Court Opinion

ID: 4195869
Source: CourtListenerOpinion
Date Created: 2017-08-15 15:01:30.557631+00
Date Added: 2024-06-11T13:25:16.904765
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 7, 2017                 Decided August 15, 2017

                         No. 15-1449

              SECURITYPOINT HOLDINGS, INC.,
                      PETITIONER

                              v.

       TRANSPORTATION SECURITY ADMINISTRATION,
                    RESPONDENT

          On Petition for Review of an Order of the
           Transportation Security Administration

     Bradley C. Graveline argued the cause and filed the briefs
for petitioner.

    John S. Koppel, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Benjamin C. Mizer, Principal Deputy Assistant Attorney
General at the time the brief was filed, and Mark B. Stern,
Attorney.

    Before: HENDERSON and SRINIVASAN, Circuit Judges, and
GINSBURG, Senior Circuit Judge.

    Opinion for the Court filed by Senior Circuit Judge
GINSBURG.
                                2
      GINSBURG, Senior Circuit Judge: SecurityPoint Holdings,
Inc., which contracts with airports to participate in an
advertising program established by the Transportation Security
Administration, again petitions for review of the agency’s
decision to revise its memorandum of understanding (MOU)
used with participating airports. On remand after this court’s
decision in SecurityPoint Holdings, Inc. v. TSA, 769 F.3d 1184
(D.C. Cir. 2014) (SPH I), the agency again declined
SecurityPoint’s request that it cease using the revised MOU.
SecurityPoint’s petition challenges the TSA’s decision as
arbitrary and capricious and as an act of retaliation that violates
its rights under the First Amendment to the Constitution of the
United States. For the reasons that follow, we deny the
petition.

I. Background

     SecurityPoint is the owner of a method patent covering, as
relevant here, the practice of placing onto a cart bins that have
passed through an x-ray screening machine at an airport
security checkpoint and pushing the cart back to the front of the
machine so the bins can be used by the next passengers to go
through the checkpoint. According to SecurityPoint, the TSA
uses its patented system to help screen passengers at over 400
airports throughout the United States. At about 40 of those
airports, SecurityPoint participates in the TSA’s “Bin
Advertising Program.” Under that program, an “advertising
broker” such as SecurityPoint

        assume[s] the costs of providing and
        maintaining certain checkpoint equipment –
        bins, wheeled carts to transport the bins, and
        tables – in exchange for the right to sell
        advertisements to be displayed inside the bins.
        Participating airports execute [an MOU] with
                                3
       TSA; they then contract with private companies
       to obtain the equipment subject to the MOU’s
       terms. Once TSA has adopted a new MOU
       template, it requires all participating airports
       entering into new contracts under the program
       to use that template…. The advertising
       revenues, though shared by the airport operators
       and private companies, relieve TSA of the
       expense of supplying the bin-related equipment.

SPH I, 769 F.3d at 1186.

     SecurityPoint concedes that, at airports where it is the
advertising broker, the TSA may practice the patent through
what the Company calls an “implied license” arising from its
agreement with the airport. The TSA, consequently, does not
have a license to practice the patent at airports that do not
participate in the Bin Advertising Program with SecurityPoint.

     In 2011 the Company sued the TSA in the Court of Federal
Claims, alleging patent infringement at approximately 400
U.S. airports with which SecurityPoint had not contracted to
participate in the Bin Advertising Program. The parties agreed
to bifurcate the liability and damages phases of the case and the
TSA conditionally stipulated to infringement at ten large
airports. The court then held the patent was valid, rejecting the
TSA’s argument that the invention was “obvious” and
therefore not patentable. SecurityPoint Holdings, Inc. v.
United States, 129 Fed. Cl. 25, 28 (2016). The TSA appealed
that decision to the Federal Circuit, but its appeal was
dismissed as premature. SecurityPoint Holdings, Inc. v. United
States, No. 17-1421 (Fed. Cir. Mar. 9, 2017) (because order did
not resolve TSA’s liability at all U.S. airports, it was not final
and reviewable). The Court of Federal Claims has not yet
                                4
determined whether the TSA infringed the patent at other
airports.

     This case arises from prospective changes to the MOU that
the TSA made in 2012. Two additions to the MOU are relevant
here. One “require[s] participating airports to indemnify TSA
from all liability for intellectual property claims related to the
checkpoint equipment.” SPH I, 769 F.3d at 1186. The other
provides that “on cancellation of an agreement between an
airport and a private company [i.e., an advertising broker such
as SecurityPoint], TSA would retain the right to use the
checkpoint equipment as well as a license to all intellectual
property necessary for such use.” Id. at 1186-87.

     Unhappy with these changes, SecurityPoint asked the TSA
to “cease and desist” from using the revised MOU, which it
claimed the agency revised in retaliation for SecurityPoint’s
having sued it for patent infringement. In its letter request,
SecurityPoint argued the indemnity provision was a “poison
pill” that would make it “impossible” for any additional
airports to enter the Bin Advertising Program. In this regard,
the Company pointed out that the fewer the airports contracting
with SecurityPoint to participate in the Bin Advertising
Program, the less the TSA would benefit from the implied
license to use SecurityPoint’s patented system and from
SecurityPoint’s provision of free checkpoint equipment. The
letter also listed four airports – St. Louis, San Jose, San
Antonio, and Boston – where SecurityPoint claimed the new
MOU had prevented deployment of the agency’s Bin
Advertising Program.

    The TSA rejected SecurityPoint’s demands, stating the

       revisions to the MOU are based on prudent
       business practices to protect [the agency] from
                               5
       legal liability that could arise from the use of
       checkpoint furnishings provided by airport
       operators, and to ensure that agency activities
       are not disrupted by the termination of business
       relationships between the airport operator and
       advertising broker.

The TSA added that 14 airports had entered into MOUs since
the filing of SecurityPoint’s patent case against the agency.

     SecurityPoint petitioned this court for review of the TSA’s
response, arguing the agency’s revision of the MOU was
(1) arbitrary and capricious, in violation of the Administrative
Procedure Act, and (2) done in retaliation for the Company
having sued it in Claims Court, in violation of SecurityPoint’s
right of petition guaranteed by the First Amendment. After the
court determined the TSA’s letter was a reviewable “order”
under 49 U.S.C. § 46110(a), it held the TSA’s letter decision
violated the APA for two reasons. SPH I, 769 F.3d at 1187.
First, it did not provide “a brief statement of the grounds for
denial,” as required by 5 U.S.C. § 555(e). Id. at 1188. Second,
it was arbitrary and capricious because the agency had not
“‘consider[ed] an important aspect of the problem’ before it.”
Id. at 1189 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).
Specifically, the TSA had not addressed SecurityPoint’s
argument that, if an airport did not agree to the new provisions,
then using the new MOU would impose opportunity costs upon
the TSA, i.e., loss of the implied license and of free checkpoint
equipment, without creating any benefit in reducing its legal
liability beyond what the implied license already provided
under the Bin Advertising Program at those airports that did
agree to the MOU. Id. at 1188. The court also concluded the
number of airports that had entered into an MOU after
SecurityPoint filed its patent infringement suit was not
                               6
“responsive” to the question whether airports found it
impossible to agree to the new MOU; the relevant datum was
the number of airports that had entered into the new MOU. Id.
The court therefore vacated the letter decision and remanded
the matter to the agency without reaching SecurityPoint’s
constitutional claim. Id. at 1189.

     SecurityPoint then again asked the TSA to refrain from
using the revised MOU. The Company reiterated its concern
that airports would not agree to the new provisions and, as
evidence of retaliation, provided email correspondence from a
TSA employee managing the Bin Advertising Program.
SecurityPoint proposed that, in place of the indemnity, the TSA
require each airport to obtain from its advertising broker (such
as SecurityPoint) a “covenant not to sue” the TSA for violating
the broker’s intellectual property.

     The TSA again denied SecurityPoint’s request, but it did
revise the MOU in an effort, it says, to address the Company’s
concerns. The newly revised MOU keeps the original
indemnity requirement, but also provides an alternative option
under which an airport need not itself indemnify the
Government but must require any advertising broker (such as
SecurityPoint) with which it contracts to indemnify the
Government.

     The TSA’s letter explained that its “revision of the MOU
template was part of a comprehensive review of TSA
agreements to ensure the inclusion of appropriate intellectual
property provisions by a newly hired TSA Intellectual Property
Attorney.” The new indemnity provision would address those
concerns in any newly signed MOU but would not disturb
existing MOUs. The TSA denied that the provision prevented
airports from signing the new MOU, citing four airports that
had signed it: Boston Logan International Airport, Durango La-
                                7
Plata County Airport, Greater Rochester International Airport
(NY), and Rochester International Airport (MN). Furthermore,
the agency concluded that any decreased participation in the
Bin Advertising Program would not significantly raise the
agency’s operating costs, largely because fewer than 50 of the
450 U.S. airports had participated in the program. The agency
also explained the cost of replacing bins and carts as they wear
out would be much less than the potential cost of patent liability
arising from use of the equipment. Finally, the TSA said the
new option allowing a broker to indemnify the TSA addressed
SecurityPoint’s concern that some airports were precluded by
state law from doing so.

II. Analysis

     SecurityPoint again challenges the TSA’s decision as both
arbitrary and capricious and a violation of the First
Amendment.

A. Arbitrary and Capricious Review

    SecurityPoint argues the TSA’s decision is arbitrary and
capricious because the agency did not engage in reasoned
decision making.

       The scope of review under the “arbitrary and
       capricious” standard is narrow and a court is not
       to substitute its judgment for that of the agency
       … [but] the agency must examine the relevant
       data and articulate a satisfactory explanation for
       its action including a “rational connection
       between the facts found and the choice made.”

State Farm, 463 U.S. at 43 (1983) (quoting Burlington Truck
Lines v. United States, 371 U.S. 156, 168 (1962)). As we said
                               8
in our previous decision, 769 F.3d at 1187, the court must
vacate a decision that “entirely failed to consider an important
aspect of the problem, [or] offered an explanation for its
decision that runs counter to the evidence before the agency,”
State Farm, 463 U.S. at 43.

     In the TSA’s 2015 letter on review here, the agency
reiterated the argument it made in 2013 that it adopted the
indemnity provision “to protect itself from legal liability that
could arise from the use of checkpoint furnishings provided by
airport operators.” In SPH I we concluded that this was
insufficient to explain why the agency was willing to accept the
costs it would incur, without apparent benefit, by using the new
MOU. 769 F.3d at 1188. In particular, we concluded the
agency did not respond to SecurityPoint’s contention that
airports would not agree to the new MOU, thereby shifting the
costs of providing checkpoint equipment onto the TSA for
airports that would have participated in the Bin Advertising
Program but for the indemnity provision in the MOU. Id.
Moreover, we noted, the agency entirely failed to consider
SecurityPoint’s argument that, because participation in the
program gives airports an “implied license” to use its patent,
the revision of the MOU provides no additional benefit to the
agency. Id. SecurityPoint’s 2015 letter to the TSA and its brief
in this appeal once again raise the arguments it made in SPH I.
In our view, however, the agency’s response on remand shows
that the new provisions of the MOU were the product of
reasoned decision making.

     SecurityPoint’s arguments depend upon its assertion that
most airports will not agree to the new MOU. Insofar as
airports do accept the new MOU, however, the TSA will not
incur the costs SecurityPoint says it will incur. On remand, the
TSA noted four airports have agreed to the new MOU. This
group includes Boston Logan International Airport, the largest
                                9
of the four airports SecurityPoint argued in its 2012 letter to the
TSA could not agree to the new MOU. SecurityPoint argues
the other three airports are too small for their participation to
undercut SecurityPoint’s concern. Nonetheless, the agency’s
evidence shows it is not “impossible” for airports to agree to
the new provisions. Although we previously rejected as “de
minimis” the TSA’s observation that Durango La-Plata County
Airport had signed the new MOU, SPH I, 769 F.3d at 1189,
one large and three small airports are not “de minimis.”

     Nonetheless, SecurityPoint now points to five “nearly-
consummated deals that had been negotiated for years” but
which “fell apart as a direct result of the indemnification
provision” as evidence, unaddressed by the TSA, “that many
airport[s] … are prohibited by law from” accepting the new
MOU. In response, the TSA explains the record shows only
that one of the five (Atlanta Hartsfield) is legally prohibited
from entering into indemnity agreements. Although, as
SecurityPoint correctly notes, “the overwhelming majority of
U.S. airports have not executed the [revised] MOU,” the great
majority of U.S. airports had not signed the previous MOU,
making implausible the Company’s suggestion that the new
provisions are precluding widespread participation.

     Faced with proof that airports can agree and that some
indeed have agreed to the new MOU, SecurityPoint contends
not “even a single airport has actually” contracted for
SecurityPoint’s services under the Bin Advertising Program
since the introduction of the new MOU. That no new airports
have contracted with SecurityPoint does not imply it is
impossible for airports to accept the new MOU. The record
simply does not show why none of the four airports that have
signed the new MOU has contracted for SecurityPoint’s
services.
                               10
     SecurityPoint next argues that its reduced business will
ultimately harm the agency, which brings us to the rationality
of the agency’s balancing of the expected costs and benefits of
using the new MOU. Assuming there are some airports that in
time would have agreed to the old MOU but have not agreed to
the new MOU, the TSA has sufficiently explained why it
accepted this risk: Its potential liability in patent infringement
suits – recall that SecurityPoint is suing it for $380 million –
exceeds the cost of “bins, carts, and tables [which] are fairly
inexpensive to purchase.” SecurityPoint in response cites the
high cost of equipment used in a pilot of the program at 14
airports and faults the agency for failing to consider “the total
equipment cost savings that would have resulted” from the
Company’s participation in the program.                 The TSA
persuasively responds that even if an airport chose not to enroll
in the program because of the new MOU, the agency would
bear only the long term replacement costs of the equipment
already in use there.

     Beyond equipment costs, SecurityPoint argues the agency
will forgo certain “efficiency gains” if it does not benefit from
an implied license to practice the Company’s patent on the use
of bins and carts, such as fewer workplace injuries than occur
when employees carry the bins. As the agency explained in its
letter, however, it will not forgo any of these savings because
it will continue to use the bins and carts at all airports where
they are now in use, regardless whether an airport participates
in the Bin Advertising Program. Insofar as it may incur
additional liability for patent infringement, the TSA is taking
its chances in the patent litigation. In the meantime, the new
indemnity provision better protects the agency against future
legal liability than would the “implied license” from
SecurityPoint because, as the agency notes, that license
“provides no protection against potential liability with respect
to other patents, or even with respect to [SecurityPoint’s]
                                 11
Patent at airports that participate in the Program but use the
services of another advertising broker.”

     SecurityPoint claims there is no need for the broad
intellectual property provision the TSA now seeks because the
agency “has failed to cite any other intellectual property that it
could arguably infringe.” The TSA in its 2015 letter pointed
out that the indemnity provision protects it from all possible
intellectual property liability, not just from infringement of
currently known patents, thereby responding to SecurityPoint’s
assertion that the agency “ignored the existence of an implied
license.” Indeed, the implied license, unlike an indemnity,
would be inapplicable if an airport used any advertising broker
other than SecurityPoint, the patent holder.

     The TSA’s position is not irrational merely because the
agency has not identified a specific patent it is or might be
infringing. Although SecurityPoint is correct that the risk of
there being unknown patents existed when the original MOU
was drafted, it was not irrational for the agency to address that
risk later, when it first got the advice of counsel.

     SecurityPoint attempts to undermine the TSA’s
justification – its desire to avoid unwittingly infringing others’
patents – by arguing the TSA buys equipment directly for
nonparticipating airports without first determining “whether
the equipment it purchases directly infringes any patents.”
Even if that is true, the agency, as it explained, is “ill-positioned
to ensure that no equipment or process provided” to it under the
Bin Advertising Program “infringes on a patent.” With regard
to SecurityPoint’s method patent in particular, the revised
indemnity provision places the burden of ensuring
noninfringement upon the airport or the advertising broker, the
parties best positioned to avoid infringements, and therefore is
                                 12
more efficient than the implied license or SecurityPoint’s
proposed “covenant not to sue.”

      SecurityPoint next turns from the reasonableness of the
new MOU in the abstract to its practical implications in light
of SecurityPoint’s infringement suit against the TSA. Because
the TSA stipulated to infringement in that suit (albeit for only
ten airports), SecurityPoint argues no airport using another
advertising broker, which could not grant the implied license
to its patent, would agree to indemnify the TSA. Neither, it
says, would another advertising broker, operating under the
alternative indemnity provision, do so. As the TSA observes,
however, the Company “points to no evidence in the
administrative record to support a finding that advertising
brokers themselves would be unable to agree to the Indemnity
Provision.” In any event, SecurityPoint’s concern in this
regard is puzzling: If the new provision discourages the use of
all other advertising brokers, then the provision benefits
SecurityPoint. If another advertising broker nonetheless joins
the program, then SecurityPoint will still receive the benefit of
its intellectual property: That other broker or the airport must
either get a license from SecurityPoint – on SecurityPoint’s
terms – or indemnify the TSA against liability for infringement
of the patent. 1

    We therefore hold the agency’s decision was not arbitrary
and capricious but rather demonstrated a “rational connection
between the facts found and the choice made.” State Farm,
463 U.S. at 43 (internal quotation marks omitted). Unlike the
TSA’s 2013 letter, its 2015 letter also provides the “brief

1
 SecurityPoint has in fact previously sued another advertising broker
for infringement. See SecurityPoint Media, LLC v. The Adason Grp.,
LLC, No. 8:07-cv-444-T-24TGW, 2007 WL 2298024 (M.D. Fla.
Aug. 7, 2007). Per the parties here, that case was settled.
                               13
statement of the grounds for denial” required by 5 U.S.C.
§ 555(e); it fully explains “why [the agency] chose to do what
it did.” Tourus Records, Inc. v. DEA, 259 F.3d 731, 737 (D.C.
Cir. 2001) (internal quotation marks omitted).

B. Right to Petition

     Lastly, SecurityPoint argues the TSA unlawfully retaliated
against it for bringing its infringement suit against the agency,
in violation of the First Amendment. See California Motor
Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972)
(“The right of access to the courts is indeed . . . one aspect of
the right of petition” protected by the First Amendment).
Accordingly, SecurityPoint asks us to vacate the agency’s
decision because it is, in the words of the APA, “contrary to
constitutional right, power, privilege, or immunity.” 5 U.S.C.
§ 706(2)(B); see Trudeau v. FTC, 456 F.3d 178, 188-90 (D.C.
Cir. 2006).

     In order to determine whether the TSA unlawfully
retaliated against SecurityPoint, we must decide under what
standard to assess the agency’s actions. SecurityPoint urges us
to apply the test for establishing a “prima facie case” of
government retaliation against a regulated entity for its
protected speech, as articulated by the Seventh Circuit in
Woodruff v. Mason, 542 F.3d 545, 551 (2008). Under that test,
SecurityPoint must show:

       (1) it engaged in activity protected by the First
       Amendment, (2) it suffered a deprivation that
       would likely deter First Amendment activity in
       the future, and (3) the First Amendment activity
       was “at least a motivating factor” in the
       [Government’s] decision to take the retaliatory
       action.
                              14
Id.; see also Doe v. District of Columbia, 796 F.3d 96, 106
(D.C. Cir. 2015) (applying a similar test to alleged retaliation
by the District when its child welfare agency temporarily
removed children after parents engaged in protected conduct).
The TSA, for its part, argues the four-factor test developed in
Pickering and its sequellae, which test applies to retaliation
claims by public employees or contractors, is the correct test
because SecurityPoint is in effect a government contractor. See
Pickering v. Bd. of Educ., 391 U.S. 563, 568-75 (1968); Bd. of
Cty. Comm’rs, Wabaunsee Cty., Kan. v. Umbehr, 518 U.S. 668,
673 (1996) (applying Pickering to government contractors).

     We need not resolve the choice of tests because the TSA
prevails even under the test preferred by SecurityPoint. Nor
need we engage with the first and second Woodruff
requirements because it is apparent, as the TSA urges, that the
facts before us do not establish the necessary third element of
motivation.

     In order to show the TSA modified its template for MOUs
in retaliation for SecurityPoint’s having sued the agency, the
Company relies upon emails from Arthur Drenth, the TSA
official who SecurityPoint describes as “in charge of
disseminating and explaining the [n]ew MOU … nationwide.”
SecurityPoint makes much of the email message Mr. Drenth
sent to two TSA staff members at Boston Logan transmitting
the new MOU and telling them to inform the airport about the
problem of liability for patent infringement. That email,
however, shows nothing more than the TSA’s effort to inform
the airport that it may incur liability for inducing the TSA to
infringe SecurityPoint’s patent, the very concern the TSA says
motivated the new provisions.

     SecurityPoint also points out that Mr. Drenth, responding
to a TSA employee who was skeptical Boston Logan would
                               15
sign the new MOU, wrote: “My understanding is the entire
thing could be resolved if [SecurityPoint] granted a nationwide
license for use of the patent.” Finally, SecurityPoint points to
an email from Mr. Drenth to a TSA staff member at Boston
Logan, in which he stated:

       These guys from [SecurityPoint] are trying to
       push the envelope and may have gotten a little
       ahead of themselves. In my personal opinion it
       is all a rather silly exercise but we have to draw
       the line somewhere no matter how much we like
       the program we are not going to be pushed
       around by them on this stuff.

These statements may seem at least to hint at retribution but, as
SecurityPoint acknowledges, when communicating with the
Company’s CEO, Mr. Drenth also said: “I was told specifically
that these edits are related to material that really ought to have
been included in the MOU from the very start of the program.”
Read in light of the latter statement, Mr. Drenth’s “personal
opinion” or “understanding” does not imply the TSA modified
the MOU in order to retaliate against SecurityPoint but rather
to address newly appreciated risks of liability for infringing
intellectual property rights.

     Furthermore, the TSA says Mr. Drenth “had no
involvement in formulating or drafting the revisions” to the
MOU, which were instead formulated by the agency’s new
intellectual property counsel “as part of a comprehensive
review of legal documents to ensure the inclusion of
appropriate intellectual property provisions.” Indeed, Mr.
Drenth’s allegedly problematic emails were sent after the
adoption of the new MOU.
                               16
    We read Mr. Drenth’s emails bearing in mind that the
TSA’s revision of its MOU was not arbitrary and capricious.
The emails, which range from innocuous to, at worst,
ambiguous, do not show the TSA’s decision was an attempt to
punish SecurityPoint for having sued the agency.

III. Conclusion

     The TSA’s decision was neither arbitrary and capricious
nor a violation of SecurityPoint’s right to petition, protected by
the First Amendment. Therefore, SecurityPoint’s petition for
review is

                                               Denied.