad notions of corporate social responsibility or social justice.

The problem with that view, and the reason I think it’s kind of silly and a waste of time, is that the people who are running corporations do not run their corporations on the basis of what Elizabeth Warren thinks or what some professor at some law school thinks. These people are subject to and critically constrained by market forces. So we see this in sharp relief with the emergence of activist hedge funds, the market for corporate control, the high-powered, performance-based incentive compensation. And people are saying -- people who run corporations are saying, “Oh, we can’t think about the long run. We have to manage for the short term.” People are so focused with laser-like intensity on quarterly results. And the reason that they are focused on quarterly results, the reason they're focused on beating analysts’ expectations is because they're constrained by market forces. There're important market forces that force managers to maximize profits, not only in the managerial labor market, but in capital markets and in a product market.

So this topic may have some kind of philosophical interest or academic interest, but as a practical matter, I'm not very worried about the outcome of this debate because of the reason I just said. I think markets work and markets are going to serve as a very effective constraint on managerial or political efforts to cause corporate officers and directors to expand their duties beyond the traditional goal of maximizing the value of the firm and shareholder wealth maximization.

Having said that, you know at the margins, at the edges when you have a takeover contest, rules about corporate social responsibility may empower incumbent managers to resist takeovers more enthusiastically or vigorously than they might otherwise be able to do so. But I think it’s a very small marginal benefit.

So let me turn to the second -- the contradictory idea: Why does this matter? Well, I think the reason that I'm interested in this subject and pleased to be here is that this notion that corporate officers and directors should do anything other than maximize value for shareholders is, I think, part of a larger attack that we’re seeing these days on the whole idea of the free market and the private contracting process. So we’ve seen, for example, something that’s been of great interest to me during the -- to this day but really acutely during the Obama administration was the strong pushback against private corporations, particularly in the fast food industry that wanted to have covenants not to compete imposed as matters of contract with their employees. And people thought this was a horrible idea.

We also see pay day loans. This is a private contracting process where the notion is that consenting adults, consenting individuals in the loan market are somehow not permitted to reach the results that they would want. And here, too, the idea is in the corporate context, the social responsibility idea is simply, well, we have these contracts, whether they're labor contracts with employees or whether they are contracts that corporations have with shareholders, which are much more loosely specified, and the outcome generated by market processes that say that the contracts with suppliers and employees and other corporate constituents that are not shareholders will be defined and delineated by specific terms of agreements. And that the residual claim holders to the earnings of the firm, which are the shareholders, will also have the right to profit maximization, which is really what the notion that officers and directors are supposed to maximize the value of the firm and no fiduciary duties exclusively to shareholders is all about; that we have to upset that.

And I’ve spent a lot of time in scholarship some years ago trying to go through the contractual basis for this idea, just to make the point that shifting fiduciary duties away from shareholders and making them broader is not going to help any of the constituencies in company because the shareholders will have to give up, will lose value as a consequence of this occurring. And to the extent that these other constituencies are obtaining a benefit, then in a competitive, equilibrium market, these other constituencies are going to have to give something up for this benefit that is worth more to them than what they're getting. So it’s kind of a classic basis of inefficiency.

So my view is that it’s an interesting topic because it casts some light on -- it provides some illumination about the particular moment that we are experiencing in history as being unusually hostile to the private contracting process and free markets. On the narrow issue of “Is this a realistic threat to shareholder value,” my answer is well, as long as these capital markets, and product markets, and managerial labor markets, and markets for corporate control and activist investor -- activist hedge fund markets are permitted to continue to function, then this debate is largely precatory, and it’s something that doesn’t really keep me up at night, other than it’s a little bit of an annoyance. So thank you so much.

Matthew R. A. Heiman:  Thank you. Andrew?

Prof. Andrew Schwartz:  Thank you very much. I’m really honored to be here on this esteemed panel and with all of you. So we are at an interesting moment here. In the 1970s, I think led by Ralph Nader and others, there was an idea to require companies, at least large ones, to obtain a federal charter -- a federal corporate charter as opposed to the Delaware or other state that they usually have. And now we have a new proposal by Senator Warren and supported by many others to similarly require that only very large companies obtain a federal charter. And that this federal charter would impose stakeholder governance, meaning the board and the corporation is not designed purely to advance the interests of the shareholders, but for all stakeholders, or all of those with an interest in the corporation, especially employees but also the local community, the natural environment, maybe the nation, others as well, customers.

So should we support this? Well, let me give you what I think are the strongest arguments in favor of the stakeholder model. And there’s really four of them that I want to present. One, stakeholder lock-in. Two, corporate political capture. Three, the diminishing marginal utility of money. And four—my personal favorite because it’s based on an article that I wrote—the perpetual corporation. I’m going to explain all of these, but that’s the roadmap.

So first, let’s talk about lock in. A foundational reason why shareholders under current law are given primacy is that they are locked in. Once they put their money in, it is irretrievably committed to the corporation. There’s no threat of exit; “I want my money back.” So shareholders are in a special vulnerable position subject to opportunism, which is what Berle and Means were writing about 100 years ago. So shareholders need fiduciary protection from the board, goes the theory. Whereas other stakeholders, as Professor Macey mentioned, are voluntary participants by contract. They come to work, they buy the product, etc. They're not locked in.

However, I don’t think the premise is fully accurate, and others agree. There are many types of stakeholders who are, in fact, locked in, at least to some degree. For example, employees who develop firm-specific skills have locked themselves in to some extent. They can’t easily switch to some other employer. They become an expert at, let’s say, teaching corporate law. It’d be very difficult to go become a computer programmer or something. Thus, they are vulnerable to opportunism in the same way, and perhaps they should be the beneficiary of fiduciary duties.

Professor Macey makes a good point: perhaps this wouldn’t necessitate pay cut, essentially, for employees. They might want it. I think Senator Warren would say employees would rather have a little bit lower pay and more certainty that they're going to continue in their job.

Customers, and even other types of stakeholders, could also be locked in. Bank accounts are very difficult to switch. If you're on Venmo, it’s very difficult to switch to another type. If you’ve spent years telling Netflix all of your favorite movies, it would be costly to switch to another one. So to a less extent than shareholders but to some extent, at least some customers are locked in as well and should maybe be given some protection. They're not really voluntary participants that can leave at any time.

And maybe even the community. Think about Seattle with Amazon. Seattle is pretty well locked in to Amazon. You can’t just switch out, “Oh, we want IBM now.” And so perhaps the community also has a similar argument: we’re locked in. We’re vulnerable to opportunism. And maybe this is a charitable explanation to New York’s decision recently to effectively send Amazon somewhere else. Perhaps New York appreciated that it would be locked in, to some degree, if they built certain infrastructure and did other things in this way.

So argument number one, other stakeholders are locked in, too, so maybe they deserve fiduciary protection.

Second argument, and this is particularly important for the largest corporations. For years, and it goes back to Easterbrook and Fischel at least, the standard argument in favor of shareholder primacy, or one standard argument, is other interests can be covered through general law. If we’re worried that profit maximizing corporation is going to pollute too much, well, let’s just pass a law that says you're only allowed to pollute this much. Or minimum wage laws. Or any other law or regulation to protect other stakeholders.

However, particularly in the era of Citizens United where corporations are free to lobby as much as they want and spend the entire corporate treasury on advocating for laws and regulations or against them, I think that there’s reason to question whether we should place so much reliance on the political process to adequately protect other stakeholders when corporations driven by shareholder primacy -- to advance shareholder primacy will lobby and affect the very laws that we are depending on.

Number three, the diminishing marginal value of money. It’s sort of a long title for a simple concept: that the same amount of money is worth different things to different people. If you have $60,000 in the bank, $100 is not that big a deal to you. If you have $600 in the bank, $100 is a tremendous deal to you. William Henry Vanderbilt apparently once said, “I wouldn’t cross the street for another million dollars.” Well, I would.

So the idea is that people with greater wealth would place less value on an additional dollar, whereas people with lower wealth would place more. It is true that -- let’s just compare employees and shareholders. Many, many Americans hold shares. Maybe a majority of Americans. However, the wealthiest hold more shares. So your average, your typical shareholder, I think we can say, is wealthier than your typical employee. Thus, a corporation with $100 to distribute could distribute it to shareholders through buybacks or dividends or some other manner. But if that $100 were instead directed to the employees, Senator Warren would say and she makes a good point, that would do more to raise social welfare. There’d be a greater good in the world from distributing that $100 to the employees rather than the shareholders. I think that Paul and maybe John as well would place a challenge here and say, “There’s not going to be $100 if we have a stakeholder regime because employees and other stakeholders have different incentives. There’s only going to be $20.” And regardless of the diminishing marginal utility of money, it’s better to have $100 than $20.

Senator Warren I think would come back and say, “Okay, we won’t have $100, but we’ll have $90.” I don't know who’s right. But this is an empirical question that I think a lot depends on in this debate. If moving to a stakeholder theory would mean the corporation would have $90 instead of $100, that’s probably a net gain for the world. If it’s $20, it’s probably a net loss.

Final point on the diminishing marginal utility of money, and I don't think this is where Senator Warren would want this discussion to go. Let’s compare factory workers in Akron, Ohio versus factory workers in Phnom Penh, Cambodia. I think the factory workers in the latter would place even a higher value on the $100. So if we take the view that all people are of human worth, we could increase social welfare even more by doing something like closing a factory in Akron and moving to Cambodia. Just to keep that in mind.

Finally, and I'm going to wrap up in just a moment here, the final argument, I think, in favor of stakeholder theory at least is it’s sort of oblique. The modern case law, at least in Delaware, views shareholder primacy as the goal, but it takes the view that it’s a long-term question. And as I’ve said, I’ve written an article that I call The Perpetual Corporation, where I make the argument—and this was accepted in at least a few Delaware cases—I make the argument that the perpetual nature of the corporate form drives the legal obligation to manage for the very long term. And I think as Paul mentioned, stakeholder theory and long-term shareholder benefit often come very close together. You can give your employees college tuition, pay your bond holders on time. If you're a logging corporation, manage the forests responsibly. Replant and things like that. These are all the sorts of things that stakeholder theorists and social justice proponents would support.

And so in many cases, although not all, in many cases these two ideas, I think as John was maybe suggesting, are not really intentioned but really do come together, at least in the long term. So those are my, I think, strongest arguments in favor of stakeholder theory, and I look forward to the discussion.

Matthew R. A. Heiman:  Thanks, Andrew. Paul, do you want to react to anything that was said by either John or Andrew?

Hon. Paul Atkins:  Well, the arguments for federal charter and whatnot and going down that road, with respect to stakeholders, it’d be made -- and like Andrew’s saying, it’s been bubbling around for years and years and years; a century or more. But where we are right now is -- I think there is some disingenuousness on the politicians who are proposing this because we’ve just seen overtime, here, a growing politicization with respect to how corporations are viewed and how the political classes are reacting to them, especially other particular stakeholders – unions and other types of folks, where they are focusing on the ends that they're trying to get as. With respect to the union’s case, their organizational goals and whatnot. But we’ve seen it through the Sarbanes-Oxley Act and Dodd-Frank and a number of ways where there’ve been provisions in there to try to turn corporate efforts and corporate actions towards a political goal. And it’s just basically -- the question is how to harness a private action, where if you can’t get it necessarily through the Legislature or through the Executive, how do you harness a private action into achieving some of these goals.

And so if you look at Elizabeth Warren’s bill, when they talk about companies, it’s not necessarily just companies that we normally think of. But if you kind of take it to the extreme, it could affect private equity. Firms, for example, even private companies who reach a billion dollars in assets, or revenues, or whatever. So regardless, they would be forced, then, to become a public, federally chartered company.

And so that really, then, starts to focus us on what, then, would happen with people who are interested in putting their money at risk in investing in a corporation. If you look now at the public companies that we have in the United States, right now we have fewer than half of the number that we had 20 years ago. And so we have a lot of the unicorns, and some of them now are sticking their toe in the water about going public – Uber, Lift, and some others. But there’s still lots on the sidelines who just view it as not being worth the effort and the time and the money to go public. And there’s lots of stories about companies that have gone private and the amount of money and less headache and heartache that they have with dealing with the public markets as they’ve gone private; the amount of money that they save versus registering with the SEC and that sort of thing.

So I think, ultimately, again, companies come about to try to produce products that people voluntarily buy. And so customers who are, quote/unquote, “locked in” just like we were maybe 150 years ago locked into using kerosene or whale blubber to power our lights, that kind of went the way of horse and buggy, of course, and whatnot. Now, maybe the same with oil, and who knows what’s going to happen in 80 years’ time in the year 2100. There’ve been some reports that shareholders have run out of companies to talk about what might happen if, in 2100, if the average temperature increases by 2 degrees Centigrade.

So those sorts of reports that have come out from companies actually paint not such a bad picture, for example, as far as corporate survivability goes. But you never know. And those stats that I talked about with the Dow 30 kind of really emphasize the point that nothing is forever.

Matthew R. A. Heiman:  John?

Prof. Jonathan R. Macey:  So one area -- I think it’s always a good idea to try to bring into sharp focus areas of disagreement among the panelists, and I think one potential area of disagreement between myself and both Paul and Andrew is on the kind of empirical question, descriptive question of does it matter? I may be mistaken, but clearly in Andrew and I think a little bit in Paul’s different perspectives on corporate social responsibility is a shared view that it matters. And I think I can actually demonstrate that it doesn’t matter.

So let me try it in this way. What we’re talking about, of course, is the notion that we should have a legal regime in which when corporate decisions are being made, instead of a legal regime that dictates maximization of shareholder value, we have a legal regime that says that the interests of all constituents, including local communities, workers, suppliers, customers, as well as shareholders should be considered.

There are only two possible states of the world with respect to this issue of should the legal world be changed. One state of the world is that the current shareholder wealth maximization paradigm that we observe in Delaware is ineffectual; doesn’t constrain management because management can effectively justify anything it does almost anything within reason as furthering or being consistent with the long-run interest of the firm and the shareholders. We give money to charity; well, it helps the company’s reputation so that’s okay. We give workers job security; that’s okay because under the business [inaudible 36:56] rules, consistent with shareholder wealth maximization because the workers are more loyal and will make bigger investments in the firm-specific human capital. So even a kind of third-rate economist or judge or lawyer and pretty much justify—and has, if you look at the cases—whatever management wants to do on the grounds that some constituency benefits.

So that’s one possible state of the world, and as I suggested in my opening comments, I am -- just as a descriptive matter, I think that’s the world we live in, pretty much.

Having said that, let’s say I’m wrong. So Macey’s wrong. Let’s say that there is, somehow, in the shareholder-wealth-maximization legal paradigm, this operates as some kind of constraint on management. So the question that I have is what -- the obvious question, I think is what would happen if we relaxed that constraint, such that now managers don’t have to maximize value for shareholders and they can maximize value for these non-shareholder constituencies? What is truly—I’ll use the term of art, here—kind of wacko about this shareholder social-welfare paradigm is that, of course, inherent in this notion of maximizing social justice or accomplishing goals for non-shareholder constituencies, implicit in this conception is the idea that we’re giving management unconstrained discretion to decide this question of “What is social justice?”

We have the idea of we’re going to move the plant from New Haven, Connecticut to South Carolina. Well, if management can say, “I want to do it. It maximizes value for shareholders and that’s a legitimate corporate end,” or management can say, “Well, we’re not going to do this because it would be bad for workers”; in other words, I think if one observes honestly this notion that we should expand the scope of fiduciary duties to included non-shareholder constituencies, what this is is a maneuver to increase the unconstrained power of incumbent management under a thin guise of a sort of politically correct, “Well, we want to help all of these non-shareholder constituencies.”

But I don't think that there’s any evidence or any theory to suggest that should management be given this additional power, these additional degrees of freedom associated with embracing a broader conception of the duties of managers to expand beyond shareholder wealth maximization, that they're actually going to do this in any way other than the way that maximizes benefits for management as distinct from these other constituencies. So I’d say it is a strange conception. The idea “Well, we want to make the world better for these non-shareholder constituencies, so we’re going to increase power and discretion for management” is a strange idea but quite amusing and entertaining. So I’m glad we’re able to talk about it this morning. Thank you.

Matthew R. A. Heiman:  So Andrew, any thoughts on the idea that giving management a social-justice license to hunt, so to speak, creates philosopher kings that endanger society?

Prof. Andrew Schwartz:  Well, that’s a fair question. I think I would say -- to respond first to John’s point here that manager -- it’s called the “too many masters” argument. A manager told to serve multiple masters, a little for the consumers, a little for the environment, will be freed of all accountability and can justify any decision, including self-interested ones on some basis or another; agency costs will run wild. This is a well-known consideration in the literature.

To quote Professor Macey, “But the ‘too many masters’ argument is overstated.” That’s a direct quote from my colleague here. And I think he’s making a good point that people routinely take into account many different interests and are able to make rational decisions. And in the long term, managers must, as we discussed, actually consider all of the stakeholders even if they're just trying to achieve shareholder benefit.

And then Professor Macey makes this point in a 1991 article, he says that “Managers have, for some time, been able to balance the conflicting interests of different classes of shareholders, preferred shareholders, other classes, and this hasn’t led to unbearably, self-interested behavior.” So I think that is true, and it is possible.

But just to go back to the other point of John’s two-prong -- issue two was this would just leave managers with unconstrained discretion to benefit themselves. I think that that’s maybe a theoretical concern but, especially for the largest companies that we’re talking about, the intense publicity over such decisions might act as another constraint.

And then, finally, back to John’s first point—and this is widely suggested in literature—the business-judgment rule is so capacious that it gives managers such discretion that, as a practical matter, they can, in fact, benefit other stakeholders even at the cost of shareholders. So switching to a stakeholder regime would not actually change anything. Let me at least clearly refute that view. I think it’s quite clear that in the recent cases, cases like Trados and a case called Hsu, the Delaware court held that the board was wrong to consider the interest of a certain stakeholder over shareholders. In those cases it was about preferred shareholders with a liquidation preference. But this is purely a result from our current shareholder primacy regime, and it would change. If Delaware, or this Trados Corporation, were allowed to consider other constituencies, those cases would come out the other way.

One final point that I just want to raise, though, is it’s been discussed that market forces will affectively lead back to shareholder primacy regardless of what we do. That might be true at, let’s say, your normal corporation where all shareholders get one vote. But there’s a lot of major corporations, especially in recent years, going public with dual-class shares or even no-vote shares. Like Snap. For example, Snapchat’s maker, Snap, went public and sold the public non-voting shares. I think the only voting shares I think are in the managers’ control. So those managers, I think, would be free to act as philosopher kings without the market control of shareholders voting them out because they don’t have the vote. Facebook, with its low-vote stock, and Google are other examples.

Prof. Jonathan R. Macey:  Just quickly to respond, two quick points. One, my objection to having a legal regime that has responsibility, not just to shareholders but to all of these different corporate constituencies is not predicated -- my objection is not predicated on a concern about too many masters. Quite the opposite. My concern is predicated on the idea that managers will have no masters. This quote from decades ago, it is -- I think we observe managers subject to contract are able to fulfill their contractual obligations to workers and to suppliers and producers under the current regime. But I think, as I said a few minutes ago, I think the problem is a no-masters problem.

Finally, with respect to this idea that this would matter because of the idea that the court has reached results in which their holding is that they admonish corporate directors and managers that they have to maximize value for shareholders, I have two points to make. The first point is all that these cases do is to change the way that management and boards of directors articulate the motivation for whatever decision they make. And instead of saying, “Well, we’re deciding to benefit preferred shareholders over common shareholders,” management can simply say, “We are making this decision because it benefits the long-term, best interests of the corporation. It gives us better access to capital,” or whatever reason they want to come up with. These decisions are not, in my view, outcome determinative; they're simply changing the rhetorical process, number one.

The second point I want to make is simply to say I’ve never seen an opinion—I don't think there are any in existence—in which management has said, “I want to do something that benefits workers,” and the court has said, “Oh, well you can’t do that. You’ve got to maximize benefit for shareholders.” Similarly, I’ve never seen a case in which—at least not in the last 100 years—in which the court has said, “Oh, you want to give money to Princeton University or a charity? Well, you can’t do that because you have to maximize value for shareholders.” There’s enough discretion to say, “Well, this charitable giving is good because it helps the reputation of the company, and we’re not going to get into the micro-management as judges -- the micromanagement business of saying which charities are more likely to help the bottom line for shareholders. So we’ll give unfettered discretion.”

So I think that, as I said before, I think managers have huge amounts of discretion now. But even if they don’t and these current rules do constrain management and cause them to work to maximize shareholder value to a greater extent than they would if we had a regime that allowed management to pursue the interest of an constituencies they chose, I think that’s so much the better.

Matthew R. A. Heiman:  One of the questions I wanted to put to the panel is around the issue of metrics. Corporations, particularly public trade ones, are intensely focused on metrics, as they need be, particularly when it comes to quarterly reporting, whether it’s revenue, whether it’s profitability, earnings per share. And those are very finite metrics by which you can measure the efficacy of that management team in a shareholder-centric model. One of the criticisms of adding social justice to the mix of obligations of management is there are no clearly defined metrics around how do you measure how much social justice an organization is creating. I was just wondering if the panel had any thoughts on whether that criticism was a fair one. Can you actually measure how much social justice is being generated by an organization? I know that’s a stumbling block for the advocates of a8 more socially aware or socially engaged corporate organization. I don't know who wants to take that.

Hon. Paul Atkins:  Well, I can take a stab at it because I think if you -- it’s a good question because I do think it’s very -- a squishy topic because we even see it in sustainability now where there are all sorts of folks who are -- if I get a dollar for every time I heard sustainability, I would be very wealthy. But it’s something that nobody can really identify or define. And the same with environmental, social, and governance sorts of shareholder proposals that are being put up to various corporations. As far as a lot of the proposals that have come up, they are all very vague, except for in the governance part where they tend to be a little bit more defined as far as the way corporations should be governed.

So I think that’s a great point. But one thing I wanted to -- just in that context, I have a quote that I wanted to read from -- it’s an old movie Sabrina. Humphrey Bogart and William Holden are in it. But anyway, Humphrey Bogart -- you have to imagine his voice here with his New York accent. --

Matthew R. A. Heiman:  -- You going to do it for us?

Hon. Paul Atkins:  [Laughter] No, but -- so here you have a normal corporation, obviously not one that -- it’s a private corporation, probably. But anyway, he launches into this soliloquy which is pretty good. He says, “A new product is being found. Something of use to the world. So new industry moves into an undeveloped area. Factories go up. Machines are brought in. A harbor is dug and you're in business. It’s purely coincidental, of course, that people who never saw a dime before suddenly have a dollar. And barefooted kids wear shoes and have their teeth fixed and their faces washed. What’s wrong with the kind of urge that gives people libraries, hospitals, baseball diamonds, and movies on a Saturday night?” So that’s all through private enterprise, not through any kind of . . .

Now, how one would value that kind of social justice type of thing or the benefits to the community and to the workers and whatnot, that’s all from something that is not wrought by any fixed construct through corporate governance.

Matthew R. A. Heiman:  Andrew, any thoughts on the metrics issue?

Prof. Andrew Schwartz:  Just briefly, I would say that there do exist various reporting systems for ESG, environmental, social, and governance, --

Hon. Paul Atkins:  -- Even though very vague.

Prof. Andrew Schwartz:  I believe they are vague. But then I will also say there are funds, I believe, mutual funds, maybe hedge funds as well, that have investing strategies based on these factors. So I would think that those folks with money on the line -- we could look to them for some sort of reporting systems.

Hon. Paul Atkins:  Yeah, they're also all over the lot, and no one does it the same way, and everybody views it differently. And they have, then, different rates of return and all of that. It’s not really -- it’s not a science, let’s say that..

Prof. Andrew Schwartz:  Agreed.

Matthew R. A. Heiman:  I think we’re about 15 minutes to go. I’m happy to open it for questions from the audience. Yes, sir. Right here on the aisle.

Questioner 1:  Hi. Thank you. Being in a corporation myself, I see this movement towards -- a pillar of what we look at is how we affect [inaudible 54.40] stakeholders. And Paul and John’s comment, which I agree with, those positions that you have to take into account are a very positive ambition. When you take them into account, you're maximizing shareholder value. If you don’t take them into account, if you don’t treat your employees well, if you don’t take care of your community, if you don’t -- when you want a permanent [inaudible 55.04] do what the community wants, then you’re not going to get movements into new markets. You're not going to do well. So my sense is that whether it came from the BlackRock CEO’s comment or just the movement to markets generally, this is happening, especially to the biggest company [inaudible 55.18].

My concern with this topic, non -- this interest is this is the legal aspect of it, it’s a shot across the bow. Look at millennials [inaudible 55.32] where you’re voting, this is the next piece of that trial definition of socialism. At my company, we have to very much adapt [inaudible 55.42] size of what you’re making where you go further than [inaudible 55.44]. If you did them this much, then they want more. Who’s going to control the government?

Matthew R. A. Heiman:  So does anyone want to comment on what I think is the slippery slope argument or the Campbell’s nose under the edge of the tent. --

Questioner 1:  -- I was on active duty during the Cold War, and I remember East Germany, East Berlin, West Berlin [inaudible 56.04] --

Prof. Jonathan R. Macey:  -- I agree with you. I guess the only thing I would say is if one looks at this sort of -- the nature of this debate, which, as Paul rightly observed, has been going on for a very long time, initially, it was -- the proponents of this view were -- of expanding duties were not nearly as hostile to markets as they are now. So I think you're right that this recent resurrection of this decades’ old debate, particularly from people like -- particularly Elizabeth Warren with her federal incorporation proposal would -- is a major shift. So it’s one thing to say, precatory way take into account all the interests of these non-charitable constituencies. It’s another thing to say, “On your board of directors, you must have 50 percent representation by unions and representations by suppliers, etc.” And then when you move -- that, in my view, is the sort of shift that the nature of the debate takes from a sort of amusing academic thing to, as you point out, really something that could destroy a lot of wealth and value and progress.

Questioner 1:  Yeah, not the federal regulations. State regulations. Not [inaudible 58.04] have internal corporate regulations but you have to deal with the -- to define every decision. I think we talked about France and places like that where once you're above a certain size of an entity, then you can’t make a change [inaudible 58.20]. None of us like to lose a job, but [inaudible 58.24] jobs when you don’t create a system of society where you can’t turn the ship. This is basically a deer-in-the-headlights goal we’re creating here [inaudible 58.34].

Matthew R. A. Heiman:  Right. Anyone else want to comment?

Hon. Paul Atkins:  Yeah. Well, I agree with you. I think the prospect of -- especially with the millennials voting. Although I still have hope that as they grow up and they start paying taxes and whatnot that they’ll change their outlook --

Questioner 1:  [Inaudible 58.51].

Hon. Paul Atkins:  Right. Exactly. Even with my kids, right? And to John’s point when he says, “Well, is there really a difference here?” Maybe not. But maybe so. Who knows? For example, if you look -- because a lot of what’s also animating Elizabeth and some of the other people who are pushing these sorts of ideas is that maybe there’ll be a better kind of governance on the corporation. You wouldn’t have some of the bad things that happen. If you have much more of a diverse board representing different interests. But if you look at Volkswagen, for example, and the problems that they had, they have -- their supervisory board has lots of employees on it, including their unions. They're owned by the State of Lower Saxony to whatever percent that is, 20 or more percent. And still they had their problems with the diesel. Now, will the city of Wolfsburg or Lower Saxony would they -- I mean, they have approved and gone along with the corporate strategy of building factories outside of Germany and elsewhere. And so that has all gone along, and would that be much different than if it didn’t have any of those sorts of things. Maybe not.

But how many textile factories in New England and elsewhere moved off to countries overseas, and would a union presence on the board have stopped that? But then fast forward and think, well, what would’ve happened to some of those companies had they not built factories overseas? They were being priced out of the market, not being able to sell their goods. And then maybe we would erect tariffs even more and barriers. What would the overall effect on our economy, on the world’s economy be? To some of your points, Andrew, like with employees abroad being people like here in this Puerto Rico example from Sabrina, being able to have their teeth fixed and all that.

Prof. Andrew Schwartz:  Just briefly I would just say, speaking on behalf of shareholder primacy, I would say -- I would recommend emphasizing the perpetual nature of these corporate forms and the obligation to plan for the very long term, to suggest to maybe a skeptical youngster that these are the best sorts of organizations; the ones that are going to be around tomorrow, and the next day, and forever. They're not fly by night, one round, let me cheat you and run away. If you're always going to be there tomorrow and the next day—and that’s the nature of a perpetual corporation—you're incentive is to behave well and treat others well for future rounds.

Matthew R. A. Heiman:  Next question. Yes, the gentlemen right here in the second row.

Questioner 2:  I have, really, two comments if I may. Really comments more than questions.

Matthew R. A. Heiman:  We’re looking for questions. Do you have a question?

Questioner 2:  Okay. A good question . . . well, first to Mr. Macey here. I’m going to echo this gentlemen’s statement, too, that when you talk about the -- when you say that as long as markets are working, you don’t have a concern about all of the other discussions about social justice etc. That it’s really more noise. That’s how I took it. Doesn’t that ignore the slippery slope? And as the gentlemen says all of the sudden you’ve got people voting, millennials who are accepting socialism. And before you know it, you're going to find that markets aren’t going to work because we haven’t stood up to them.

Matthew R. A. Heiman:  Let me just repeat the question because we’re streaming and I just want to make sure viewers can hear it. The question was along the lines of if you don’t worry about the incrementalism out there, do we eventually create a stagnant market place where innovation and things fail to happen? Is that a fair characterization? In other words --

Questioner 2:  -- You can go further than stagnant, but yes.

Matthew R. A. Heiman:  Yeah. Professor Macey?

Prof. Jonathan R. Macey:  So I’m trying to find this -- I agree with you. There was, I think, a great -- we are living in a time of unprecedented attacks on capitalism. I was looking on my phone for -- Amherst College developed a definition of capitalism which they circulated recently that defined capitalism as a system that leads to great inequality; an economic system of free exchange that leads inevitably to great inequality.

My point was not that these other interests should necessarily be ignored. My point was simply that if we allow the markets to work in an unconstrained way, in my view from any perspective that one takes, whether one is looking purely at a kind of utilitarian wealth maximization or whether one is looking at ways of -- kind of a Rawlsian view of bringing up the very bottom of the economy; that we’re better off -- significantly better off with a free market capitalist approach. I agree with you entirely that it is a bad idea to frame the argument, and I don’t believe it, that I want to have shareholder primacy because I don't care about these other constituencies. That, I think, is the sort of a ruse that is used that I think is very unfortunate. If one truly cares about accountability and results regardless of -- this, I think, has been Paul’s point all morning, that the shareholder wealth maximization, firm maximization model is the way to go. But you're right. I agree with you. We kind of have to be sensitive, particularly in this day and age.

Hon. Paul Atkins:  Sorry, just one quick thing to chime in. I think when Andrew talks about the perpetual corporation -- I guess I need to read your article about that.

Prof. Andrew Schwartz:  I’ll send it right over.

Hon. Paul Atkins:  Okay, good. So in my mind, a perpetual corporation you have to get back, again, to the shareholders and who’s going to provide the capital. Even the term perpetual corporation I would argue with because I don't think there’s such a thing that you can have an enduring product, something that is demanded by customers because they like it. If I think back on whether I used to type my high school and college papers on, the Smith Corona typewriter—I don't think one can buy that anymore. Maybe on eBay—or my Texas Instrument calculator from back -- or in 7th grade when we worked on a Wang computer. None of those are around anymore. But a Louis Vuitton handbag still is, or whatever kind of things -- a product where it still retains some cache where people want to buy it. And that’s what, I think, is the enduring part of a corporation. And how do you ensure that that continues to be manufactured and then meet the demands? But if you don’t meet the demands of the shareholders who are putting at risk their assets to try to help manufacturer those products or services that people want, then you’ve really lost everything.

Matthew R. A. Heiman:  The lady in the back.

Questioner 3:  [Inaudible 01:07:00] it strikes me as two faced and there’s a dichotomy between stakeholder and shareholder as if they're mutually exclusive, which they are not. But my question is to the extent that private enterprise has verifiable, quantifiable social impact, is it now a matter of moving which optimism has left the picture? Let’s say in previous decades business always had an aspect or a concern for a positive social impact, [inaudible 01:07:37] maximizing profit. This is not always made up, the extent to which this is organized too far [inaudible 01:07:47] accounted rate. And then [inaudible 01:07:50] what it means there or is it just a matter of [inaudible 01:07:54] ending a whole chapter?

Matthew R. A. Heiman:  So just to repeat the question again for our webcast audience. Is it a matter -- is the stakeholder model and shareholder model mutually exclusive? And have these not always been somewhat intertwined? And are we now at a stage where maybe we need to recalibrate or rethink about what that balance is between stakeholder and shareholder since there are some metrics out there that seem to measure social good. Is that a fair characterization? Any of the panelists want to try and -- Andrew, do you want to try and talk about that?

Prof. Jonathan R. Macey:  One thing --

Matthew R. A. Heiman:  -- Or John.

Prof. Jonathan R. Macey:  -- I really want to add to this is just that your concept of altruism . . . So my concept of altruism is when someone sacrifices something personally for someone else’s benefit. Where we’re talking about public companies and managerial decision making, what is going on in that context is that managers are deciding with shareholders’ money what social ends to pursue. And to my way of thinking, when corporations are engaging in activities ostensibly to further broad goals of social justice, this is not an example of altruism on the part of the managers, officers, and directors who are making these decisions. Because the currency with which they're paying for these initiatives is not their own. So I’m all in favor -- I think altruism is an extremely important part of any social system. And in order to be successful, I think altruism needs to be encouraged. But I think we need to be -- I want to be disciplined about what activities I characterize as altruistic and which ones are simply people pursuing their own particular views.

Prof. Andrew Schwartz:  Let me just say I agree with John that you have to always be vigilant. That people might say or might sincerely believe they're doing something for an altruistic reason when it turns out to benefit them in some way. But that said, let me just push back a little bit. John said it’s the shareholders’ money. The managers are giving away or doing what they want with the shareholders’ money. I want to push back a little bit on that and say it’s the corporation’s money, and the money, the surplus here, was created through a joint process of employees working hard and suppliers contributing and the local community creating a nice environment to attract the company. So when there is money and the managers have to decide what to do with it, I can’t say that it’s fully accurate to say, “That’s the shareholders’ money.”

Hon. Paul Atkins:  One quick thing, too. As far as altruism goes, I think John’s trying to say this that it depends on through what lens and what perspective you're looking at as to what’s altruistic. That snippet that I read from that movie Sabrina shows -- I think that’s altruism whereby surely this is the invisible hand of Adam Smith that through that invisible hand of building that factory and providing work for people so that they have money to spend because there’s a demand for the products that they're building really creates wealth, more so than some kind of -- it’s not just the shareholders’ money that then gets divided up. But it’s being put to use to build something greater for everybody. Like Andrew’s saying, employees are a part of that as well.

But in the end, there’s a market for everything. There’s a market for capital coming into a company. And shareholders are looking for a particular return based on the risk that they perceive investing money into that corporation. If that return isn’t there, they're going to go somewhere else.

And hedge funds are finding this out right now because there are so many of them that are closing up because their fees are too high; they don’t have the returns; people can get it right now at the S&P 500 through an ETF. So they are fleeing hedge funds. They're all shutting down. And only 10 years ago they were riding high and everybody’s darling. So shareholders vote with their feet and so companies have to react and have to constantly be vigilant to provide that return because they’ll be out of business if they don’t.

Prof. Jonathan R. Macey:  Just to respond to this point that it’s -- when I said it was the shareholders’ money, the reason that it’s the shareholders’ money is because it’s a matter of basic finance and contracting. The shareholders are the residual claimants to the cash flows of the firm. These other constituencies, such as employees, producers, suppliers, are fixed claimants. So that when the company gives $10 million to Princeton or buys subscriptions to the Met for -- the Metropolitan Opera for the CEO, this is money that otherwise would go to the shareholders. It’s not money that otherwise would go to bond holders or employees because these other non-shareholder constituents are fixed claimants who’s claims are determined by contract. And when the company does better, that it doesn’t immediately inure to the benefit of these other groups.

Matthew R. A. Heiman:  So I think on that note unfortunately we have just run a minute beyond our time. I want to thank the audience, thank the viewers on the webcast, and please join me in thanking panel.

Peter Davidson:  Okay. All right. Are we ready back there? You guys, everyone can hear me? Okay, great. Super. Well, good morning, everybody. Thank you very much for being here. My name is Peter Davidson, and I’m the General Counsel of the Commerce Department. And I’m grateful to be here today with two superstars from the Trump administration: Andrei Iancu, who is the Director of the Patent and Trademark Office, and Makan Delrahim is the Assistant Attorney General for Antitrust.

I’m actually truly pleased, and not just reading talking points, because I’ve known Makan  for many years, in many different twists in our careers in Washington, and I’ve always known him to be one of the most thoughtful and with the most amount of credibility, and kind of intellectual clarity of many folks I’ve worked with. So, it’s a pleasure to have him here today as well. Andrei I’ve only known for a little over a year now, but he is doing a spectacular job with the Patent and Trademark Office. A newcomer to Washington, he has hit the ground running and is just doing fantastic work over at PTO. So, we have just under an hour to go through about seven hours of topics.

[Laughter]

I’m really excited to dive into this because I love this area, and I think we have a very unique opportunity here, with the Department of Justice and the Department of Commerce here, to talk about some of these cutting-edge issues.

I would also like to thank the Telecommunications & Intellectual Property Working Groups of the Federalist Society; [they] do terrific work and [I]encourage you all to join them. If you’d like to join, you can raise your hand right now, and Brian will walk around with a sign-up sheet [Laughter], but, anyway, they do terrific work. Thanks [to all of you for being here].

What we’re going to do is going to start out -- I am going to throw some questions out to Andrei and Makan, and we’re going to do that for the first part of the session. Then I’m going to turn it over to you. So, in the next half an hour or so, if you could be thinking of stimulating questions to ask, we’ll have some good opportunity for some back and forth since we have a good size room here. So, first of all, and what I’ll do is I’m going to actually throw the question to one or the other of these fellows, and then the other one should feel free to chime in as well if they would like to do that.

Andrei, I think I’m going to start with you, and say that a lot of people think about patents as kind of a monopoly or a quasi-monopoly for a period of time. We have someone who deals with monopolies here as well, but to start with you, is that the right way to think about how a patent works, and if not, how should we think about it?

Andrei Iancu:  Thanks, Peter, and thanks for the kind words. Really great to be here with you, fabulous working with you at the Department of Commerce. I should say that you’re doing a phenomenal job holding the fort down on all the legal issues that come to the Department. It’s fantastic to have somebody like you in that position. And Makan, it’s been great working with you on IP issues. Both Makan and I have a lot in common. We both come from Los Angeles, and maybe during the rest of the day today, you can figure out all the other things we have in common. But having several folks in the administration who are so knowledgeable about IP in positions of critical importance, like Makan at the DOJ, is really important for our IP and innovation ecosystem for a whole host of reasons.

To go straight to Peter’s question, the bottom line is that folks are throwing around the monopoly word quite loosely, in general, and especially when it comes to patents. People have this popular conception that patents are monopolies. When they are kind, they say “limited monopolies.” But that’s not how I think about it. I actually think that patents are pro-competitive. What do I mean by that? So, a patent will give you a limited right for a limited period of time to be the exclusive one who practices, or has the right, to that particular approach to solving a particular problem. It doesn’t give you a monopoly over the market. Makan is the expert here, but when I think about monopolies, I think about markets. Patents don’t do that.

What patents do do is a) force the inventor to disclose to the public, so everybody knows about the technology. And if you prove your product to be successful, others will look at it and they will say, “Gee! I want to be in that as well because you’re doing really well. But I can’t do it exactly the way you’ve done it because you’ve patented it.” And people get temporarily kind of upset, like, “Dammit! I really want to do that the way you do it!” But you can’t. So, what do you do because you’ve seen the disclosure? You’ve seen the market benefits. You are forced to do one better, to invent around and to create more technology. It’s the exact opposite of the Middle Ages guild periods when everybody was keeping things as a trade secret, and nobody was able to improve upon the technology and to progress.

What the patents have done, they have democratized innovation. And as a result of the U.S patent system, we have created over the past couple of hundred years an explosion of innovation, the likes of which humanity has never known. That is because they incentivize creation, and improvements, and additional creation, and therefore, more and more competition.

Peter Davidson:  So, this recent Supreme Court case, Oil States, dealing with some of these bigger

      picture questions—any thoughts on that?

Andrei Iancu:  I thought you’re not going to ask hard questions.

[Laughter]

Peter Davidson:  Wait, that’s later.

Andrei Iancu:  So, you’re talking about the Oil States case where the court was dealing with post-grant proceedings at the Patent Office which have been instituted by the AIA, the American Invents Act.

Peter Davidson:  Largely, also explored, what is the nature of a patent in our system, too?

Andrei Iancu:  To some extent, and they have said that patents, in certain circumstances, are public rights. But the bottom line is, if you’re asking if patents [are] property or not, I do think the statutes, and generally, the law is pretty clear that patents shall be treated as personal property. There are a whole host of rights that come along with a property right, and patents have those characteristics. That does not mean that the government cannot review those rights, correct mistakes it has made in granting those rights, and the like. But time permitting, we can get more into the philosophy of --

Peter Davidson:  Anyway, for me, it was a fascinating discussion at the Court. So, Makan, you know our system is a little different here in the United States than they may have elsewhere, but does our system of divided authorities—I don’t know if that’s the right way to say it—does that really create -- when we’re talking about intellectual property and competition policy, is the result at the end of the day kind of a consistent outcome? Or does it kind of ping back and forth between the two depending on which is ascendant?

Makan Delrahim:  Let me also just add my thanks and great pleasure to be with you and Andrei here. And a big kudos to The Federalist Society for holding this event particularly with the Executive Branch. I think we, periodically, need to think critically and creatively about the separation of powers, the Executive Branch and the proper checks and balances we have, rather than having a multi-headed fourth branch that roves around and nobody really knows which direction its going. Which gets me to the point of the division of power. When you’re talking about division of power, I’m hoping you mean between patents and antitrust enforcement. In the best situation, they should be totally complimentary. As Andrei said, I think patents are pro-competitive. They create, what I would call, dynamic competition.

And so, it’s not so much we have, whatever it is, the technology called the chandelier, and you charge $100 per unit, and wouldn’t it be great if you charged $90 per unit? Because it would be 10 percent cheaper for the consumer. Some people might view that the role of antitrust is to create competition in that. I think the government’s role of the innovation policy, broadly, a combination of proper antitrust enforcement and patent policies, is not so much to make that cheaper, although you’d like it to be as cheap as possible in the free market, but it is to create the next paradigm shifting invention. The LED light, the recessed lighting, or whatever it might be -- that’s a poor analogy, but that’s the best I could come up with looking up in the sky. But, the LED, that’s the next one because it might use one hundredth of the energy that it uses. It could be 10 times as bright, and it could be a lot better. And you want to encourage that R&D in there, so that’s where the consumer benefits because once that comes out, these guys will be forced not to go down 10 percent, but probably go down 90 percent and sell that. We’ve seen that in almost every area of our lives, whether it’s energy, or communications technology, or any other field that we deal with.

So, the best of all situations is that they would be complimentary in a way that actually enhances dynamic competition and increases the incentive for R&D and investment. And I think, by and large, we’ve gotten it right in this country.

Peter Davidson:  So that was my next question. In practice, how does it work? Is there a coordination between these two areas to create kind of a coherent policy? Or is it a regulatory state of nature where everyone is kind of beating each other over the head with a big stick?

Makan Delrahim:  You would hope that there’s a good coordination. That’s, I think, in the enforcement of the laws, which we do at the Justice Department, or the procurement of patents and interpretation of the laws Congress writes. You hope that there’s the predictability and the consistency because individual freedom and business freedom relies on that consistency, so you hope it is. In this particular incidence, people look at Andrei and me, and they think that somehow the administration coordinated a policy because we come from certain viewpoints that there does not seem to be any fungus between us.

There’s a lot of other similarities between us. He’s much more handsome, but we both, at one point in our lives, went to UCLA. We both lived in Los Angeles. We both married up. [Laughter] We both immigrated, one at ten, the other at thirteen, from autocratic regimes. I think we get a sense of appreciation of the free markets and the opportunities that a country like this, and a legal regime like this, provides. But neither of us, I don’t think, knew of each other even though, I think, our offices in Century City were probably 50 yards away from each other. Neither of us knew each other before this administration, and it’s just been an incredible pleasure, by pure accident, that we both get to be in this job and do what we’re doing.

Peter Davidson:  Well, that’s good to know. I have some of the same things in common with you all. I married up and married a Californian, and immigrated from an oppressive regime, the state of Minnesota. [Laughter] So, we have something in common. But, Andrei, what do you have to say about this coordination/cooperation v. regulatory state of nature? How does it work in practice?

Andrei Iancu:  First of all, obviously, we at the Patent Office, we come towards the front end of the innovation process. Makan and antitrust, they come somewhere towards the back end when the patents are already issued, and companies utilize them. So, what we want to make sure that we do as one administration is that we have a coordinated policy to the extent possible. So that we don’t take positions on the front end that DOJ, and others on the back end, find untenable. And vice versa. And I think that is important. As Makan indicates, it’s a stroke of luck, or I don’t know what it is, but the stars aligned, and we don’t have that problem here.

And I should say it’s generally true across the Trump administration, and maybe it’s not a stroke of luck. The folks who hired us in these positions, maybe they were looking for a particular thing. As you know, Peter, the Secretary of Commerce, for example, is very much of the same mind when it comes to IP policy. And it’s not just me at the Department who have particular points of view. Look at Walt Copan at NIST who touches on these issues as well. So, it’s really a broad-based approach, and I think that, generally speaking, it is a very good thing.

Peter Davidson:  Okay. That leaves me all warm and fuzzy. So, Makan, let me turn to you and ask you, should competition policy ever overrule patent protections? And if so, in what case?

Makan Delrahim:  So, I think a case that we have some experience with, coming from the Supreme Court, is one where private parties have abused the patent system through fraud, and have procured a patent and its exclusionary rights that goes naturally with it, and with that, have tried to co-opt a market. And that’s one where we’ve recognized that. Statutes later recognized it in the world of patent misuse as well, but that’s an area that it could be. So, patents don’t grant antitrust immunity. However, exercising your statutory right that Congress has given with a patent because without the exclusionary right, there is no patent. Or copyright, for that matter, or trademarks. But exercising that right validly, unilaterally, cannot be and should never be an antitrust violation.

I’m doing one of those rare things in Washington where an enforcer or regulator takes away their own power rather than expand it, which is something that is typical, but it’s one where I actually think it harms competition if we enforce the antitrust laws in a way that isn’t aligned with the proper property rights.

Now, two patent owners, as Andrei explained earlier, even though you might be granted a limited monopoly, limited exclusionary right in a particular area—I’ll give a particular example that highlights this—it doesn’t mean you have market power for the purpose of antitrust law. So, even though you might have the patent on Lipitor, the cholesterol lowering medication that some in this room, including myself, would take or we know somebody who does. But at the same time -- and Lipitor is off patent now, but at the time that was under patent, you also had Nevicor. You also had Crestor and about seven or so different statin drugs that lowered cholesterol in the body. All of them were under patent because under that chemical entity, somebody couldn’t directly copy that while under patent. However, they were all substitutes for each other. So, a physician, or a pharmaceutical benefit manager, or whomever, insurer, could say, “Lipitor is no longer on patent; Crestor is, and we’re going to ask your doctor to use Lipitor unless it’s not good for you.”

And so, from an antitrust standpoint, we look at the market. We look at substitutes. And that particular example, even though they’re all under patent, none of them have monopoly power because they have substitutes that removes that incentive for them to engage in abusive practices.

Peter Davidson:  Okay. Andrei, you mentioned Walt Copan at NIST in your last comment. With rapidly changing technologies, like AI, Quantum, other things like that, do our existing tools and rules and systems work for those new emerging technologies? Or do we need to look at some different and new ways to deal with some of them? And a little bit of the international economic competition might be relevant here, too.

Andrei Iancu:  So, the general concepts are there, and the general concepts, if applied correctly, should work. But we have a lot of work to do, actually. Especially when it comes to Artificial Intelligence, and machine learning, and the like when it comes to IP protections in these areas. And we are working on those issues right now as we speak at the PTO. So, I’ll give you a few examples about that.

      So, if you think about machine learning, hugely important for the next technological revolution, or as some people call it, the Fourth Industrial Revolution. We’re on the cusp of that now. First and foremost, we must make sure that that technology is patentable, patent eligible. The rest of the world, including Europe, China, and the like, the major jurisdictions have addressed this issue and have basically solved the issue. We are in the midst of struggling with a question as to the eligibility of these types of technology. We have from the Patent Office point of view, we have just this year issued guidance to try to bring clarity to this area, and we’ll see where we are going. But there is activity in Congress and courts on the same question, so really important for us to get this nailed down as quickly as possible.

      Second, when it comes to machine learning, there’s some new things here that are happening that other technologies have not had. So, for example, -- so machine learning: the way it works is you have a program and then you have a data set. Then you train the machine and the more iterations it runs, it learns. So, self-learning, machine learning. And you don’t know exactly how it does that; you don’t know how it gets to the answer, by definition. It’s almost like a black box in some respects. With the traditional patent system, there is this quid pro quo that is a very basic concept of patents. You disclose to the public how you achieve it, and in return, you get this limited exclusionary right.

Well, if you don’t know how the machine does it, what exactly are you disclosing? So, this is a struggle that we need to figure out. Further, what if the machine learns and it creates new things? The machine creates new things. So, the machine creates a new invention for you.

Peter Davidson:  How do you patent that?

Andrei Iancu:  You could potentially patent it. You first have to know how it does it. Number one, don’t know.

Peter Davidson:  The machine has to go and file it’s --

Andrei Iancu:  -- Well okay. Who is the owner? Who is the inventor? Are they the machine? You put the machine down. Weird. Is it the current owner of the machine? Or is it the original inventor and original developer of that machine? So, these are untested -- I’ll give you one more example. There are many issues here that relate to IP and the next technological revolution. I’ll give you one more example which is on data.

The data sets are critically important for the advancement of Artificial Intelligence. And as a nation, for us to be able to keep pace with the rest of the world and actually keep leading in this area, the developers need access to the big data sets. Because the more data, the better the machine learns, the quicker it learns, and the like. The problem is how do you protect? What’s the IP protection; what’s the form of protection for data? Patents don’t cover just the data; current patent law doesn’t cover that. Copyright law doesn’t really cover compilations like that.

So what companies are resorting to is trade secrets. They keep these data sets secret, and you see these companies guarding them like the Crown Jewels, right? Google guards its data set. Netflix. Amazon. These are like the most important secret things for the companies. So, I can understand that, and also good because of privacy considerations and all that. But from an IP point of view, because they are guarded, it’s the opposite of a patent system where you’re supposed to disclose. How are the other companies to develop their machine learning? So, you think about the start-up—new guys, small—without access to the big data sets. So, there is a question that’s hotly discussed right now as to what forms of IP can we create, should we create, to incentivize properly and carefully a data protection and development and usage.

Peter Davidson:  There’s a whole other conversation I’d like to get back to a little bit later about some of these important decisions that we’re making, policy decisions. Are there people internationally making decisions faster than we are? And are they setting standards that we need to get back to? But we’ll get to that in just a minute. So, Makan, since Joe Simmons isn’t here, this is your opportunity.

Makan Delrahim:  Are they part of the government? [Laughter]

Peter Davidson:  They’re independent, whatever that means. I don’t know. So, Andrei was just talking about different rules and different ways of looking at things to make sure that we keep up with technology. What about our current jurisdictions within government today? Are those tooled correctly for the next set of issues we’re dealing with, whether it be AI, Quantum, whatever it is?

Makan Delrahim:  So that was a little bit of a joke. Joe is a great friend. We’ve worked together for twenty years.

Peter Davidson:  And he’s also actually doing a terrific job, too. I’m really impressed with his work.

Makan Delrahim:  He’s doing a fantastic job and is somebody who thinks about antitrust and markets the same way, and a great guy who wrote a very important paper on one of the concepts of antitrust law about twenty years ago. So, we have a good working relationship with the Federal Trade Commission. There are historic accidents why we have two agencies doing antitrust enforcement. When I was on the Antitrust Modernization Commission, about ten or so years ago, we issued a report, you know a bi-partisan report. We looked at some of these issues. And one of the issues that was raised was in some areas of industry we have statutorily -- they come to the antitrust division. Telecommunications. Transportation. Banking. A lot of the old ICC cases you’ll see that common reference over there, and it’s not really an accident that Congress was lazy and just picked up a set of laws and said, “Hey, you guys deal with that.”

But there’s a whole set of other areas of the industry that isn’t that, and how do the two agencies divide up the responsibilities? We generally work well; there’s what’s called a clearance agreement between the two. We say you do this, and we’ll do this, and it’s based on some historic expertise that two agencies do. So, you know pharmaceutical cases, mergers, will go to the Federal Trade Commission. Gas station mergers goes there. We do beer; it’s a lot more fun. But we will do insurance. But there’s new areas that are coming up. And I was in the private sector, but Google had bought DoubleClick, and the two agencies -- you know, who does this one? So, the statute under the Hart-Scott-Rodino law that deals with mergers, gives 30 days to parties. Parties cannot close a transaction for 30 days until the agencies review it, and then usually they’ll take longer, but there’s a first issue of 30 days. And the trigger -- it wasn’t until the 29^th day that the two agencies worked it out. So, it’s not good government when the two agencies do that. Hopefully, we have the controls in place now where none of our clearances are taking that long, but part of that is because Joe and I are both sensitive to the issue.

Peter Davidson:  Well you’ve gotta be proactive, too. When you can look down the road and see, rather than waiting for a particular case to get to the last day, you could look forward and see we’ve got this whole new set of technology challenges, and so how are we going to manage it? Again, it gets a little bit down to personal relationships as well. As long as there aren’t sharp elbows flying, you can get in front of those issues. Right?

Makan Delrahim:  And largely, that’s how it has worked, and it’s not a partisan issue. Google was in 2007, so you had Debbie Majoras over at the FTC and Tom Barnett at the Antitrust Division, so two incredibly reasonable and competent people who are also good friends. These things just happen because of the agency jurisdictions, and we deal with those. But one area that isn’t good -- and Sen. Mike Lee and former Chairman Goodlatte had introduced a bill, called the SMARTER Act, that the Antitrust Modernization Commission identified, and the administration supports this legislation. It’s kind of by accident that one agency or another might review a particular merger. However, the legal standard for getting a preliminary injunction is different between the two agencies. So, could you imagine if you’re an investor and you’re looking—well, what do you think the odds are of this merger getting approved or not getting approved—well, it kind of depends on which agency reviews it. --

[CROSSTALK]

Peter Davidson:  -- That’s not the right way to do it.

Makan Delrahim:  -- Well, which agency reviews it? I don’t know! Let’s flip a coin and determine.

Peter Davidson:  Or forum shop.

Makan Delrahim:  And you might have a billion dollar arbitrage --

Peter Davidson:  -- You could theoretically kind of arrange your deal in a way that would go to -- you know Congressional committees do this all the time, right?; they write their bill in a way that‘s going to go to Judiciary or go to Commerce. But you could probably figure out a way to gain the system.

Makan Delrahim:  You could try to, and sometimes it has happened. When I was in private practice, I certainly did that. But not successfully all the time. But it was something where -- at least congressional systems have some neutral principles of the committee jurisdiction. And then you can game it here, but you kind of don’t because it really comes down to personality. So, other than that little minor area, the two agencies work. The issue of data and Artificial Intelligence poses two problems for us.

First, data has been very pro-competitive in a lot of areas. They provide pro-consumer benefits when a company, good or bad -- you know when Netflix knows what you like and you don’t like, it can promote to you a particular programming. And that’s not to pick on Netflix, but I think that’s a positive thing. It says: You liked, I don't know, Friends. And maybe you like Three’s Company, and they’re both silly—

[CROSSTALK]

Peter Davidson:  That’s dating you, Makan.

Makan Delrahim:  This is dating me.

Peter Davidson:  Recent examples, man.

[Laughter]

Makan Delrahim:  I see the audience, and a few people might remember what Three’s Company is here! One of my favorite shows of all time. [Laughter] So, I’m just surprised there’s even anybody in this audience. You usually think, you put antitrust and patents together, that’s the quickest way to empty a room! [Laughter] You guys are very kind.

      The data on one side, we recognize the pro-competitive benefits. The challenge becomes how do we treat the data, for example, in a merger? And should we, as some people in legislators and presidential candidates have been arguing, should you force the sharing of that data that the company has invested in? By a competitor, maybe a new competitor who wants to come in -- should we force people to have access to Coca-Cola’s formula because without it, they can’t compete? We have taken our policy position as we view data as an asset class, so if two companies have two data that are competing with each other in the same market, in a merger enforcement, we might request a divestiture of one of the data sets to somebody else, so it’s not anti-competitive. However, in an enforcement of a single firm conduct, we are very careful not to—unless an extraordinary circumstance presents itself, which I haven’t seen yet—is to force the sharing of it when a company has been smarter or invested in the collection of that data to help consumers do that. There might be policy reasons that Congress could say, “Look. Maybe we should have a data protection regime.” That you do this for twenty years, and then after that Congress—you know you get in—they did that, and Hatch Waxman contacts the 1984 dealing, which created the generic pharmaceutical industry. But there’s many other areas or patents; you do this for twenty years --

Peter Davidson:  -- You’re drawing some policy lines.

Makan Delrahim:   -- and disclose that. So, there could be policy reasons, but until there is that, we treat data as that. Where it poses a real challenge is Artificial Intelligence. When two companies, without agreeing with each other, might start setting pricing -- make pricing decisions, almost like collusion or be able to police each other. So, I know that if Peter and I are in same market, and let’s say there’s three of us, I know that if Peter lowers his price by 10 percent, my algorithm is immediately going to lower the price. If you increase it, I will increase it, and we all do that. None of us have agreed with each other, so it’s not necessarily a Sherman Section 1 violation where we would be granted pinstripes courtesy of the federal government. But in that situation where you have Artificial Intelligence do that, it poses real challenges. And that is a real issue for us and for international enforcers.

Andrei Iancu:  Peter, before you go on. So, on the data sets, fascinating issues and illustrates, actually, your first question about whether patents and the like are pro-competitive or not. If you think about it, secrecy generally drives to a concentration and bigger growth within a smaller concentrated market. So, if you think about data as a very good example, s we’ve mentioned, very, very difficult for the start-ups to compete when they have access to a much smaller data set as compared to the big guys who have huge amounts and then can utilize it, and therefore, can get huger and huger. So, it further concentrates, and it is exactly what was happening in the Middle Ages before the American patent system, where you concentrated wealth and concentrated resources. So, secrecy, in general, drives towards that. Patents and copyrights and IP, in general, tend to democratize the system.

The question is how do you do it when you have this very difficult nut to crack? These other data, which is very difficult to not keep secret, really. There are models out there. Makan referred to the Hatch-Waxman. There is another form of protection that very few people talk about, but then when you think about pharmaceuticals and biologics, there is actual statutes for data protection of those. Five years for small molecules, so just normal drugs. Twelve years for biologics, DNA type cures and treatments and the like. It’s not quite perfectly analogous, but this gives you some limited time protection of the data set itself. But then, it makes it available to the generics to utilize. So, we can try to think in some of those terms, again, you can’t do it exactly the same.

Peter Davidson:  It’s a balancing process and policymakers have to go through that. So, good. So, I wanted to dive into a couple more controversial topics – not too controversial, but some controversial topics. First is probably way over my depth, so let me take a shot at it. This is the area of dealing with standards-essential patents. Many of you in the audience, raise your hand if you know what standards-essential patents are; I just want to -- okay, so you’re all a lot smarter than I am about this. So, you can come up here and do this. So, standards-essential patents, for those of you that don’t know, is basically when a patent is claiming an invention that must be used to comply with the technical standard. So, like JPEG or something like that. And then people have to work around that standard. So, it gets pretty complicated when you’re trying to figure out the standards that these bodies are determining, you know, which patents are essential, and trying to stay within the terms -- I’m not going to get too technical on this. But anyway, there’s a lot of issues that come out here with that, and Makan recently withdrew some guidance at the Department of Justice. Makan, I’d like you to kind of explain why you did that, what that was all about.

Makan Delrahim:  Well, yeah, you’ve picked an area that is hotly debated right now. I kind of find it pretty simple. That could be because I’m a simpleton. The issue is you have standard setting; the antitrust laws recognize the pro-competitive effects of creating interoperability and having standards in a certain area. Could you imagine if you had an outlet for your phone charger, and you had different kinds of outlets all throughout -- forget about the country, but every other room, or every building had a different standard? You know you had that 110 standard and 220 down the road and the 330 in the other building, and you would never know. It’s actually very good for consumers that you have standardized some issues. Now assuming that it doesn’t compromise the technology that benefits the consumers. In those situations, patent owners make some commitments. Some call it FRAND, some call it RAND, whatever: fair, reasonable, non-discriminatory provisions under which they will license their patents to the users of that standard.

And standards used to be these rooms where a whole bunch of techno-geeks,who are even more nerdy than Andrei and I in the patents and antitrust worlds, but these are folks, who are true engineers, who would get together and almost like NIH peer-reviewed committees where they would really hotly debate the technical merits of a standard and say, “Look, here’s the way we should do it, and we should use this, and we should do that.” And any one of our products might have a thousand patents on it—a microprocessor, for example. Different folks could say, “Okay. This is the best way to put this together.” And it might read on this patent, “As long as you disclose it up front.” Some people would hide the eight ball, but if you want to participate, you would disclose your patent. Say, “I have this patent or application, which may not be public in others, and I want to make it part of the standard. But I will promise to license this on a reasonable basis.” Well, what the heck does that mean? I don’t know. That’s a contractual commitment that the patent owner gives, and a judge can find if you’ve been reasonable or not.

A theory came by about 14 years ago by a friend of mine, who was a chief economist at the Antitrust Division out of Berkley, who was a consultant to one of the companies, who happened to be a licensee in a patent licensing renewal fight. They came up with this theory that it would be a violation of the antitrust laws if you violated your FRAND commitment. So, a contractual obligation now gives rise to an antitrust violation. Well, that has real policy implications because that’s not what Congress has said. And if you do not license it -- so let’s say I say, “Hey, Peter. My beautiful chandelier is $10 to license if you want to copy it and go sell it. You have to give me $10 per chandelier.”

And you say, “Well, that’s not reasonable.”

And I go, “Well, I think it is. Look, Andrei pays me ten bucks, and Dean pays me ten bucks.”

“Well, you’re discriminate against me. I’m not going to pay you.”

“All right. Then you can’t sell these chandeliers, and I will sue you to bring an injunction suit under the patent laws that Congress has provided pursuant to the Constitution.”

And you say, “Well if you do that, you are now violating the antitrust laws for monopolization.”

And some cases have accepted. And you can imagine, one of our greatest exports out of the United States has been antitrust law the last 40 years. We have 138 antitrust agencies as of count this morning. There might be a couple more in the last few hours, but these guys are finding, “Hey! What a great thing we can do! There’s a technology company.” —I’m not saying there would be any xenophobia involved, but . . .—“Look at this! How great is this?! We could make them take a haircut, and it will be a violation of antitrust law if you have a standards-essential patent and don’t license it to them.”

[Noise from audience]

Whatever that was.

Peter Davidson:  That was a standards-essential patent protest. I think you’ve got somebody coming in off the balcony there.

Makan Delrahim:  So, the issue becomes the bargaining leverage that the licensee and the patent owner might have, and what that commitment means. Because, if it becomes an antitrust violation, I cannot bring an injunctive action against you. My patent almost -- I don’t have the exclusionary right. So, I will now starve because I don’t get the royalty revenues for which I need to, either, pump into more R&D or recoup the investments I’ve made in the past. But you benefit. The basis from that is you paying zero to maybe the $10, and a judge will determine—however the incredible genius that they might be with three clerks that just came out of law school who are also geniuses—but they will determine what that price should be, rather than the market. Now the other side, the licensees would argue, “Well if you didn’t, now I will suffer because I’m in the business of selling chandeliers, and I can’t. So, now I suffer from that.” That’s the policy argument.

Peter Davidson:  How did the guidance affect that balance?

Makan Delrahim:  So, the guidance in 2013 that the DOJ and the PTO had put their thumb on the scale of that debate, saying that giving an injunction could violate, could harm consumers and competition. Kind of code words for violations of antitrust law, which I don’t think is sound economics. The Supreme Court has never ruled on this, yet. I’ll find the right case, and hopefully, they’ll settle it one way or the other. And hopefully, they’ll be reasonable and rational in this. But it is an area where, again, unlike your typical Washington regulator saying this should not be an antitrust violation until or unless Congress says it should be, which I hope they don’t. But it’s causing an international debate on this, and devaluing intellectual property through which, I think, it devalues the incentive, which if you take it a little bit further, it actually devalues competition because the Schumpeterian dynamic competition will die.

Peter Davidson:  Okay. So, we’ve got to move on to other topics, but Andrei, I don’t know if you have any thoughts on PTO’s role in this area or if you have anything to add to what Makan said on SEPs.

Andrei Iancu:  Well, this is a lengthy topic, but the 2013 statement was DOJ and PTO in combination. DOJ has withdrawn now. We are looking at the issue and trying to assess what the approach should be. Whatever we do, we have to make sure that we incentivize, if we incentivize anything at all, we incentivize good behavior and that we do not somehow purposely, or by pure luck, create either a holdout or a holdup situation. We want to have a balanced approach that tries to avoid either one of those bad outcomes.

Peter Davidson:  Okay. I’m going to skip a couple of other controversial topics because I’m pretty sure that folks in the audience are going to bring these up. But I wanted to end this section here by talking, going a little bit bigger picture and address to you, first of all, Andrei, how does the U.S. keep its edge in innovation? So, when you look at intellectual property, I’ve heard you talk about before that the number of patents being filed in China are far out-pacing U.S. patents currently, and that their trajectory is even worse. So, they’re going to be going through the roof while we kind of go along at the same rate we’ve been doing for quite some time. So, what can the U.S. do to respond to that? First of all, is that the right metric to look at in terms of, are we in trouble or not? And secondly, what can we do to respond to the threat?

Andrei Iancu:  So, China has gone through the roof. Right now, there are four times as many filings by the Chinese at the Chinese Patent Office than Americans at the American Patent Office. So, is that the right measure? Patents are a measure. They are a leading indicator of where the innovation is and how much innovation there is. I do think it’s a very good metric, but you don’t have to trust the patents only. You can look up almost any other metric that’s out there. You can look at the number of peer-reviewed articles, technical and scientific articles in peer-review journals published world-wide. China is ahead now. You can look at the number of standards organization committees that are being chaired. China chairs more than we do now. You can look at the number of technical engineering science graduates every year. It’s not even close any more. China is well ahead. And I want to emphasize that it’s not just that the United States is in competition with China. Obviously, China is a huge country with four times as many people as we have, and they’re very focused on innovation and the like, so that’s definitely a threat. But it’s well beyond that. The whole world is innovating now from the smallest countries. Take Singapore, for example, very innovative. Israel, very innovative. And Switzerland, and then everything in between. Korea. Japan.

Peter Davidson:  So, what do we do?

Andrei Iancu:  There’s several things. First and foremost, I really think it’s important to recognize this, and I think people need to understand, in the United States, at every level, we all need to understand that just because we have been for the past 100-150 years the technological leaders in the world and still are today, it’s not a guarantee that we will continue to be there 20 years from now, 50 years from now, and in the next technological revolution. That is very important for everybody to understand. Look, very little discussed at all is that China, just a couple of months ago, landed a spacecraft on the dark side of the moon and moved it around controlled from Earth. Okay. People need to understand that they are out there. So, what do we do? So, that’s number one.

      Second, we want to make sure that our policies, whether it’s IP, whether there is just investment in innovation and the like in the private sector, in the government, are geared towards encouraging more and more and more innovation. There are quite a few voices out there that are saying, “There’s lots of U.S. patents out there. There’s lots of U.S. innovation out there.” The patent system in the United States has grown, and it has, at the compounded rate in the relevant technical areas, at 4 percent. The Chinese patents have grown at 24 percent year over year. So, compound that rate. So, whatever we’re doing, we need to do much more of it. We need to get more of our people involved in innovation. We cannot compete with China on the number of overall population, so therefore, we need a higher percentage of our people to innovate.

We just released a study of the PTO that shows that of U.S. inventors today, as named on American patents, only 12 percent are women. We’re basically competing with one hand tied behind our backs. We need more women to innovate; we need other minorities and under-privileged individuals. We need folks from a broader spectrum of the national geography to innovate. Innovation, right now, is highly concentrated in the United States. Mostly on the coasts. You can think about Silicon Valley and the like, and a few other spots. Broad swaths of the United States are left out of this ecosystem. So, we need to do much more of that.

      I put it in three major categories. We need to identify our priorities as a nation. We need to inspire people to innovate, and we need to empower people to innovate at higher and higher rates.

Peter Davidson:  Great. So, the last comment here before we go to questions, Makan, talk to me a little bit about -- it’s obviously  antitrust. I mean there’s a lot of issues, bankruptcy antitrust. Although those types of policies are critical in terms of accomplishing some of the things that Andrei is talking about, what are the differences between U.S. antitrust, Chinese antitrust, and how do other Chinese rules, laws, regulations operate to either give them an advantage or a disadvantage in the international marketplace?

Makan Delrahim:  Chinese Antitrust enforcement is in a flux right now. So, their Anti-Monopoly law, as they call it, is about ten years old. It was put in place in 2008, so eleven years old now. Just about six months ago -- so, they had created three different agencies, the Ministry of Commerce and two other agencies. They seem to have a little bit more wisdom than we do since we have 53 antitrust agencies in this country. After doing a study, they combined them all into one. The State Administration of Mergers or Monopoly Regulation, I think it’s called, SAMR. [the State Administration for Market Regulation]

      So, they are at the infancy, but fortunately, they have done a lot of good of moving towards a market-based approach for antitrust enforcement. To the extent there have been some stories saying that their deploying their antitrust enforcement in a way to disadvantage foreign competitors. We are keeping a close eye on them. We’re in negotiations with them as also as the broader trade discussions that are going on.

Peter Davidson:  You work with the USTR.

Makan Delrahim:  With the Trade Reps Office, your former agency. And I guess my former agency at one point. They’re doing some great work over there, and we’ll see what it results. But antitrust is part of the discussion there, and I hope that they stay in line and continue. We’ve provided technical assistance wherever we can. We send folks, in fact, Roger Alford, my international deputy is there now and just gave a speech yesterday. The challenge becomes, and I’d be curious to know in the patent office, is how many of those patents are state owned by their federal laboratories or companies that are owned by their government. That should give us an indication of what kind of benefits they might have as opposed to our state owned or government -- of course, federal labs and NIH and others file for patents, but relatively, I would be curious to know what that is.

Andrei Iancu:  What difference does it make? It’s a centralized, communist regime. And hard to tell the difference. But I don’t have off the top of -- if you’re thinking like Huawei, for example, I don’t know if you’re considering that as a private company, it’s hard to separate --

Makan Delrahim:  I’ll leave to other divisions of the Justice Department to determine that.

Peter Davidson:  Alright. Well, that’s an excellent point. Really, and we could have a whole session on that because it’s kind of apples and oranges --

Makan Delrahim:   -- But that gets into the trade discussion of, are they unfairly subsidizing various parts of the industry that we can’t really compete with? That’s an important one.

Andrei Iancu:  Because I know a lot of people have questions, very quickly on that point, there are two separate issues when it comes to China. One is their unfair practices when it comes to IP. And there’s certainly a lot of them, and the administration is very focused on addressing that. And that’s a fantastic thing. Separate from that, or in addition to that, even if they were to stop all the unfair stuff, they’re doing their own innovation, and we can’t lose track of that, either.

Peter Davidson:  Yeah. Good. Okay, so going back to the era of Three’s Company, I’m going to be John McLaughlin, and going to be ruthless in terms of making sure that the questioners ask a question and do not give a speech because we only have about ten minutes. So quick questions and we’re going to cycle through these like bam, bam, bam like McLaughlin Group. Okay, first question.

Questioner 1:  What do you see the role of the patent office in evaluating a patent? Should the examiner review the patent to determine whether it is accepted or rejected? Or should the examiner try to help the inventor make the best patent? I want to give you a little content on this. This is very important. I feel medicine, in methods and biomarkers, where there’s a lot of controversies, and there’s billions of dollars involved. And this small inventor doesn’t have a chance against foreign companies because of huge litigation costs. And the claims in medicine are inherently ambiguous. It’s not like a device where [there’s] a wide range of possibilities. So, if a claim is written and the patent examiner says it’s too broad, does he have a duty to tell the inventor how to make the best claim or just an acceptable claim? Or vise versa? If the claim is too narrow, should the patent examiner accept it or offer a bigger claim?

Andrei Iancu:  It’s a good question. The answer is: a little bit of both. So, I believe that the first obligation of the patent examiner is to make sure that the patent application, specification, and the claims, and so on comply with all the statutory requirements, and reject it if it doesn’t. But in addition, the patent examiner should help the applicant, to the extent possible, draft appropriately scoped claims. Good claims. Help them get good claims that are commensurate to the invention and the disclosure of the specification. And that will withstand challenge down the road.

Peter Davidson:  Next.

Questioner 2:  The issues that you’ve been talking about clearly would benefit from high quality economic analysis. I’ve been doing off and on review of patent regulation about 15 years, and a consistent pattern is that the Patent Office does not do any economic analysis. It doesn’t write regulatory impact analyses. It does all these very large regulations without much at all.

Peter Davidson:  Andrei, what do you say to that? Is that true?

Questioner 2:  What are you doing to try to institute that capacity to do economic analysis to inform decision-making along these lines?

Andrei Iancu:  Yeah. So, we do have a chief economist. We have a whole office of the chief economists with several economists on staff. We do quite a bit of analysis when it comes to intellectual property in the United States. And we have folks from the outside who come in, for example, we have a couple of folks who just joined us. We call them Edison Scholars; these are academics who come work with us for about a year or so. So, we’re quite active in that area. We publish reports.

The most recent report that I’ve mentioned is with respect to the participation of women in the innovation ecosystem. You can look at the report at uspto.gov. That was handled by the chief economist’s office. We have also done studies by our economists in conjunction with the Department of Commerce economists on the volume of IP industries in the United States. For example, what percentage of American GDPs driven by intellectual property and the like. So, we’ve done those studies and recently updated them as well. We’ve done studies on the value of a patent, trying to quantify the value of a patent to a start-up, and showing the great benefits of those. So, these are just some examples. We do quite a bit of it.

Trish Paoletta:  Thank you. Trish Paoletta, Harris, Wiltshire & Grannis. I’m in the Telecom practice group.

Peter Davidson:  I have to apologize. I think most of what we were talking about today is highly relevant to the telecom world. We haven’t had telecom specific discussions though. I apologize for that, but you’ve got your chance.

Trish Paoletta:  No apology needed. I’ve enjoyed Mr. Yance’s comments on AI, both this year and last year. There’s been a lot in the press, at least in the Telecom press, about government policy for 5G. I’m not talking about government-run networks. I think that was asked and answered; that’s over. Obviously, there is a dimension of keeping out vendors that pose national security risks, so that’s kind of Makan’s area. Discussion of having increased presence of U.S. folks on standard-setting bodies, and obviously, that’s Peter and all of you guys. And AI, right? 5G is a great way to facilitate AI, right? So, there’s inter-agency discussions, of course, on broadband through the American broadband initiative, but are there interagency discussions that all your jurisdictions, and others, on 5G policy and how to keep the U.S. in the lead technically, so we can have broad appointment of 5G in a safe and secure manner?

Makan Delrahim:  We have been involved at the White House, and the NEC, NIC sponsored discussions to the extent that it relates to us. With respect to 5G, we’ve had staff that coordinate with that. We obviously work closely with the Federal Communications Commission on a number of areas in addition to kind of being their Hobbs Act attorneys. That’s been delegated to us, so we have the great pleasure of defending a lot of their rules once they get sued for their rules on behalf of the United States Government. So, we work very closely, not only on the litigation, but on policies, including mergers that might have some impact in that world. There’s some of that. We’ve been in discussions with NIST and the PTO and others on some other policy related. So, depending on the issue, I think there’s interagency groups that work --

Peter Davidson: -- I would just add my two cents to kind of a bigger picture than just your question, which is that international standard-setting bodies, both narrowly and large, so I would say something like privacy, for example, by not -- that others may get out in a setting a standard in front of the United States in a way that’s not necessarily before the ITU, or something like that, or other standard setting bodies. But I think the administration is acutely aware of the need for the United States to provide leadership in all of these areas. And so, we are focused in a number of different ways. Again, there’s AI working group. Makan talked about some of the areas that we do. I’m dealing with privacy and a number of other folks in different areas. So, yes, I think U.S. leadership in the world, in terms of this, is really critical. And if we don’t provide leadership, someone else will, and we won’t end up being in a very good place. So, Bill . . .

Bill (sp):  So, Makan, it may be that antitrust and IP are a buzzkill for a lot of people, but for me, I woke up looking forward to this panel. So, thank you. It’s great, and you guys are great. Very grateful for all three of you gentlemen and the important work you’re doing, which is so important to our economy. Hugely important. So, my question is: injunctions. Post-eBay, it’s become very difficult if you’re a licensor to get an injunction. There used to be a presumption of an injunction or arguably, there might have been. There’s now a presumption, arguably, against injunctions. What impact, if any, do you see that having on innovation, and what needs to happen in the jurisprudence or legislation surrounding this?

Makan Delrahim:  You know, I think the eBay issue is one where -- you know, it’s a Supreme Court ruling. I actually think that the Court, as a matter of policy, interpreted that properly. Some people might be surprised by that viewpoint because they might think my strong intellectual property views might think that they should get an automatic injunction. That’s not what Congress laid out. There’s an equitable relief that is provided that the Supreme Court said you have to look at the four-part test, to the extent district courts of the federal circuit may not be applying those standards properly. That should be an area of concern because it actually does change the balance of the incentive, intellectual property versus the user. But, if you meet the standards of irreparable harm and all of that, then they should be granting those. But I think the Supreme Court interpretation of the law, as its written by Congress is -- now, of course, Congress could change that, but you hope, like in any other part of the law, that the lower courts actually apply it properly and are interpreting what the Supreme Court and Chief Justice Roberts said in that case the right way.

Andrei Iancu:  So, very briefly, the Supreme Court found that when the Constitution says “exclusive rights” to the inventors, it can be remedied with non-exclusive rights. So, you can see, perhaps, why the lower courts are having somewhat of a difficult time figuring out how to draw those lines because of that potential ambiguity. What is absolutely critical is that the courts apply the Supreme Court’s decision appropriately and carefully because, otherwise, if you end up in a situation where the de facto outcome is a presumption against injunctions, to begin with, then you incentivize bad behaviors in the marketplace. And instead of, for example, lowering the amount of litigation, you potentially end up in a situation where you disincentivize settlements and license agreements, and as a result you increase the amount of litigation and multiply the costs on the economy and the burdens on the economy. And that’s just one example. So careful balance is important.

Peter Davidson:  Great. Well, listen, I apologize for the people in line. I’ve got to get you out of here for lunch. I promised to get you out; otherwise, you’re going to be cut off; there will be no food. No, I’m just kidding. So, I just want to thank our two panelists, Makan and Andrei, for a terrific presentation today. So, thank you very much.

Andrei Iancu:  Thank you so much.

Makan Delrahim:  Thank you.

Dean Reuter:  Good afternoon. If we could bring to room to order, please. We're going to try and get started, if we could, please, if you can hear me in the back. Welcome back. And please, we're going to try to get started here, even though we're going to continue lunch service. And please continue eating your lunches and then have dessert. I'm Dean Reuter, still the Vice President and General Counsel at The Federalist Society.

[Laughter]

      That wasn't supposed to be a joke, Michael. Thank you. Yeah. Thank you. Welcome to our luncheon panel, "Revisiting Judicial Deference." I'm going to be very brief. My only job here is to introduce our moderator and thank in advance our moderator and our panel for continuing what I think has been, so far, a terrific day looking at the administrative state.

      We're very pleased to welcome Sarah Harris. She's a Partner at Williams & Connolly and runs their Supreme Court and Appellate Practice. Before joining that firm, she was a Deputy Assistant Attorney General in the Department of Justice's Office of Legal Counsel, fairly recently, I might add. And before that, she clerked for Justice Clarence Thomas. So with that, I'll turn things over to Sarah Harris.

Sarah Harris:  Thanks, everyone. It is a true delight to introduce such a distinguished panel today to discuss judicial deference. Our first panelist is John Eastman, who is the Henry Salvatori Professor of Law & Community Service and the former Dean at Chapman University's Fowler School of Law. He also clerked for Justice Clarence Thomas and is a Senior Fellow at the Claremont Institute, as well as the founding Director of the Institute's Center for Constitutional Jurisprudence.

      Next is Roman Martinez, who is a Partner in the Supreme Court and Appellate Practice at Latham & Watkins. Earlier in Roman's career, he served as an assistant to the Solicitor General at the Department of Justice where he argued a number of cases before the United States Supreme Court. And before that, he clerked for Chief Justice Roberts on the Supreme Court and then Judge Kavanaugh on the D.C. Circuit.

      We also welcome David Vladeck, who is the A.B. Chettle, Jr., Professor of Law at Georgetown University's School of Law. He has served as the Director of the Bureau of Consumer Protection at the FTC during the Obama administration. Prior to joining the Georgetown faculty, he served as a staff attorney and then Director of Public Citizen Litigation Group.

      And finally, we welcome Adam White, who is a Research Fellow at Stanford University's Hoover Institution. He's also an Assistant Professor at George Mason University's Antonin Scalia Law School where he directs the C. Boyden Gray Center for the Study of the Administrative State.

      So this should be a lot of fun. And I would like to kick off our panel with some panel participation questions because I think it will help show what a diverse group of viewpoints we have here on judicial deference. So let's kick it off. Who on this panel thinks that the Auer doctrine, the doctrine holding that courts must give controlling deference to administrative agency's interpretations of their own ambiguous regulations is unlawful? Raise your hand.

Prof. Adam White:  Unlawful?

Sarah Harris:  Unlawful. Not lawful.

[Dr. John Eastman and Roman Martinez raise hands.]

Sarah Harris:  All right, two of four. Who thinks that the Auer doctrine is lawful but a bad idea for policy reasons?

[Adam West raises hand.]

Sarah Harris:  That leaves David as our Auer defender. Let's do the same thing for the Chevron doctrine, which, as we know is the doctrine holding that courts must give controlling deference to an agency's reasonable interpretation of an ambiguous statute that Congress tasked the agency with administering, at least so long as the agency advances that interpretation in a sufficiently formal form. Who on this panel thinks Chevron is unlawful, not lawful?

[Dr. John Eastman and Roman Martinez raise hands.]

Sarah Harris:  Two of four. Who thinks that Chevron is lawful but a bad idea for policy reasons? Okay, no one. And that leaves both Adam and David to sort of debate how far they like Chevron as a policy matter and the legality of it. So I think as this illustrates, we're going to have a fun discussion before us.

      Before we get into where judicial deference doctrines are headed, especially in light of pending litigation at the Court, I think it would be nice to talk a little first about how we got here. Today, we sometimes hear talk about Chevron and Auer as if judicial deference to agencies on various legal and factual questions is the core fixture of administrative law. But let's probe at that a little bit. John, how did the Supreme Court come to embrace these deference doctrines, and what do you think the pre-deference world, to the extent that there was one, really look like?

Dr. John Eastman:  Well, I think the SG's brief in the current case up at the Court right now, Kisor, lays this out pretty well, the history of this. Seminole Rock is the precursor to Auer deference, but Seminole Rock really doesn't stand for the full-throated deference to agency interpretations of its own regulations that we've come to know as Auer deference. It was more of a side-glancing comment in the case. The real binding deference that we take Auer deference for, that's a more recent vintage. And Chevron deference is also of more recent vintage as Chevron itself is.

      And I suspect what got us to Chevron deference is part of the anti-Warren Court litany of criticisms from the Nixon administration, and particularly the Nixon administration administrative lawyers, one of whom, most famously, was Antonin Scalia, about the unelected judiciary effectively lawmaking from the bench. And the theory behind it was that if we put those deference doctrines in place, like Chevron Step Two, that we have an Executive agency making those initial judgements, and they are at least nominally accountable to an elected official, the President. And that's an improvement over these policy or legislative judgements being made by unaccountable, unelected officials.

      Now, that was the theory, I suspect. It didn't work out that way in practice because the unelected bureaucracy is no more accountable to the President in many instances than the judges are. And so I think that we then see Scalia, in particular, but others after experience with those doctrines starting to question the original theory underlying them.

Sarah Harris:  Great. So let's jump into some questions about Auer deference and its future. In recent years, there has been a groundswell of criticism of Auer deference. For a while, it seemed like every term involved separate opinions and dissents from the denial of certiorari in which various Justices expressed growing discomfort with Auer deference. And now, Auer has sort of become the bridesmaid that turned into a bride at this term. The Court has finally granted a case called Kisor v. Wilkie to reconsider Auer deference. Let's go around the table. The first question, what do we think the Court should say about whether Auer deference is lawful? Should we start with John?

Dr. John Eastman:  Sure. I mean, I think the Court needs to put this genie back in the bottle. Look, you've got to step back and look at this from basic separation of powers principles. Where is the power to legislate, to lawmake assigned in our Constitution? And it's in Congress. And where is the power to interpret the law under our Constitution? It's under Article III in the courts. Auer deference allows agencies to both lawmake and interpret, and then go ahead and execute. It combines all three powers of government in a single, unaccountable, unelected hand. And I think it's got to be repealed.

      And I think Justice Thomas has been on this mission since 2001 in the American Trucking case. He's gotten increasingly more vocal about the dangers of Auer deference to basic separation of powers principles. Justice Scalia, who authored that doctrine right before he passed away, said that he would overturn it as well. There's a story, I'm told, in the hallways of the Court. Justice Scalia finally said -- Thomas said to Scalia, "We've got to get rid of some of these deference doctrines." And Scalia said, "Yeah, yeah. They're awful." "But you authored one of them, Nino." "Yeah, yeah. I know. They're awful. We've got to get rid of them."

      I don't know whether that's true or not. It's a good story, anyway. But the commitment to separation of powers that Justice Scalia exhibited over his life, I think, finally came home when he realized what Thomas had been talking about, the dangers to separation of powers that, in particular, the Auer deference doctrine represented.

Sarah Harris:  Roman, what do you think?

Roman Martinez:  I think I generally agree. Let me just start, though, with a full disclosure which is that I represent clients in the Kisor case. I represent a coalition of nine veterans' groups, and we have called for Auer deference to be overruled. But the good news is that I'm very lucky in that all my clients happen to be correct on every issue of the entire law.

[Laughter]

      I agree with John's general point on the separation of powers. This may seem simplistic, but I tend to think that the role of the judiciary is to say what the law is. That's something that's vested in the Article III courts, both under the Constitution and, I think in this particular case, under the APA as well. In addition to that sort of separation of powers concern and the role of the courts and their exclusive authority to interpret decisively what the law is, I think there's a rule of law concern as well. And I am a product and proud exponent of the sort of original public meaning textualism approach to interpreting legal text.

      So I generally think that whether it's a regulation or a statute, the law should mean basically what it meant to the public at the time it was enacted, and that the goal of interpretation needs to be to do the very best you can to figure out what that is. And I think that the problem with some of the deference doctrines, including Auer deference, is that it tells courts that in certain circumstances, you're not going to apply that. You're going to apply a second-best interpretation or an interpretation that you think might not be the best, that might be wrong, in fact, because it's not the best. And that strikes me as a real, significant challenge to the rule of law and to the idea that we should be governed by laws that are established either by Congress or by agencies exercising authorities -- processes delegated to them specified by Congress. So that's why I think Auer should be overruled.

Sarah Harris:  David?

Prof. David Vladeck:  Yeah. Since I'm the only one who's going to give a full-throated defense of Auer, let me take a few minutes. First, there's nothing unconstitutional about delegation of power. And unless the Court scales back the delegation doctrine, these constitutional arguments are just not going to fly. Second, Auer does not simply forfeit judicial control. Remember, Auer is a doctrine made by judges. It has not been imposed on the Court by Congress. And it simply states a common sense understanding that courts will defer to an agency's reasonable interpretation of its own rules.

      Now, before you get to deference, the court must make a number of findings. One is is the regulation ambiguous to begin with? If not, no deference. Is the agency's interpretation one within the interpretive choices the ambiguity affords? If the answer in no, no deference. Is the interpretation arbitrary or capricious? If no, no deference. Is the interpretation in conflict with prior interpretations? This is the reliance-backed expectation point. If so, no deference. Is the interpretation inconsistent with the underlying regulation? You go on and on. There's a huge amount of judicial oversight of this process. It is not the automatic deference that it's been described.

      Nor is the history really correct. So Auer deference is known by -- it's that name because Justice Scalia is a great writer. But the deference that Auer requires has been part of our jurisprudence long before the APA. It traces back to 1898 where the Court said, and now I'm quoting, "The interpretation given to regulations by the department charged with their execution and by the official that has that power with the sanction of the President to amend them is entitled to the greatest weight, and we see no reason in this case to cast doubt on the correctness." Auer doctrine has been around for more than a century, and to overrule it would be enormously destabilizing.

      One more point. The idea that interpretive rules, which is what's at issue in Auer, are ways for agencies to assert power is just backwards. Interpretive rules are a one-way street. They limit agency power. They don't provide it. Interpretive rules, as opposed to legislative rules, bind agencies in ways that do not bind the public. At the FTC, I couldn't, as a matter of law, use a guidance document in interpretive rule to bring an enforcement action. It would not be evidence of wrongdoing to violate a guidance document. I would have to prove a violation of the underlying statute. But on the other hand, were I to bring an enforcement action that was inconsistent with an interpretive rule, the case would be thrown out for lack of fair notice. So interpretive rules undermine, in the long run, agencies' authority.

      So the idea that agencies have incentives to enact broad and ambiguous regulations because down the road, Auer might give them a way out just doesn't make any sense. It's antithetical to the way any reasonable agency would act. Legislative rules give agencies power. Clear and specific legislative rules promote compliance and ensure efficient enforcement. That's the regulator's creed. And if you want evidence about this, just go look at the Administrative Conference's 2017 report, which did a thorough investigation of this issue and concluded that I'm right.

[Laughter]

      So the bottom line is, be careful what you wish for. Throwing Auer out will destabilize a system that has long been in place and undermine other deference doctrines that the Court has carefully erected over the last century of administrative lawmaking.

Sarah Harris:  Adam, what do you think?

Prof. Adam White:  I feel I'm now sitting next to the most conservative panelist in the room, the one who wants to disturb no settled expectations, retain all traditions, and change as little as possible.

[Laughter]

      So here's my view of Auer, and it's part of my view of Chevron. Chevron and Auer are both doctrines that attempt to grapple with a very challenging question. What should the courts do in a place where laws are written vaguely? What's the court's duty in applying vague laws? Now, this is a second-best world. The first-best world would be the lawmaker writes the law very precisely, and then it's very easy for the Executive and the Judicial to apply it.

      But that's not the world we live in, and it's maybe never the world we've lived in. Read Federalist 37, James Madison explaining why all laws are, to some extent or another, vague and how we should grapple with that. Even Federalist 78, which we always cite as the bedrock presumption that the duty of the court is to have neither force nor will but merely judgement, inspiring Marshall to say courts are going to say what the law is. Even Federalist 78 sketches out a pretty deferential standard of review in some circumstances.

      So for me, when I look at these two doctrines, Auer and Chevron, I ask myself what creates the best incentives going forward for the person who's writing the law, the person who's executing the law, and the person who's interpreting the law. These are all practical doctrines for the reasons that Scalia put forth, I think, better than anybody in his Duke Law Journal article in 1989. And so I think we have to think about it in those pragmatic terms, and learn from experience over time, and recalibrate these doctrines over time.

      I don't think these doctrines—I disagree with my friend John—I don't think these doctrines are directly deducible from the Constitution, or even from the APA. And so I think we need to recalibrate these things over time in light of experience. And where I come down on this on Chevron, which we'll get to later, I've gone from being critical of Chevron to being anti-, anti-Chevron, and now I'm just admitting, okay, I'm pro-Chevron, pro-Chevron rightly understood. I'm, I guess, amend it, don't end it.

      But with Auer, I do think it's time to get rid of it. I think it creates exactly the wrong incentives. I think that the instinct that Justice Scalia got from John Manning, this analogy to separation of powers is the right instinct. But I think in practical terms, Auer creates the wrong incentive. It enables or incentivizes the lawmaker, in this case, the agency writing rules, to be lazy. I don't know that it's the problem is agencies are going to be tactical and scheme on how they can write a vague law and then exploit that later. Maybe that's a problem. I'm worried about the much more mundane issue of lawmakers not thinking hard enough and precisely enough when they're writing the law. And I think only by getting rid of Auer deference are we going to create the right incentive for the lawmaker, here the regulator, to be extra precise in writing the law in the first place.

Sarah Harris:  All right. On behalf of the anti-Auer camp, John Eastman, I'll give you a very brief rebuttal because we've heard a lot in terms of challenges to various legal issues.

Dr. John Eastman:  Yeah. So I think we've got to confront how this really works in practice. And Gene Schaerr here at the front litigated the G.G. v. Gloucester County case. And the way this really works in practice is you've got a statue, Title IX, that prohibits gender discrimination. It's got an explicit exemption for private facilities. You've got a regulation adopted roughly at the time of the statute that acknowledges that exception.

      And then you get, in the Obama administration, an undersecretary acting deputy assistant to somebody who writes a guidance memo that says, "If you don't allow transgender kids into the bathroom of their choice rather than one of their biological sex, you're violating Title IX." And woe to any educational facility in the country that didn't comply with that guidance memo because this is going to be the basis of their loss of funding. And so the guidance memo with no legal authority, in fact, directly contrary to the legal authority, all of a sudden is driving the law. And so when I say they are making law in direct violation of the separation of powers, that's the way it works on the ground. And that we have to acknowledge, I think.

Sarah Harris:  I think the next question for us to confront on this -- we've raised sort of a lot of interesting questions about practical concerns. And David in particular has already talked a little bit about whether or not overruling Auer would have dramatic effects in really stare decisis considerations that the Court should take into account. So let's go around and sort of talk -- our panelists, starting with John, where we come down on what the Court should say about how stare decisis effects the Auer analysis.

Dr. John Eastman:  You know, I wrote an article a number of years ago on stare decisis called "Conservatism's One-Way Rachet Problem." If stare decisis is, as it was originally designed, the doctrine of humility that the courts are not going to lightly revisit considered judgements of its predecessors for stability reasons and everything else, that makes sense. But the notion that we would use stare decisis to lock in patently unconstitutional rulings just because they've been said before or held before makes no sense from a constitutional perspective.

      It's like a referee at a football game where you've got to have two feet inside the line for it to be a valid catch, and they call the game with one guy in the foot. Well, we don't look to that bad judgement for the future rulings. We look back at the original rulebook. And a stare decisis that locks in unconstitutional rulings has to be thrown over, I think. Justice Thomas has been particularly vocal about that, and I think he's right about it.

[Applause]

Sarah Harris:  Roman?

Roman Martinez:  So I think the stare decisis concern problem is very real. It's very significant. I think, as a small-c conservative, I think I'm generally pro, very strongly in favor of stare decisis. I do think that if you agree with some of the points that John has been making and some of the points that I was making about the fundamental problem at a constitutional level between the deference doctrines and what the Constitution requires. I do think this is the kind of fundamental issue that the Court would need to fix and that would overcome the traditional reluctance, at least with respect to Auer in particular, and should allow a court to go forward.

      I do think that there is a very significant practical problem with the fact that you have a lot of decisions out there for years that have applied Auer or a version of Auer. And so then the question arises what do you do about those decisions? I think that if the Supreme Court wanted to overturn Auer, it could choose a couple of different options. You could do something like somehow grandfather in all those decisions, which looks a little bit messy and ugly and impure, but at least solves the problem prospectively.

      I think you could acknowledge that those decisions have -- the stare decisis effect of those prior decisions applying Auer need to be analyzed in stare decisis terms case by case, individually, one by one. And typically, courts will be much less reluctant to overturn a statutory holding or interpretation of a regulation, so maybe that's how you can kind of avoid the disruption of overturning Auer. But at the end of the day, I do think that if you conclude that the constitutional problem here is fundamental and is important, then I think that stare decisis probably should not be a barrier to overturning the doctrine.

Prof. David Vladeck:  So I don't disagree with John that unconstitutionality should not -- I mean, stare decisis should not preserve an unconstitutional ruling. The problem that I have with the argument about separation of powers is that in order to get to the result that John and Roman advocate for, you have to have a revolution in the law of delegation. And I don’t see that happening.

      The delegation doctrine is alive and well. These are forms of delegation. The Court has upheld that rationale repeatedly, and the Court would have to, essentially, refute its own prior opinions on the basis of delegation, which are explicitly based -- Chevron, Auer, these are explicitly delegation cases in order to reverse this case on those grounds.

      The other point is the dislocation that would follow from overruling Auer is quite substantial. If you look at the government’s brief in this case           , I think the government takes the position of preserving a variant on Auer, principally to avoid what the government thinks are really serious dislocation issues. You have decades of precedent based on a doctrine that you advocate wiping away. The consequences of that would be quite severe. And the government's argument is, "Don't throw us into that briar patch."

Prof. Adam White:  So as Sarah mentioned, I run a program at a Mason called the Gray Center for the Study of the Administrative State. One of the fun parts of my job is since we incubate a lot of law review articles, I get to see a lot of really interesting articles that are bubbling up right now before the general public. It's great. It's like getting previews of all the best movies except with law review articles.

[Laughter]

      There's a really great article coming out by Randy Kozel of Notre Dame. He's thought deeply about this. He writes a lot on stare decisis. And he has a paper—it's available on our website—where he grapples with how to think about stare decisis in the context of deference doctrines. And here, I think I'm going to defer to him. I think he makes a very good argument that interpretive methodologies are not themselves the stuff of deference. Deference is better suited for real substantive rules and something less like an interpretive methodology. It would be great if someday the Supreme Court declared with precedential effect that originalism is the methodology by which we'll interpret the law. It probably can't do that, and I don't think it can lock in an approach like Chevron or Auer either.

      In this case, even setting that aside, it's harder for me to see what real damage stare decisis would protect against here. First of all, Auer deference, the whole point of it is uncertainty. The whole point of it is for agencies to be able to change from administration to administration. The point of it is uncertainty. And once you get rid o- that, if agencies don't like how their rules might be interpreted by courts, well, there's an app for that. It's called notice-and-comment rulemaking. It's pretty easy. I've seen it done. And they should go back and sort of fix these things in the actual written law. I just don't see a whole lot of practical damage being done here that stare decisis needs to protect against.

Sarah Harris:  Roman, David mentioned some interesting points with respect to the Solicitor General's brief in Kisor, and the institutional considerations it raised, and the position the government took, which I think surprised a couple of people, maybe, who were thinking the government might have come down a little harder on Auer deference. As I understand the brief, it adopts maybe five or six factors for potentially narrowing Auer. You have a unique perspective on this, I think, because you worked in the Solicitor General's office for several years. So can you talk to us a little about what considerations you think might have played into the government's position and how there's a sort of balancing of perhaps institutional interests with, obviously, the aims of the administration?

Roman Martinez:  Sure. And I should say up front, I have no inside information on this. I'm sure there are a number of people in this room who could provide a little bit more color and detail as to how this brief came together. I imagine that the Solicitor General's Office and the Solicitor General in crafting this brief faced two very important countervailing, cross-currents of argument and had to resolve them. On the one hand, I suspect there were a lot of people within the administration, and maybe in this room, who maybe share some of the skepticism towards Auer and probably were urging a more aggressive approach, maybe even calling for Auer to be overruled.

      On the other hand, the Solicitor General's Office always has a deep and long-term commitment to the institutional litigating positions and interests of the Executive Branch generally. And there's a great reluctance to take positions that will be problematic for the government over the long run, and certainly in Auer with a doctrine that directly benefits the government and that the SG's Office has always defended. And so I think what the SG's Office tried to do was sort of reconcile these competing impulses as best it could, and it came up with a brief that I think that probably a lot of people, if they're looking for theoretical purity, are going to have trouble finding it in that brief.

      On the one hand, the brief is very critical of Auer and notes a lot of the problems that we've talked about. On the other hand, it defends Auer in certain ways, and it emphasizes strongly the stare decisis. And so it tries to put some limits on how Auer deference is properly invoked. It says that there needs to be a very rigorous sort of a Step One inquiry where courts should apply traditional tools of construction and make sure that if they're going to defer, it can only be if there really is an ambiguity. And then a couple of other limits: the agency can't have changed positions, the agency position needs to have been given to the public with clear notice, the agency needs to be exercising its expertise, and the position needs to reflect the considered with of the agency.

      There are a lot of bells and whistles on this text. I think, at the end of the day, it's probably unsatisfactory to a lot of people, but it's possible that it's going to be satisfactory to the people who matter most, which is the Justices on the Supreme Court. I think it's possible that you could have a court that doesn't want to go all the way to overruling Auer but does want to place some limits. And I think the SG's brief has done a commendable job of giving the Court some options and ways that it could make Auer a more modest doctrine that raises fewer of the concerns in practice of the concerns that we have raised today.

Sarah Harris:  So that's a great segue to sort of wrapping up on Auer a bit. And what do you think, especially in light of the SG's brief, that the Court's going to do in this case?

Dr. John Eastman:  I mean, the SG's brief is a little bit hard to decipher. What's the old adage? "A horse made by a committee is a camel." This one's made of a committee of camels. I mean, it's hard to decipher the thing. What I fear we will get if the Court adopts the SG's proposals, nuances, is an on-again, off-again use of Auer when we want it and not use of Auer when we don't want it, kind of like the ghoul of the Lemon Test; there when we want it and need it, but we get to ignore it when we don't want it. That's no test, and it's no law.

      And I'm reminded of the source of all this, Justice Thomas's opinion in Perez v. Mortgage Bankers. He ties this back to the advent of the progressive movement and the whole notion that our agencies are better than us at figuring out policy decisions. We're going to people them with experts, and we, therefore, got to defer with them. I mean, it really does undercut the very notion of sovereignty of the people in governing ourselves. And at bottom, that's what's at stake. And it's no surprise that the forces inside the administration, in the agencies, want to keep their preferred place in our constitutional structure, this illegitimate one, of deference to their judgements about how we ought to govern our lives. And so that's really the heart of what's going on here, and I don't think the SG's brief offers a good line to solve that problem rather than perpetuating it.

Sarah Harris:  And Adam, what do you think will happen?

Prof. Adam White:  Well, so real quick on the SG brief, there are philosophers out there. We call them Straussians. They look for hidden meanings in complicated documents. I think the Straussian reading of the SG's brief is overrule Auer deference. I think the alternative that they've painted is so, on its face, unsatisfactory that I think the first part of the brief where they lay out the problems with Auer is the part I take literally, and the rest I take not even that seriously.

      I think, what's the Court going to do? Sometimes I think the Court is going to, as we've indicated, come up with some sort of Step One or Step Zero threshold, put some limits around Auer deference. Of course, it's already subject to so many caveats. David went through them. It's another reason why I think stare decisis isn't as much of an issue here. I sort of think maybe the Court will just get rid of Auer deference because remember when we talked about what will replace it. Sometimes we assume it'll be de novo review. The alternative is Skidmore deference. And frankly, the Justice Department's brief with all of its caveats and factors and so on starts to look much more like the mushy Skidmore deference. That might be where we wind up, but I don't know.

Sarah Harris:  Great. And I think we'll then move on to the second part of our fun deference discussion, which is Chevron deference.

Prof. David Vladeck:  Well, wait a minute.

Sarah Harris:  Oh. Sorry, David.

Prof. David Vladeck:  Let me get my say in. I sort of agree with Adam, but I think the Court is going to uphold some form of Auer deference based on the SG's brief. And I think there's good reason for that because courts, inevitably, are going to give some deference to agency decisions, so long as they're reasonable. And so it may, as Adam points out, sort of merge into some sort of muscular form of Skidmore deference or something else. But I don't think the Court is ready to abandon this enterprise completely. And if you just look at the transcript, there are a couple of Justices who are plainly ready to get rid of Auer, but I don't think that's where the center of the Court is.

Sarah Harris:  Great. Well, with that, we are going to move along to Chevron deference, which I think it's interesting to talk about which aspects of criticisms or defenses of Auer overlap with Chevron deference. So in recent years, we've seen a lot of Justices and judges calling for the narrowing of the circumstances where Chevron deference might apply, if not for limiting the doctrine entirely. So you have Justice Thomas, Justice Kennedy, and then Judge Gorsuch seriously questioning whether Chevron is lawful. And then in his writings, you have then Judge Kavanaugh suggesting that Chevron deference, at a minimum, should be reserved for cases that present true ambiguity, that there needs to be more rigor as courts approach statutory construction, and that Chevron deference might also best be left to major rules involving major social or regulatory activities.

      So let me start with John. Do you think those jurists are right to be skeptical? I'm guessing the answer is yes. Do you think Chevron is consistent with the separation of powers, and if so, are there the same arguments as Auer deference, or do you think it's more, for instance, of a nondelegation problem?

Dr. John Eastman:  Well, it's more a function of nondelegation problem. But we've looked at Chevron as a transfer of lawmaking power from the legislature to the Executive, and I think that's problematic enough. But what Justice Thomas has added to the mix is a transfer of the interpretive or Judicial power from the judiciary to the Executive. Here's what he says. "The judicial power as originally understood requires the Court to exercise its independent judgement in interpreting and expounding the laws. Chevron deference precludes judges from exercising that judgement, and thus rests from the courts the ultimate interpretive authority to say what the law is. See Marbury." 

      Now, he's not alone in it. Let me read you another quote, and I'll see if you can guess who this one's from. "Chevron suggests that administrators should decide the scope of their own authority. That notion flatly contradicts separation of powers principles that date back to Marbury v. Madison and Federalist 78." That's Cass Sunstein. Bill Eskridge: "We join Chevron's critics from the perspective of the original constitutional design. Aggressive judicial review of agency rulemaking ameliorates the constitutional dilemma under which the modern administrative state has witnessed the shift of lawmaking power from Congress to the President." Bill Eskridge.

      So the criticisms of Chevron on constitutional terms run the ideological board. And I think it's very significant that you get at least -- and there's a new revival of concerns about Chevron deference, with this President in office, coming from the left, those who are from the last Bush administration, Cass Sunstein and Bill Eskridge. But I do think there are serious constitutional problems, both with legislative power being transferred and with judicial power being transferred to unelected bureaucrats in agencies.

Sarah Harris:  So -- sorry. Roman?

Roman Martinez:  Yeah. So on this question, I think that the arguments overlap. But let me just say sort of how I came to my current view on Chevron because, like some of the other panelists, maybe not David, I've evolved on this a bit myself. When I was in the Solicitor General's Office, one of the things that we would have to do is review appeal recommendations and give a thumbs up or thumbs down to when agencies in the government wanted to appeal decisions. And we also, of course, would work on the briefs in the Supreme Court. And so a lot of the job was talking through with agencies what legal positions they wanted to take.

      And it struck me in a number of conversations with a bunch of different agencies that because of Chevron deference, the folks in the general counsel's office who you're talking to often times, you would have an honest discussion with them, and you'd sort of talk through the statute. You'd push them on their interpretation. And they would basically agree that the best interpretation of the statute was not the one that they were picking under using the traditional tools of construction. So they would say things like, "Look, yeah, the text sort of leans that way. Legislative history's sort of ambiguous. We've got these canons, but we think it's close enough. We think we've got a zone of ambiguity here, and therefore we're going to go with this other interpretation."

      And so even though within the agencies, they thought the best sort of pure legal interpretation was Interpretation A, for policy reasons, they thought they'd prefer to go with Interpretation B. And Chevron gives them the green light to pick Interpretation B. And I think if that case then comes to the court and the judge looks at it, and the judge agrees with everything I just said, A is the better interpretation, but B is reasonable, and that under Chevron, if the judge has to defer, you have a very strange result here, which is that the agency thinks that A is the better interpretation, the judge agrees that A is the better interpretation, and yet, Chevron says, "Doesn't matter. We have to go with B."

      That is a fundamental rule of law problem, it seems to me. And I think that honest agency general counsel, when you have these honest and candid discussions, I think they will admit to you that they are basically using authority to essentially depart from what they think the best interpretation is. I think that's a problem.

Sarah Harris:  David?

Prof. David Vladeck:  Yeah. So let me build on this point. I think the conversations you had reflect my concern about Chevron. And I think this is why there's unhappiness in the Court about Chevron, which is lower courts, by and large, have not really done the work they need to do on Step One. They're very quick to find ambiguity. Government lawyers, that's their job these days is to find an ambiguity and to use that as the basis for asking for Chevron deference. And so I do think there's a problem with the way Chevron has been applied, but I don't think there's a basic problem with the doctrine itself. But I do think your conversation illustrates why there's frustration within the courts, not just the Supreme Court, about Chevron. And it has had, I think, a very profound effect on the way government lawyers defend agency action.

      On the other hand, I don't think there's any serious argument that Chevron is unconstitutional. It is a way of Congress delegating interpretive authority to agencies. The doctrine of Chevron, again, was announced in a case, but the antecedents go back decades prior to Chevron. We've had a delegation doctrine that looks a lot like Chevron, delegation of interpretive authority to agencies, decades preceding Chevron. So the real question isn't is it unconstitutional? It's a judge-made rule. The Court can modify it as it sees fit as long as it's not usurping authority that Congress has given to agencies.

      One of the things that's really interesting in the Kisor argument is Justice Breyer talks about the withdrawal of these delegation doctrines as a power grab by the judiciary. And one of the tensions within the Court is going to be if you believe in the delegation doctrine, and you believe that Congress has delegated interpretive authority to agencies, as it plainly has, I mean, agencies get the power to make rules that are law, the violation of which often can lead to serious penalties and at times, jail time. Unless you're going to sort of winnow away on the delegation doctrine, the Court's really going to have to struggle if it wants to simply eradicate some kind of deference to agency interpretation.

Sarah Harris:  And Adam, we know that you are in the pro-Chevron camp. One thing we haven't heard as much about is what about the argument that Chevron is unlawful under the Administrative Procedures Act? Why do you think that's wrong?

Prof. Adam White:  Yeah. So the APA -- and I knew this would come up, so I should have written it down. The APA -- and I think this is maybe one of the strongest arguments against Chevron. I think people who see it my way really have to grapple seriously with this. The APA says that the reviewing court "shall decide all relevant questions of law, interpret all constitutional provisions, and determine the meaning of or applicability of the terms of an agency action." And a lot of Chevron's critics right now interpret that as meaning the court must review this de novo. Maybe that's what it means.

      I don't think that's what it means. I think that the deference doctrines that predated the APA, ones that the framers of the APA in '46, some of them were familiar with. I think that they understood that even that provision did not necessarily require unflinching, undeferential de novo review. I think there's room in that provision for deferential review. I was struck by John's point a moment ago. John, were you quoting Cass Sunstein and Bill Eskridge in favor of your cases? This is like the ultimate Bootleggers and Baptists. I mean, if you don't want to agree with Cass Sunstein and Bill Eskridge, hi, my team is taking members. You can join us.

[Laughter]

      But in what you sketched out before, about Chevron -- and the mention of the Kisor argument reminds me of this. When you listen to the Kisor arguments and watch the debates about Chevron, you have this really interesting debate on the right and left, progressives and libertarians or conservatives; libertarians and conservatives really pushing for the judicial duty in interpreting the law and saying what it is, the progressive deference to expertise. And what I really think is falling out of all of this, and I think it's a real mistake, is the pro-democracy, sort of republican spirit that animated Scalia's version of deference. And I see that the deference debates are increasingly ones between the duty of judges and the expertise of agencies. And I think the best and most important defense, especially in our constitutional system, defense of these deference doctrines is going unclaimed increasingly by both sides. And I think that's very dangerous.

Roman Martinez:  Can I just take a quick sec to respond to David because you've made the point a couple times, and I think it was very well put each time you made it, about these doctrines coming from a place of delegation. And you said there's no question that Congress is delegating this authority. I think there's no question that Congress has delegated and can delegate policy making authority within bounds. But I think it's actually a very hard question. And it's not clear at all to me that Congress has delegated the authority to agencies to resolve ambiguities in the meaning of statutory terms. The Court has talked about this as an implied delegation, but it's not clear why, in fact, it is implied. Even assuming that they could delegate that authority, it's not clear that they have.

      I think drafters of statutes and even regulations typically do not think they're being ambiguous when they're drafting language. And so with respect to any particular provision, I think an ambiguity is accidental. I don't think that that particular ambiguity was intended to be resolved by an agency. And if that's true, then it seems like this sort of delegation theory is, as I think Justice Breyer and Justice Scalia have called it in different contexts, a legal fiction. And if you're going to have a doctrine like this that rests at bottom on a legal fiction, that seems to me, at least, to be a problem. So I would be interested in seeing, and maybe I haven't read deeply enough into this, a really sort of thorough defense somewhere of this presumption of delegation.

Prof. David Vladeck:  Let me respond very briefly. One point you missed, and this is fundamental, is there are lots of gaps that agencies need to fill. I don't think there's a serious argument that when Congress leaves that gap, it doesn't expect the agency to fill it. And a lot of the Chevron cases are gap-filling cases. Where there's any ambiguity, go to Capitol Hill. I mean, these ambiguities are not poor drafting. They're the inability, often, to find a sensible resolution of an issue which they then kick down to the agency.

      And so, look, when I was at the FTC, we had to modernize a rule, the Children's Online Privacy Protection Rule; the question, "What's a personal identifier?" Now, who the hell knows? I mean, this was a highly technical question. If you just look at the language, Justice Kavanaugh in Kisor basically makes the point why is the agency any better at figuring that out than a district court judge? Well, because it turns out that it's a technologically laden problem where expertise is needed to resolve it. So I think there's a strong underlying support, theoretical and pragmatic, for the Court's repeated insistence that these delegation doctrines, these doctrines about deference, are just a species of the delegation doctrine.

Dr. John Eastman:  And I agree with this point that the Chevron issue is tied to the nondelegation issue, but I think we're going to disagree on whether we ought to revive the nondelegation issue. Look, the basic principle -- it's buried deep into the Constitution, Article I, Section 1, Clause 1. The lawmaking power is vested in Congress. And the Court theoretically solved that problem about how to delegate to fill in the gaps. Congress has to make the basic legislative policy judgement where the details get filled in on how to comply with that policy judgement that was already made. That's the intelligibility principle.

      But when we approve as permissible delegations, things like, "Go forth and regulate the airwaves in the public interest," and all of these things that by no stretch of the imagination reach any notion of an intelligibility principle, we have allowed for that basic constitutional mandate to be ignored. And I think that's what's at issue. Can we put teeth back into an intelligibility principle in enforcing a nondelegation doctrine? Then maybe we can have something more with Chevron. But shy of that, Chevron just exacerbates the problem of delegating lawmaking power.

      And I'll give you one real key example from recently. There's no question that the Affordable Care Act would not have passed if the Stupak Democrats don't sign onto it after having their concerns about funding for abortion alleviated. Senator Murkowski had put into the bill in the Senate a provision on preventative care. And they said, "Well, it doesn't mean abortion. That's a lie by the pro-life folks put out there to get the Stupak Democrats off." Well, what happens when it gets over to the agency? They do exactly the thing that Congress said we weren't doing. And they knew that they were going to do that over there. So they use this ambiguity to then write things that could not pass through the legislature. This is the fundamental lawmaking power problem that we get with these delegation doctrines, or the ignoring of the nondelegation doctrine.

Sarah Harris:  So I think both John and David just raised something interesting, which is sort of differing views of when is there ambiguity, and is that sort of a fundamental aspect of what's going on with Chevron to begin with? So Adam and Roman, if you don't mind both sort of talking about that. And Adam in particular, if you see ways of limiting Chevron based on that principle, and Roman, sort of how you see Justice Kavanaugh in particular in coming down on them?

Prof. Adam White:  Yeah. I keep mentioning Scalia. I work at the Scalia Law School, and I get a nickel every time I say his name.

[Laughter]

      But I think he's right, also. Again, in his defense of Chevron in his 1989 Duke Law Journal article, he stresses the right way to apply Chevron is with a rigorous Step One where you apply an undeferential review in light of real originalist methodology. In doing that, he says, "I'm going to dramatically reduce the field of ambiguous statutes, not get rid of them altogether," because Scalia was practical, and he understood that a lot of the statutes we're dealing with are extremely broad. I printed up an old essay he wrote in '81 where he pushes back against the Bill [Dale] Bumpers Amendment to get rid of the early versions of deference. And he talks about transferring power to the courts to unilaterally ascribe meaning to what he called relatively meaningless laws. Not meaningless laws, but relatively meaningless laws. I think that's what we have to grapple with.

      The right way to do it is first of all Chevron Step One, actually doing it seriously. I think experience has taught us we need a much more rigorous Step Zero using the major questions doctrine to take the biggest policy judgements totally out of this conversation. But the most important thing we can do is do Chevron Step One, but always understanding that, as James Madison pointed out, right there [pointing], he says in Federalist 37, he says all laws are to some extent vague because we are imperfect people, and we're dealing with complex subjects. And we conceive of them in our minds imperfectly, and we translate them to writing imperfectly, and then the reader interprets them imperfectly. There's always going to be some vagueness, some more than others. The Chevron framework allows us a way, imperfectly, to separate these categories. And I think you have to take Step One seriously, and then also take Step Two seriously.

Roman Martinez:  So I think a couple points on ambiguity. First of all, I completely agree. And maybe even we could get David on board with a robust Step One.

Prof. David Vladeck:  That's what I said 10 minutes ago. Yeah. So we're all in favor.

Roman Martinez:  So we've got consensus. Yeah, I thought I heard that.

Sarah Harris:  We should stop the panel now.

Prof. David Vladeck:  Maybe we should stop.

Prof. Adam White:  I changed my mind.

[Laughter]

Roman Martinez:  I certainly agree with that. I think that in the cases where you do have ambiguity though, two additional things. One, I think in the normal circumstance, if you don't have an agency in the picture, I don't think there's really any question that the ambiguity has to be resolved by the court. That's what courts are there to do, precisely because of the problems that are inherent with language and with legislating. And so it is sort of weird to say, "Oh, this insoluble problem. Who could we possibly get to interpret this statute? We must find some Executive Branch official to do it for us." This is like the wheelhouse of what courts do every day.

      The second point, though, on the Kavanaugh thing, I think Justice Kavanaugh's actually written some interesting things about this topic of how to define ambiguity. And his basic takeaway is that it's very hard for judges to agree on what counts as ambiguous and how much ambiguity you need in order to actually get to Step Two. And for Justice Kavanaugh in his writings, what that leads him to conclude is that the doctrine might sort of sound like something that everyone can agree to, and everyone can sign up for, and everyone can be applying, but in practice, in reality, judges are applying different tests because there's no, really, commensurate way or sort of uniform standard of applying the ambiguity threshold.

      And I think that's what leads him to think that in most cases, maybe not all, but most cases, the right way to do this is for judges just to do what they normally do and apply the best interpretation. But I agree with him. I think it is a very hard threshold question of how ambiguous is ambiguous, and how do judges talk about ambiguity and apply a standard approach?

Sarah Harris:  Terrific. So I think we have about 15 minutes for questions. And there should be microphones, I think, midway through, so folks can line up. We would love to hear from you. And then we'll thank our wonderful panelists.

Dr. John Eastman:  While we're waiting for the first question, I want to take issue with something Roman said earlier, which is that a lot of these ambiguities in the statutes are accidental. That may be true, but not all. In fact, some, I think, are deliberate because what we've done is create a corrupt scheme that ambiguity in a statute creates the coin of the realm for reelection.

      Let me explain. I write an ambiguous environmental statute. I'm going to clean the water. And I don't have to take responsibility for any of the massive costs that would be imposed by the regulators. And I couldn't possibly get it voted through if that was the focus of the statute. So I pass this ambiguous statute, and then the regulators run crazy, and I blame all of the negative consequences of the regulation on those crazy regulators while simultaneously lobbying behind the scenes to get the regulators to carve exemptions for my major donors.

      I mean, anybody that's in any agency in town knows this goes on over, and over, and over again. We used to call our chairman of our appropriations committee when I was at the Civil Rights Commission the Commissioner because he had more power over the Commission through these little back room tactics than anything else. So I think the deliberateness of writing ambiguous statutes that they can then drive a truck through behind the scenes on the regulatory front creating exemptions for their preferred -- this is unbelievably bad for good government policy, and yet, it goes on in almost every agency in town. And it's caused by these delegation doctrines, or the looseness of them in the deference doctrines.

Prof. Adam White:  The argument against Chevron can't just be sometimes congressmen do dumb, or lazy, or bad things anymore than the argument for Chevron is sometimes judges do dumb, or lazy, or bad things. I think we need to look across all of this, accept that there's going to be good judges and bad ones, good administrations and bad ones, good members of Congress and bad ones. What's the best balance of power between the Executive Branch and the Judicial Branch when interpreting vague statutes that reaches the best outcomes over time and is most closely tied to our republican form of government? For me, I think it's Chevron, rightly understood.

Sarah Harris:  All right. Do we have any brave audience members? I think it looks like we're getting some. Yes?

Jonathan Adler:  Jonathan Adler, Case Western Reserve. One thing that hasn't come up a lot in this discussion before Step One is Step Zero. And I'm wondering if any of the panelists have thoughts on two issues. One, if we take Mead seriously in the idea of a Step Zero inquiry, what does that tell us about not really major questions, but other sources of imperfect meaning in statutes that are not eligible for Chevron? So for example, internal conflicts in a statute. Should those be treated as ambiguities or, does the delegation theory of Chevron take them off the table?

      And then secondly, if we take this Step Zero notion seriously, I'm curious if any of the panelists have any thoughts about how we would apply that to Auer because it seems to me if Step Zero in Chevron is based on delegation from Congress, I'm not sure how Step Zero would work in Auer where it's the agency delegating to itself.

Dr. John Eastman:  Yeah. I'm going to agree with something David said earlier about the origin of these deference doctrines is Congress's intent to let the agencies fill in. And if you understand that as the basis of it, then a Step Zero has to also be tied to something Congress has explicitly said. I want the agency to solve these kind of fill-in-the-gap problems, whether it's large or small, major policy or minor policy things. If Congress has said, "I want the agency to help us with their expertise in filling in those gaps," apart from the nondelegation issues that creates, then that ought to be it.

      And it ought not to be some court deciding, "Well, this is too big an issue for there to be delegation or too small an issue that we can afford delegation." If the source of the authority for those delegations is Congress has said we're going to do that, it ought not to matter how big the policy judgement is or how little the policy judgement is, unless we're going to go, really, back to a full-throated nondelegation doctrine.

Prof. Adam White:  I mean, this is all downstream of nondelegation, and I agree that needs to be looked at and reformed too. But for me, very briefly on Step Zero, I'll say I think maybe the best defense of Chevron is that it's useful for filling gaps. And Step Zero takes this seriously, especially the major questions version of Step Zero and says, "Okay, we'll allow Chevron to fill gaps, but not chasms," that we're not going to allow Chevron deference for this most consequential set of policies. It's funny -- you mentioned Kavanaugh and his Harvard Law Review article where he says the line between ambiguity and unambiguity is not a bright line. Of course, the same could be said for the major questions doctrine, which Kavanaugh seems to be a big fan of, or the major rules doctrine, as he calls it. It's not that the lines aren't bright, but at least there's something there. I think they're still useful.

      And I think, and maybe we'll get to this later, but I think the best thing we can do with Chevron, again, is try to recalibrate it to create the right incentives for the lawmaker. And in the case of Step Zero, a robust Step Zero would remind Congress that they're going to have to make some decisions for themselves, or these broad delegations of power will be delegations to judges to decide what the best policy in their view is. They won't say that's what they're doing, but that's what it looked like a lot in the 1970s when it was Skelly Wright and David Bazelon on the D.C. Circuit. And I think a robust Step Zero reminds Congress that the judges ultimately will be in charge of deciding these policy issues, and Congress might want to think harder before they write some vague policy aspiration in the law.

Prof. David Vladeck:  That's why we have Chevron.

Prof. Adam White:  It is why we have Chevron.

Dr. John Eastman:  By the way, you solve that with teeth in an intelligibility principle. Let the court develop a robust jurisprudence on what constitutes an intelligible delegation of power. Has Congress made the basic policy judgement that we expect the legislature to make, or have they passed the buck on that? And if they've passed the buck on that, it's invalid. If they've made an intelligible principle about what that policy judgement is, then the agency can apply its expertise to this particular circumstances that meet that policy judgement. But we have no intelligibility principle jurisprudence now that does anything close to that.

Sarah Harris:  Gene?

Gene:  I wanted to follow up on John Eastman's question and specifically ask Professor Vladeck about it because it's intriguing to me. Okay, you have the problem which Congress passes something broad, and general, and cannot get through what actually ends up getting passed, and what they perhaps know will get done by the time it goes through agencies. To what degree does that bother you, and to what degree would some of the things we seem to be coming to a little agreement about on this panel actually address that in practice, or how should it be addressed?

Prof. David Vladeck:  Yeah. I think John's hypothetical is everyone's sort of nightmare about how Washington can work. I don't think it's an unfair hypothetical because I think in practice, it happens probably more than we would all like. But I do think that there are all sorts of controls in the way the judicial review process works and the agency review process works that would make it very difficult for the agency to supply that missing piece of legislation and get away with it. There're just too many controls on the administrative process.

      Earlier, my friend Adam talked about how easy it was to do notice-and-comment rulemaking. Really? I mean, having served for years as the head of a part of an agency that was engaged in rulemaking, it's a nightmare. And there are many constraints. And I was in an independent agency, so I didn't have to deal with OIRA. So if you start looking at the constraints on the regulatory process, I think that the scenario that John talks about -- I just don't think it would make it through the regulatory process. And if it did, the D.C. Circuit or some other court would strike it down, particularly if there was a record of opposition. If there was a proposal in Congress that someone pushed, and it didn't get enacted, regulatory state isn't going to fill that gap.

Prof. Adam White:  Making regulations is hard, but living under them isn't exactly easy, either. And I think we shouldn't -- when I said it's easy to do notice-and-comment rulemaking, I meant relative to other things, of course. I don't think it's asking too much to agencies to notify the public of a proposal, take comments, respond meaningfully to them, and then suffer some form of judicial review. I mean, quite frankly, compared to the legislative process that rulemaking has increasingly a substitute for, it's a walk in the park.

Sarah Harris:  One final question.

Richard Belzer:  Richard Belzer. I'm not an attorney. I'm an economist, and so I can make all this up.

[Laughter]

      On the one hand, and then on -- no. I'd like to set up an example for you and see what your answers would be. I have spent quite a bit of time recently dealing with an old statute, the Safe Drinking Water Act of 1974, which Congress established three goals or three directives to EPA. One is to establish very stringent national standards, a second is for these standards to be economically feasible, and the third is for them to accommodate the special needs of small water systems. Now, I'll submit to you that you can choose any one of those, but you can't do all three. You can't even do two of them. How should the courts deal with that, and how should EPA have implemented a law that directed it to do fundamentally incompatible things? And I think Congress knew that it was doing that in 1974 when it enacted that.

Prof. David Vladeck:  Well, there are a lot of statutes passed in 1974 that do exactly that. I mean, the Occupational Safety and Health Act does the same thing. And the courts have, I think, given a fair amount of leeway to agencies who are trying to reconcile these mandates that are not capable of all being fulfilled at the same time. The Flint water crisis is in part a result of that. And so that's a problem that Congress ought not to put agencies in but does all the time. And I think the judicial process has been relatively forgiving of agencies that can't simultaneously do all three things.

Prof. Adam White:  Since we're talking about -- oh, go ahead, Roman.

Roman Martinez:  No, no.

Prof. Adam White:  No, please.

Roman Martinez:  [Inaudible 01:05:10]

Prof. Adam White:  I was going to change the subject.

Roman Martinez:  I was going to take the floor.

Prof. Adam White:  I was going to change the subject slightly since we talked about Congress. I want to make one point that I think hasn't gotten made but needs to be made. We talk about these doctrines more or less like they're all or nothing. I think that's the wrong way to think about it. I think especially with Congress, to the extent they want to write something into the APA, I think we ought to understand that, for exactly the reasons that Roman identified, the agencies really value Chevron deference.

      We should use it as an incentive. We should use it as a carrot to pull them through more procedural hoops. The knock-on, increasing rulemaking requirements, as always, is going to defer rulemaking. Agencies won't go through formal rulemaking. It's too hard, and so on. Well, if Congress just crafts the APA in a way that leaves deference for things that go through heightened rulemaking and takes it away from everything else, you create the incentive to get the agencies to go through a better rulemaking process up front. So I think the best solution for all of these debates has nothing to do with what the courts might decide. And it's Congress taking Chevron seriously as a means, not an end, and using it towards the end of a better regulatory process and better public administration in general.

Sarah Harris:  Great. Well, I think this panel has definitely illustrated that we have a variety of views on deference doctrine. So we managed to reach a little bit of common ground on some potential means of narrowing or tweaking the doctrines, but I think the debate's going to continue. And it's certainly going to continue as we see what the Court does or does not do this term in Kisor.

      So before I thank our wonderful panel, I have been instructed to announce our next panel is going to be in here at 2 p.m. It's the Civil Rights panel, and there's going to also be a panel in the East Room on environmental issues. So thank you very much to our excellent panel, and please join me in thanking them.

[Applause]

Mr. Erik S. Jaffe:  All right. We’re going to get started in a couple minutes, or right now actually, so please take your seats. Hello, I am Erik Jaffe. I’m one of the heads of the practice groups at The Federalist Society. And on behalf of those practice groups, and particularly the Civil Rights Practice Group, I welcome you all to this panel “Alphabet Soup,” a discussion of how regulatory agencies under the new administration are doing. I’m here simply to introduce our speakers and then stay out of the way. We have four panelists -- four distinguished panelists today.

The first speaker will be the Honorable Professor Gail Heriot, who’s a Professor of Law at the University of San Diego Law School. Professor Heriot teaches, among other things, civil rights and employment law discrimination. She’s also currently a member of the United States Commission on Civil Rights. Prior to joining the San Diego School of Law faculty in 1989, she worked in various capacities at Mayer Brown, at Hogan & Hartson, as Civil Rights Counsel at the U.S. Senate, and clerked for the Illinois Supreme Court, the Honorable Seymour Simon. We are glad to have Professor Heriot here. And those of you who’ve been to lots of Federalist Society events know her well. And she’s the head of the practice group, for that matter.

The second speaker will be Tim Taylor, who’s the Deputy Assistant Secretary for Policy at the U.S. Department of Labor. Mr. Taylor was previously a litigation attorney in private practice before joining the Department of Labor and started out as a Senior Counselor and then got promoted to Deputy Assistant Secretary for Policy. Prior to starting his private practice, he clerked on the Tenth Circuit for the Honorable Harris Hartz and on the United States Court of Federal Claims for the Honorable Charles Lettow. Prior to that, he was a graduate of Brigham Young University and Harvard Law School.

The next speaker will be the Honorable Ken Marcus, Assistant Secretary for Civil Rights at the U.S. Department of Education. Prior to joining the Department of Education, Mr. Marcus was President and General Counsel of the Louis D. Brandeis Center for Human Rights Under Law from 2011 to 2018. He has also been, prior to that -- was a Staff Director of the U.S. Commission on Civil Rights from 2004 to 2008 and had delegated the authority of the Assistant Secretary for Civil Rights at the U.S. Department of Education under President George W. Bush from 2003 to 2004. He’s a graduate of Williams College and the Berkeley School of Law.

Our final speaker, who’s not here yet but will be joining us midway through this sentence -- he’s apparently stuck in traffic -- is Professor Ted Shaw, who is -- I’m going to get this right now. It’s very complicated -- Julius L. Chambers Distinguished Professor of Law and Director of the Center for Civil Rights at the University of North Carolina Law School. Professor Shaw, prior to teaching at North Carolina, also taught at Columbia University School of Law and was “Of Counsel” to the firm Norton Rose Fulbright, formerly Fulbright & Jaworski. Prior to that, he was the fifth Director-Counsel and President of the NAACP Legal Defense and Education Fund and worked for the NAACP Legal Defense and Education Fund in various capacities for over 26 years.

I believe that is more than sufficient qualification. He has taught at other places including Columbia and Michigan. But when Professor Shaw gets here, you will see that he’s eminently qualified in this area. Without further ado, therefore, the way we’re going to do this is Professor Heriot will start. We’ll have the two agency representatives next, and Professor Shaw will close up. Professor Heriot?

Prof. Gail L. Heriot:  Okay. My job on this panel is to critique the administration’s performance on race and sex issues. But let me start by critiquing the country as a whole. I don’t know if you’ve noticed, though I bet you have, things have gotten more tense, more polarized in the last decade. Objectively speaking, at least from my standpoint for women and minorities, things look a lot better, but you’d never know it from what’s being said. On college campuses all across the country, we’re told it is unsafe for women and minorities – literally unsafe. Everyone must undergo training on white privilege, toxic masculinity, and the need to walk on eggshells least someone take offense. The theme is “Stop the Hate.”

I don’t know what you think, but, ladies and gentleman, I live and work on a college campus. It’s the happiest place on earth, and yet we’re told to stop the hate. It’s spread off campus, too. Color blindness is now routinely condemned as racist. Voicing the opinion that race and sex should not be considered in college admissions or in employment is considered violence. And people who disagree are often keeping their heads down. And I don’t just mean conservatives and libertarians there. Old-line liberals are starting to get nervous, too.

What I want to point out today is that this is largely the creation of our law and policies. Sure, culture influences law and policy. But law and policy also influence culture. And over the years, the legal system has made it rational and, in some cases, even lucrative for many Americans to emphasis their race, ethnicity, sex, and sexual orientation and especially the ways in which they feel wronged or harassed on account of those characteristics. In the last few years, it’s been boiling over a lot. It may ebb and flow, but this is not going to go away on its own. Just as Jim Crow had to be dismantled through judicial, legislative, and executive action, the legal supports of identity politics are going to have to be removed.

To accomplish that, administration lawyers are going to have to start standing up for the Constitution and the rule of law, cutting back on the overreach that has occurred in the past, getting rid of well-meaning but counterproductive policies, and enforcing the law as written. There are plenty of smart lawyers in the administration today, but that’s not enough. We need courageous ones. That is not to say that we need bulls in a china shop. We certainly don’t. We need lawyers both with a sense of history and a sense of the perverse incentives that have been created by some of the law and misinterpretations of the law in the last few decades.

Eliminating the supports for identity politics are not the only things that need to happen. Meanwhile, we need to be thinking about how to increase opportunity for those who are economically disadvantaged, regardless of their race, their ethnicity, their sex or sexual orientation. People fight like cats and dogs today over who gets admitted to elite universities because they perceive that to be the only reliable ticket to opportunity. We need to make sure there are lots of tickets to opportunity.

But note, that’s an and, not an or. We have to do both – dismantle the incentives to identity politics and provide that opportunity. The alternative is to continue down the road that we’re on, and I don’t think that’s a good idea. The great history C. Vann Woodward, who’s book The Strange Career of Jim Crow Martin Luther King called the Bible of the civil rights movement, explained that the Jim Crow system was not preordained by Southern culture. There were many strong voices for a more integrated society in the late 19^th Century in the South. But state law— laws that should have been held to be unconstitutional from the get go—required segregation.

After half a century of Jim Crow, it became ingrained in the culture and very difficult to dislodge. Identity politics is the same. There is a very large bureaucracy now that is there to administer the many, many policies that we see today. Dislodging the “everything is race and sex” mindset is going to be difficult. And note that Republicans have played a huge role in creating the world of identity politics. Nixon’s Philadelphia Plan requiring federal contractors to hire by race – Republican. Almost all the big Supreme Court cases on race preferential or sex preferential hiring or college admissions, disparate impact too, would have gone the other way without the concurrence of Republican appointees.

That’s Bakke, Johnson v. Transportation Agency, Grutter v. Bollinger, the second Fisher v. University of Texas, Texas Department of Housing and Community Affairs v. Inclusive Communities Project – all required votes by Republican appointees. Supreme Court decisions allowing for private rights of action and money damages under Titles VI and IX, same thing – Republicans. The evidence is strong that Congress contemplated no such thing, and these lawsuits, and the fear of such lawsuits, have become hugely important in fostering identity politics. Problematic legislation passed under Republican presidents; the most serious of those was the adoption of the Civil Rights Act of 1991, which, among other things, made money damages, as opposed to just backpay and injunctions, available under Title VII.

Along with Supreme Court decisions allowing for money damages for Title VI and Title IX cases, this ushered in an era of profitable litigation in the area of sexual harassment. Not only is free expression now in jeopardy because sufficient limitations were not made part of that statute, the over use of sexual harassment litigation has made it harder for women to get jobs in the first place in many areas of the economy. Is it possible that the politics of the time made much of this inevitable? Sure, that’s possible, but that’s not what’s important now.

What’s important now is to protect free expression and to do what we can to unify America. The Trump administration has done better than most administrations on this issue, but that’s a very low bar. Two things of note, I believe, have happened in the very early days of the administration. Both were primarily guided by Attorney General Sessions. First, he issued an order that the Executive Branch must cease and desist from using guidances, usually called “Dear Colleague” letters at the Department of Education, which I’m sure Ken knows about, as substitutes for making law through notice-and-comment procedures. Basically, what the federal bureaucracy had been doing, especially, but by no means exclusively, during the Obama administration was avoiding notice-and-comment procedures, avoiding judicial oversight by claiming falsely, I believe, that new regulations were just interpretations of already existing law. Sessions has attempted to put a stop to that. All honor to him for that.

Second, with the cooperation of Education Secretary Betsy DeVos, he withdrew the Title IX transgender guidance. I am confident that given 30 minutes of time, or maybe even 15 minutes, I can convince any fair-minded person that Sessions’ interpretation of the law was correct. I don’t want to bore you with it right now, but Title IX is broadly permissive in this area. Schools may separate by sex in bathrooms, locker rooms, and showers, by gender identity, by anatomy, or by astrological sign if that’s what they want to do.

Meanwhile, however, the EEOC has no quorum. It can’t meet. That’s not to say that nothing is happening there. That is a large agency with over 1,000 employees. So right now, any marching orders given during the Obama area are presumably still humming along. And this is not entirely the administrations’ fault. Senate confirmations of nominations were very slow. On the other hand, I’m not sure the administration has been taking the EEOC seriously enough. It entered into a deal that consisted of three nominees, and one of those was for the reappointment of Chai Feldblum, who was favored by Senate Democrats.

And let me drop a footnote here and say that I like Chai Feldblum. She has been kind enough to appear on Federalist Society programs. She is smart, and she is knowledgeable about the EEOC. But she leans very, very, very far to the left. But it’s a deal, and it included several people. So whom did the administration pair her with? A non-lawyer, and a very impressive non-lawyer, to be sure. A disabled veteran who ably argues for finding useful work for disabled vets and not putting them on the shelf. Someone like that really needs to be part of the administration, but that’s not the right slot for the EEOC. Chai Feldblum would have run circles around any non-lawyer, no matter how talented, in that position. The deal fell apart. And, as I said, now there’s no quorum.

Over at the Department of Labor, OFCCP, Office of Federal Contract Compliance Programs, they may well be doing some great things. We’ll hear from that in a minute, but I’d like to flag something here. And that is the director, Craig Leen, spoke at a meeting of large law firm representatives last month and told them that the glaring—and that’s a quote—“glaring underrepresentation of women, minorities, and individuals with disabilities at large law firms will be an area of focus for the OFCCP in the upcoming year.” Pay equity at large law firms as well.

So here’s my question for the OFCCP. And that is what if, in addition at least, the OFCCP made it a focus to reconcile it’s goals and timetables regulations issued pursuant to Executive Order 11246? Let’s see if we can’t reconcile those with the Constitution, with Title VI and with Title VII. And I think that will be a very good way for the OFCCP to spend the next year and a half.

Since Ken Marcus is already here to talk about the OCR’s record at the Department of Education, I will defer to him on that. I just want to say this. And that is that his office has acted on the two areas that I believe most needed action – that is due process for students accused of sexual assault, which is a difficult area. And I think the conservatives can disagree on how the best way to deal with that area would be. But they’re acting, and I think that’s great.  – And school discipline, where they have withdrawn the Obama administration school discipline guidance, which I consider to be hugely important for the future of the country.

But Ken, I am not going to let you rest on that. All I can say is that there are 100 -- at least 100 other things that need to be done by your office. And if you run out of them -- run out of ideas, just give me a call because I’ve got 100 of them. So in closing, I guess all I have to say is I’ve said enough, and Erik is looking like it’s time for me to sit down. So that must mean it is.

Timothy Taylor:  Good afternoon, everyone. It’s great to be here. There’s a very heavy gauntlet that was dropped on the ground here that I’ll need to pick up.

Prof. Gail L. Heriot:  In the most friendly of possible ways.

Timothy Taylor:  I know. And I do have some things that I think will make Professor Heriot happy. So just a little background on my position, so I’m the Deputy Assistant Secretary for Policy in the Assistant Secretary for Policy’s office. So speaking of alphabet soup, I am the DAS for ASP in the DOL. And what I primarily do is oversee and execute our notice-and-comment rulemakings and also other significant policy decisions that come through our office, very few of which come to mind because we do notice-and-comment rulemaking when we want to undertake large policy projects.

So on my docket, one of those things is OFCCP. So let me give you an overview of what OFCCP has been up to in this administration and what is to come. So for those who may not be familiar with the Office of Federal Contract Compliance Programs, the agency administers three authorities governing federal contractors. So again, it’s federal contractors and subcontractors. If you’re not in that universe, OFCCP does not apply to you.

One of them is Section 503 of the Rehabilitation Act, which prohibits discrimination employment on the basis of disability; 38 U.F.C.§ 4212, part of the Vietnam Era Veterans Readjustment Assistance Act of 1974, or VEVRAA—more alphabet soup—which requires affirmative action and certain types of outreach to veterans; and Executive Order 11246, which requires affirmative action and prohibits, expressly, textually, on the face of the order itself, employment discrimination on the basis of race, color, religion, sex, sexual orientation, gender identity, and national origin.

Now, the title of this conference is the “Regulatory Reform Report Card,” so we’re about halfway through. So this is our midterm report card. The final is still to come. We are still studying, but let me talk about two particular areas of reform going on in OFCCP.

So the first is a series of efforts to make OFCCP more transparent, more cooperative, and more committed to the rule of law. So let me give you a limited set of examples, just seven, of what OFCCP is trying to do to make itself more transparent and more rational and fair in its dealings with contractors. So here’s one. When OFCCP examines a contractor’s practices and believes discrimination may exist, it no longer can go straight to a notice of violation, which used to be the case in some regions of the country. That was a practice.

In every case, uniformly across the country now, OFCCP must first issue a predetermination notice, giving the contractor a chance to respond to those findings. And that response is, in fact, reviewed and reviewed carefully in the department.

A second one, when OFCCP requests supplemental information during a compliance review, it now has to state why it needs more information. That didn’t used to be the case.

Third, OFCCP rescinded guidance from 2013 stating that it would, quote, “remedy compensation discrimination regardless of whether individual workers believe they are being underpaid or whether OFCCP has any anecdotal evidence,” close quote.

Now, OFCCP is less likely to pursue such a case unless the physical evidence is exceptionally strong, and that is all part of a holistic careful review of the contractor’s practices across the board. And that in a directive called Directive 2018-05. It’s very detailed and transparent on how OFCCP goes about doing it’s directives and its compliance reviews.

Fourth, OFCCP is setting up an ombudsman service and strengthening its help desk service to provide contractors a way to voice concerns about field staff audits.

Fifth, OFCCP is setting up an opinion letter system. We’ve had this in Wage and Hour for a long time. We also have this in OSHA, where you can write in to OFCCP, give them a factual situation and ask, “Is this compliant or not?” And they’ll respond and give you advice.

Sixth, OFCCP now posts a list online 45 days in advance to contractors that are being selected for compliance evaluation.

And then seventh, OFCCP has undertaken an aged case reduction initiative. Some of the cases that OFCCP is still working on are more than five years old, and there’s a concerted effort to get those moving. So that’s probably great news for your clients. It may be less great news for your associates who want to bill and bill and bill in perpetuity. We’re trying to move those cases along much more quickly.

The other area of significant reform for OFCCP is in the rulemaking space. OFCCP works very closely and collaboratively with my office as we put these together. So again, noteworthy in itself, we are preceding by rulemaking when we’re pronouncing policy that effects the rights of private parties. We don’t do rulemaking by website or by memo or by guidance or by test-case litigation. We want to give the public notice of what we’re doing and follow proper APA procedure.

 So we have two OFCCP rules pending. The spring regulatory agenda is coming out fairly soon, I believe. Pay attention to see if there’s more coming. The first regards healthcare providers and illustrates our new approach. So if any of you are familiar with OFCCP or have clients or have represented folks in this space, you might be aware that about a decade ago OFCCP asserted, for the first time in litigation, that it had jurisdiction over Tricare healthcare providers. These are doctors, dentists, people in just your regular commercial office building, in your strip mall, any healthcare provider with 50 or more employees. There’s jurisdiction over them under the theory that they are government subcontractors because the Tricare program itself is a government program.

So OFCCP succeeded in a case on that before a Department administrative law judge in 2010. It almost immediately issued a non-notice and comment directive to try to cement that position. And that move lead to legislation, congressional hearings, and the rescission of that directive 16 months later. And a moratorium on enforcement, vis-à-vis Tricare healthcare providers, has been in play since 2014. And we’re now in the process of preparing a notice of proposed rulemaking that would include limiting and otherwise altering the obligations of Tricare and other healthcare providers. So that will be coming from us in due course.

Our second pending rulemaking regards the OFCCP exception for employers of faith. So similar to Title VII, Executive Order 11246 permits religious corporations, associations, educational institutions, and entities, and societies to take faith into account in their employment decisions. Okay. This is part of the original Civil Rights Act of 1964. It’s been long-standing law, and there’s plenty of case law about it. It’s been going on for decades. And we’ll be proposing an update to that regulation in light of recent Supreme Court decisions and executive orders that have addressed the broad freedoms and anti-discrimination protections that must be afforded to institutions and people of faith.

And those decisions most prominently include Masterpiece Cake Shop, Trinity Lutheran, Hobby Lobby, and Hosanna-Tabor. This rule has been presaged by a recent directive to OFCCP staff. This is Directive 2018-03. Again, you can look it up on our website. And this was a directive to OFCCP staff instructing them to give the due regard demanded by law for religious organizations and people of faith. So citing this recent case law and recent executive orders from this administration, OFCCP instructed staff -- and a lot of this is quoting case law or quoted from the executive orders.

But the following things: they cannot act in a manner that passes judgement upon or presupposes the illegitimacy of religious beliefs and practices. And they must proceed in a manner neutral toward and tolerant of religious beliefs. They cannot condition the availability of opportunities upon a recipients willingness to surrender their religiously impelled status. They must permit faith-based and community organizations to the fullest opportunity permitted by law to compete on a level playing field for federal contracts. And they must respect the right of religious people and institutions to practice their faith without fear of discrimination or retaliation by the federal government. So this rule also is still under development. But we expect it to address, among other things, which organizations are eligible for this exemption.

And again, we expect the proposed rule will clarify that the exemption protects more than churches in the strict sense and includes other organizations that include faith in their purpose and activities. So that’s an update on some of the things that OFCCP has been working to reform and improve, in conjunction with our policy office. And I look forward to questions and comments from all of you and from our fellow panelists. Thank you.

Hon. Kenneth L. Marcus:  Afternoon. Erik, I appreciate the introduction, although the title is slightly out of date. Any of you here during lunch? Is John Eastman here? John’s more interested in navigable waters? Seriously?

Mr. Erik S. Jaffe:  He left for a plane.

Hon. Kenneth L. Marcus:  I see. So when he was discussing the transgender policy during the Obama administration, he renamed the position I know hold, telling you that it was the Deputy Under-Assistant Whoever. So now, I need new business cards. And you’re all complicit because you’re still laughing about it. Thank you very much. Gail, in a better world, you would be doing my job, and I would get to gently critique you. But it is what it is. So let me tell you a little bit what we’re up to at OCR. Basically, what the President and Secretary told you we would do. We are deregulating and we are enforcing the law.

And when I say we are enforcing the civil rights laws, what I mean is that we are enforcing the laws that Congress passes, as written and in full, no more and no less. Now, that doesn’t mean that we’re just pushing the pendulum back and forth between overenforcement and underenforcement. It means that we are taking the statutes and the regulations and enforcing them, without overreaching through the “Dear Colleague” letters to which Gail referred, and simply trying to make sure that we get the facts and the law right. A few examples, Gail’s mentioned the Title IX regulation.

I can’t speak to its contents because it’s now in formal rulemaking. But Secretary DeVos has indicated that the rule by letter is over. And it is important that we are using the formal process because we are making sure that we use the APA. It is also important, as the Secretary has indicated, that we are returning to due process in Title IX. The time of the kangaroo courts on campus is over.

[Applause]

      Second, Gail briefly mentioned discipline, and I think that this is an important matter. It’s the result of the commission that the President established on safe schools to deal with, among other things, the racial discipline guidance from the prior administration, which we rescinded because of overreach, because it was not compliant with the APA, and because it went beyond the requirements of Title VI. But beyond that, I’ll tell you that we heard from people who discussed the extent to which having this sort of overregulation pushes institutions, educators and administrators to treat students not as individuals but as numbers because they’re trying to get their numbers right.

Well, civil rights compliance shouldn’t just be about getting numbers right. And it certainly shouldn’t mean treating students differently by race in order to get your racial statistics correct. It should mean treating every student as an individual. And that’s our approach. We continue to enforce Title VI when there is an appropriate allegation of racial discrimination. But we do it not by looking at the statistics and the discrepancies but asking “Was any child treated differently because of their race?” because that is what the statute prohibits.

I’ll give you another example which is affirmative action. I was certainly criticized in the media because the first public facing action I took upon becoming -- what was it? Deputy Under-Assistant Whoever was to rescind the affirmative action policies from the Obama administration at OCR. Not because we didn’t like the policy or liked a different policy better but because we were enforcing not our policy preferences but the law passed by Congress. And this doesn’t mean that there are no longer any policies dealing with Title VI compliance and the use of race in admissions. After all, we have Title VI. We have Supreme Court decisions interpreting Title VI as it applies to racial preferences.

And we know that, as a result of a handful of Supreme Court decisions over the years, it is lawful in some circumstances for higher education institutions to consider race in admissions for some purposes. But we know that there are limits. OCR enforces that. We enforce those limits under the statutes, as they are interpreted by the Supreme Court. So for instance, recently, we entered into an agreement with Texas Tech University Health Center -- Health Sciences Center, under which they agreed that they would no longer use race in admissions because our investigation indicated that they may have been using racial preferences without first not only seriously considering race-neutral alternatives, but also regularly monitoring their use of race to determine whether it’s still necessary or whether there are workable race-neutral alternatives that could meet their lawful objectives.

This isn’t a matter of simply using our policy preference. It is a matter of applying the law. It is a matter of taking seriously the statutes passed by Congress, as interpreted by the Supreme Court and the lower courts. There are lots of other ways every day in which we do this. Some critics would argue this means that we are less serious about civil rights. No. It means we are more serious about the law. It means that we are more serious about the law and the process by which we administer and enforce in a system in which we fall within our role.

And I believe what our record is showing over time is that by enforcing the statutes as written, by protecting students as individuals and not treating them as numbers, we are doing a more effective job of insuring that recipients of federal funds do as they are required to do, follow the law appropriately, and ensure that the rights of all students are protected. Thank you.

Mr. Erik S. Jaffe:  So, pardon. It would appear that Professor Shaw is still in travel dismay. So perhaps we’ll get to some conversations between. If I could maybe channel Professor Shaw for a couple seconds at least, I’ll start some of the questioning. And I guess I’ll start in some of the places that Ken left off, which is you said you don’t want to look at the numbers. You don’t want to look at the data and race data. But it seems to me that we use statistical data to reflect a reality that we may not be able to prove otherwise.

And to just say that I have no direct evidence of discrimination when, if you looked at -- school discipline was one of the examples. If 90 percent of the kids are African American and 10 percent of the kids are Caucasian and they seem to be doing an equal amount of the same behavior, why wouldn’t statistics be at least a red flag or some level of proof where you, perhaps, don’t have a smoking gun on personal discrimination?

Hon. Kenneth L. Marcus:  Thank you, Ted. I think that’s a good question, in part because it allows me to clarify I did not say -- or certainly did not mean that we do not use statistics. We don’t use them the way they have been done by some administrations in the past. We don’t use statistics as proof. We don’t use statistics as an indication that there is a violation. But they can be useful as targeting. So for instance, if there is a significant statistical disparity in some district and we are engaged either in a compliance review or some sort of an initiative, we’ll frequently use the statistics as a way of determining where should we look.

So for instance, if we have a review in a particular district that has many schools and we’re concerned about discipline issues, we will look to see w