In the

United States Court of Appeals

For the Seventh Circuit

No. 01-2999

Curtis P. Jahn and Capitol Warehousing

Corporation,

Plaintiffs-Appellants,

v.

1-800-FLOWERS.com, Inc., Fresh Intellectual 

Properties, Inc., and 800-FLOWERS, Inc.,

Defendants-Appellees.

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 00-C-446-C--Barbara B. Crabb, Chief Judge.

Argued January 17, 2002--Decided March 29, 2002

 Before Flaum, Chief Judge, and Bauer and

Easterbrook, Circuit Judges.

 Easterbrook, Circuit Judge. When Madison

Truck Brokers subscribed to an incomingtoll-free number in 1976, at&t assigned it

800 356-9377 at random. Madison Truck

Brokers and its successor Capitol

Warehousing Corporation used the number

in their transportation business until

1982, when they expanded into floral

delivery. William Alexander thought that

800-FLOWERS would be the ideal toll-free

number for a florist--and someone typing

that sequence on a phone’s keypad will

reach 800 356-9377.

 Alexander approached Curtis Jahn, the

owner of Capitol Warehousing, with a

proposal to test-market floral sales via

the 800-FLOWERS number. Jahn and

investors recruited by Alexander

organized 800-Flowers, Inc., a Wisconsin

corporation, to explore the idea and, if

events justified, to run a national

flowers-by-phone business. Advertisements

in New Orleans produced enough calls to

encourage further exploration. (The

record does not reveal how the venture

separated the flower-related calls from

truck-related calls, for every call to

that number reached Capitol Warehousing’s

office.) After an infusion of additional
capital and resolution of litigation

brought by another corporation that

claimed trademark rights to "800-FLOWERS"

(though the rival lacked the phone number

to go with the idea), the business was

launched nationwide. At Jahn’s request,

at&t transferred the phone number to 800-

Flowers (Wisconsin), which became the

subscriber and paid all bills. In a move

that he may now regret, Jahn took not

only an equity stake in the new

corporation but also a royalty interest

in revenues derived from phone sales.

Corporate reorganizations transferred the

firm’s assets to 800-Flowers (Texas) and

later 800-Flowers (New York), which is

among the defendants. Jahn gave up his

equity interest but retained his royalty

(as restated by an agreement with 800-

Flowers (Texas) in 1986, an agreement

that contains a Texas choice-of-law

clause).

 In this suit under the diversity

jurisdiction, Jahn accuses 800-Flowers

(New York) and its parent corporation 1-

800-Flowers.com, Inc.--a corporate name

mixing Internet with phone symbols,

packet-switched with circuitswitchednetworks--of failing to pay his

full royalty under the 1986 agreement.

Defendants responded that payment is

illegal under a regulation forbidding the

sale of phone numbers-- and for good

measure they added the inconsistent

defense that they have paid Jahn every

penny that the agreement requires. The

district court concluded that the royalty

interest reflects at least in part the

value of the 800-FLOWERS number and

constitutes a sale proscribed by the 1997

regulation, 47 C.F.R. sec.52.107(a), even

though a stock interest of equivalent

economic value would be lawful today.

This aspect of the district court’s

ruling has not been contested on appeal.

Next the district court concluded that it

is unnecessary to decide whether the 1997

regulation may be applied retroactively.

The ongoing payment is itself illegal,

the judge held, and defendants are

excused from further payment because

Texas law treats illegality as a form of

impossibility that constitutes a defense

to non-performance. See Centex Corp. v.

Dalton, 840 S.W.2d 952 (Tex. 1992).

 Given the district court’s uncontested

finding that Jahn’s royalty interest

represents the sale of a telephone
number, we may assume that the 1982 and

1986 transactions would violate federal

law if implemented today. The governing

regulation provides:

(a) As used in this section, hoarding is

the acquisition by a toll free subscriber

from a Responsible Organization of more

toll free numbers than the toll free

subscriber intends to use for the

provision of toll free service. The

definition of hoarding also includes

number brokering, which is the selling of

a toll free number by a private entity

for a fee.

(1) Toll free subscribers shall not hoard

toll free numbers.

(2) No person or entity shall acquire a

toll free number for the purpose of

selling the toll free number to another

entity or to a person for a fee.

(3) Routing multiple toll free numbers to

a single toll free subscriber will create

a rebuttable presumption that the toll

free subscriber is hoarding or brokering

toll free numbers.

(b) The following provision shall be

included in the Service Management System

tariff and in the local exchange

carriers’ toll free database access

tariffs:

[T]he Federal Communications Commission

("fcc") has concluded that hoarding,

defined as the acquisition of more toll

free numbers than one intends to use for

the provision of toll free service, as

well as the sale of a toll free number by

a private entity for a fee, is contrary

to the public interest in the

conservation of the scarce toll free

number resource and contrary to the fcc’s

responsibility to promote the orderly use

and allocation of toll free numbers.

47 C.F.R. sec.52.107. Number "hoarding"

is proscribed, and subsection (a) defines

"hoarding" to include "number brokering",

which includes "the selling of a toll

free number by a private entity for a

fee." As an independent matter it would

be difficult to conceive of Capitol

Warehousing’s corporate mitosis, and the

allocation of its toll-free number to one

of the offspring, as an episode of either

"number hoarding" or "number brokering",
whether or not the original corporation’s

owner was paid for his assistance in the

transaction. Capitol Warehousing did not

tie up "more toll free numbers than the

toll free subscriber intends to use for

the provision of toll free service" or

"acquire a toll free number for the

purpose of selling the toll free number"

(emphasis added).

 The Federal Communications Commission

has not made it clear whether every

transfer for value is a form of "number

brokering" even when the transfer does

not entail any of the events listed in

subsections (a)(1) through (a)(3); the

regulation does not contain the word

"all" and thus its scope is open to

question. To say "A includes B" is not

necessarily to say "all B is A." Many

firms transfer their phone numbers to

their successors (or to ventures spun off

into subsidiaries) in order to preserve

the good will and custom of the business.

The regulation shows that phone numbers

cannot be treated like Internet domain

addresses, which regularly are sold

outright for a fee, but it does not show

that all transfers to new ventures are

forbidden; it would not make much sense

to have numbers with economic value (such

as 800-FLOWERS) perpetually assigned to

businesses (such as transportation

brokers) that cannot realize this value.

Moving assets to higher and better uses

is an important goal of any economic

system. Drawing a line between these

normal and lawful transactions and

forbidden "hoarding" or "number

brokering" would be a job for the fcc, not

for the courts, at least as an initial

matter. But we need not send this issue

to the Commission under the doctrine of

primary jurisdiction, because it is

possible to resolve this case on the

assumption that all sales are "number

brokering".

 The district court bypassed the question

whether sec.52.107 proscribes sales that

occurred before its adoption. For reasons

explained presently, the answer matters--

and it is a simple "no." Federal

regulations do not, indeed cannot, apply

retroactively unless Congress has

authorized that step explicitly. See

Bowen v. Georgetown University Hospital,

488 U.S. 204 (1988). No statute

authorizes the fcc to adopt regulations

with retroactive effect, and sec.52.107
does not purport to affect transactions

entered into before 1997. Defendants say

that sec.52.107 just restates prior law,

but this position is untenable. Relevant

prior law, from the phone companies’

tariffs, was that subscribers do not own

telephone numbers assigned to them. This

meant that the carriers could change

numbers without liability to the

subscribers. It did not mean that

subscribers were forbidden to transact

about whatever interests they enjoyed in

the use of numbers currently assigned.

Consider Internet domain names. These are

rented by the year from administrators

(one per top domain), yet there is a

thriving market in these addresses. This

is true of other leaseholds: a lessee

does not own the premises but may

transfer his possessory interest for

whatever price the traffic will bear,

unless the lease forbids assignments and

subleases. A football team does not own

its players but may trade their

contracts. And, as University of Georgia

v. Carroll, 338 U.S. 586 (1950), holds,

broadcast licenses may be sold despite

the mantra that the airwaves are a public

resource. If broadcast licenses may be

sold even though they are not "property"

of the licensees, then telephone numbers

could be sold until 1997 even though

they, too, are not the subscribers’

property. Jahn could not have compelled

at&t to transfer the number to 800-Flowers

(Wisconsin), but it proved willing to do

so, and no rule of federal law in force

at the time prevented the firm from

compensating Jahn for his assistance in

securing this transfer.

 Thus we arrive at the question whether

deferred payment for a lawful (because

pre-1997) sale violates sec.52.107--for,

if it does, then Texas law gives 800-

Flowers (New York) a defense. Yet nothing

in sec.52.107 speaks to payment; the

regulation concerns future sales, not

compensation for older and thus lawful

sales. That’s what it means to say that

the regulation is not retroactive. All

"retroactivity" could mean for these

parties would be a prohibition against

future payments. (Surely defendants do

not think that the regulation compels at&t

to restore 800 356-9377 to Capitol

Warehousing, the original subscriber!)

Changing today’s financial consequences

of an earlier transaction is the paradigm

of retroactivity. See Landgraf v. USI
Film Products, 511 U.S. 244 (1994). When

Congress compelled mine operators to pay

black lung benefits to miners who retired

before the law’s enactment, the Supreme

Court treated this as classically

retroactive legislation. See Usery v.

Turner Elkhorn Mining Co., 428 U.S. 1

(1976). It did not say, as defendants

here do, that a law is prospective when

it rearranges wealth for the future; a

wealth transfer that depends on events

preceding the rule’s adoption has a

retroactive effect. Defendants insist

that sec.52.107 transfers wealth from

Jahn to themselves, on account of events

that occurred in 1982 and 1986. That

would be an instance of retroactivity;

and as sec.52.107 is not retroactive, it

also does not affect the royalty. (Nor

does any other rule of federal law do so.

Defendants err in supposing that there is

a rule against perpetual royalties. See

Aronson v. Quick Point Pencil Co., 440

U.S. 257 (1979).)

 A royalty is a risk-sharing agreement.

Instead of paying Jahn up front the

estimated value of the phone number, the

investors who established 800-Flowers

(Wisconsin) and its successors divided

the risk with Jahn, so that he would be

paid only to the extent the new business

succeeded. Suppose they had done things

otherwise--paying Jahn a lump sum and

dividing the risk among investors who

financed that payment. Any attempt to

force Jahn to disgorge what he received

in 1982 or 1986 would be retroactive. Yet

this is no different, as an economic

matter, from refusing to make ongoing

payments. Suppose that Jahn had

manufactured his own lump-sum payment by

borrowing against the value of the

royalty. A bank could have lent Jahn $1

million (say) in 1986, taking the royalty

agreement as security for repayment. The

effect on such a lender of losing its

security because of a 1997 regulation

would be visibly retroactive. So too if

800-Flowers (Wisconsin) had paid Jahn $1

million cash, borrowing the money from

bondholders who were promised repayment

out of the phone number’s future value.

Defendants could not have used the 1997

regulation as a reason to stop repaying

their bondholders. Or consider yet

another example: suppose that Texas were

to vote to go dry on January 1, 2003, and

ban all imports of liquor, as sec.2 of

the twenty-first amendment permits.

During December 2002 a vintner delivers
1,000 cases of its best cabernet

sauvignon to a merchant in Texas, on

credit. January 1 arrives; no new sales

could be made; would the buyer be free to

ignore the debt for the wine already

received? Surely Texas would not permit

such a step, which would differ but

little from theft. If the buyer of wine

must pay even after new sales have been

forbidden, then the buyer of a phone

number must pay too.

 Defendants have other arguments that the

district court did not consider. We leave

these to be sorted out on remand.

Reversed and Remanded

 Flaum, Chief Judge, concurring. I join

the panel’s opinion and only comment

separately to underscore what I

understand to be the holding of this

case. The circumstances presented in this

appeal are unique (a toll-free telephone

number was effectively sold, in exchange

for the payment of royalties, prior to

the time when such transfers became

illegal). I do not consider our decision

today to authorize the sale, brokering or

hoarding of toll-free numbers, as the FCC

has clearly spoken on this issue.