Written by: Amie Alexander, JD/MPS Candidate, William H. Bowen School of Law
The United States District Court for the District of Columbia issued an opinion in a lawsuit on the Pork Checkoff program on February 2, 2018. The Court agreed with the United States Department of Agriculture (USDA) that the plaintiffs’ challenge to the approval of the original trademark purchase agreement was made too late, and these claims concerning the approval of annual payments made in the past are moot. However, the Court also agreed with plaintiffs, who claimed the Secretary’s 2016 decision to continue to approve annual payments based on the original purchase agreement undertaken was “arbitrary and capricious and unmoored from the facts and circumstances before the agency.”
Background of the Case
Plaintiffs in this case were Harvey Dillenburg, an individual pork producer who has paid assessments to the pork checkoff program, the Humane Society of the United States (HSUS), and the Iowa Citizens for Community Involvement.
Plaintiffs challenged the Secretary of Agriculture’s decision to approve the National Pork Board (Board)’s purchase of trademarks associated with “The Other White Meat” campaign used by the Pork Checkoff program. The trademarks at issue in this case were developed in the 1980s and registered as the NPPC’s intellectual property. However, in 2001, the USDA and NPPC settled a lawsuit that sought to terminate the pork checkoff program – under the settlement conditions, the parties agreed that the Board would operate independently from the NPPC and that any contracts between the two would be at fair market value. In the years following, the Board and NPPC negotiated the licensing agreement for the trademarks until its purchase in 2006. The Board entered into a purchase agreement for the trademarks with the Secretary’s approval in 2006 for approximately $34.6 million, financed for twenty years at an interest rate of 6.75%.
Here, plaintiffs challenged the Secretary’s approval of both the initial purchase and approval of the annual payments since the purchase agreement; plaintiffs claim these payments constitute the use of pork checkoff dollars to influence legislation, an action prohibited by the Pork Promotion, Research, and Consumer Information Act (The Pork Act) (See 7 U.S.C. § 4801 et seq.).
The Court’s Considerations
The Pork Act created the Board, responsible for developing “proposals for promotion, research, and consumer information plans and projects” for the Secretary’s approval and periodically reviewing plans or projects for effectiveness. The Pork Act and other federal laws prohibit the Board from using assessment funds to influence legislation.
Plaintiffs first challenged the Secretary’s 2006 approval of the purchase agreement. The Court determined this challenge was untimely and without jurisdiction under the Administrative Procedure Act (APA) for review. Plaintiffs next challenged the Board’s past payments, which the Court determined to be moot. As for the plaintiffs’ challenge to the payments after the 2016 approval, the Court determined that the payments are lawful, but the 2016 decision was not supported by evidence on the record.
In 2016, the agency initiated a review of the 2006 purchase agreement, obtaining independent valuation of the trademarks before deciding whether to approve further payments. Experts consulted to assist in this valuation differed on approaches, which resulted in dramatically different values of the trademark – ranging from $2.5 million to $132 million. Though three of the four trademarks were no longer in use, the agency determined the value of the trademarks to be much greater than the remaining payments and approved the payment of an additional $30 million to NPPC over the next 10 years.
The Court determined this decision was not based on the record and was arbitrary and capricious under the APA. First, although the agency undertook the 2016 review to ascertain the current value of the trademarks, the valuation it used to justify future payments was based off the cost of replacing the campaign, already no longer in use. The Court also stressed that the agency did not utilize the “cost approach” it claimed to undertake, and therefore failed to establish a “logical connection between the price to be paid and the actual value of the trademarks to the agency today.”
The Court found it significant that The Other White Meat slogan currently plays no role in marketing, and only the Pork and Design logo remains in active use by the Board. The Court was persuaded that because (1) three of the trademarks purchased in 2006 are no longer in use and (2) the Board has already invested significant funds in developing a new campaign incorporating only the fourth logo, “it is not logical to assume that the current value of the three ‘heritage’ trademarks plus the logo is the same as the cost of developing an entirely new campaign from scratch” and that the 2016 review failed to “grapple with these obvious deficiencies.” Therefore, the Court found the decision to continue payments based on the 2016 review was arbitrary and capricious and granted the Plaintiff’s motion for summary judgment on such.