NewYorkUniversity
LawReview

Articles

2018

Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem

C. Scott Hemphill

Over the past decade, drug makers have settled patent litigation by making large payments to potential rivals who, in turn, abandon suits that (if successful) would increase competition. Because such “pay-for-delay” settlements postpone the possibility of competitive entry, they have attracted the attention of antitrust enforcement authorities, courts, and commentators. Pay-for-delay settlements not only constitute a problem of immense practical importance in antitrust enforcement, but also pose a general dilemma about the proper balance between innovation and consumer access.
This Article examines the pay-for-delay dilemma as a problem in regulatory design. A full analysis of the relevant industry-specific regulatory statute, the Hatch-Waxman Act, yields two conclusions. First, certain features of the Act widen, often by subtle means, the potential for anticompetitive harm from pay-for-delay settlements. Second, the Act reflects a congressional judgment favoring litigated challenges, contrary to arguments employed to justify these settlements. These results support the further conclusion that pay-for-delay settlements are properly condemned as unreasonable restraints of trade. This analysis illustrates two mechanisms by which an industry-specific regulatory regime shapes the scope of antitrust liability: by creating (or limiting) opportunities for anticompetitive conduct as a practical economic matter, and by guiding as a legal matter the vigor of antitrust enforcement in addressing that conduct.

Detection Avoidance

Chris William Sanchirico

In practice, the problem of law enforcement is half a matter of what the government does to catch violators and half a matter of what violators do to avoid getting caught. In the theory of law enforcement, however, although the state’s efforts at “detection” play a decisive role, offenders’ efforts at “detection avoidance” are largely ignored. Always problematic, this imbalance has become critical in recent years as episodes of corporate misconduct spur new interest in punishing process crimes like obstruction of justice and perjury. This Article adds detection avoidance to the existing theoretical frame with an eye toward informing the current policy debate. The exercise leads to several conclusions. First, despite recent efforts to strengthen laws governing obstruction and perjury, sanctioning is relatively inefficacious at discouraging detection avoidance. Sanctions send a mixed message to the offender: Do less to avoid detection, but to the extent you still do something, do more to avoid detection of your detection avoidance. The Article argues that detection avoidance is often more effectively deterred through the structural design of evidentiary procedure (inclusive of investigation). Specifically advocated are devices that exploit the cognitive psychological shortcomings of individuals and the sociological fragility of their collusive arrangements.

A Contractarian Argument Against the Death Penalty

Claire Finkelstein

Opponents of the death penalty typically base their opposition on contingent features of its administration, arguing that the death penalty is applied discriminatorily, that the innocent are sometimes executed, or that there is insufficient evidence of the death penalty’s deterrent efficacy. Implicit in these arguments is the suggestion that if these contingencies did not obtain, serious moral objections to the death penalty would be misplaced. In this Article, Professor Finkelsteindeterrence and retributivismis capable of justifying the death penalty. More generally, she suggests that while each theory captures an important part of the justification for punishment, each must appeal to some further limiting principle to accommodate common intuitions about appropriate punishments for crimes. Professor Finkelstein claims that contractarianism supplies this additional principle, by requiring that individuals consent to the system of punishment under whose threat they must live. Moreover, on the version of contractarianism for which she argues, they must do so based on a belief that they will benefit under the terms of that system as compared with how they would fare in its absence. While the notion of benefit is often best understood in terms of maximizing one’s expected utility, Professor Finkelsteingambling” decision rule. She then argues that rational contractors applying this conception of benefit would reject any system of punishment that includes the death penalty. For while contractors would recognize the death penalty’s deterrent value, they must also consider the high cost they would pay in the event they end up subject to such a penalty. This Article presents both a significant new approach to the death penalty and a general theory of punishment, one that incorporates the central intuitions about deterrence and desert that have made competing theories of punishment seem compelling.

CopyFraud

Jason Mazzone

Copyfraud is everywhere. False copyright notices appear on modern reprints of Shakespeare’s plays, Beethoven’s piano scores, greeting card versions of Monet’s Water Lilies, and even the U.S. Constitution. Archives claim blanket copyright in everything in their collections. Vendors of microfilmed versions of historical newspapers assert copyright ownership. These false copyright claims, which are often accompanied by threatened litigation for reproducing a work without the “owner’s” permission, result in users seeking licenses and paying fees to reproduce works that are free for everyone to use.

Copyright law itself creates strong incentives for copyfraud. The Copyright Act provides for no civil penalty for falsely claiming ownership of public domain materials. There is also no remedy under the Act for individuals who wrongly refrain from legal copying or who make payment for permission to copy something they are in fact entitled to use for free. While falsely claiming copyright is technically a criminal offense under the Act, prosecutions are extremely rare. These circumstances have produced fraud on an untold scale, with millions of works in the public domain deemed copyrighted, and countless dollars paid out every year in licensing fees to make copies that could be made for free. Copyfraud stifles valid forms of reproduction and undermines free speech.

Congress should amend the Copyright Act to allow private parties to bring civil causes of action for false copyright claims. Courts should extend the availability of the copyright misuse defense to prevent copyright owners from enforcing an otherwise valid copyright if they have engaged in past copyfraud. In addition, Congress should further protect the public domain by creating a national registry listing public domain works and a symbol to designate those works. Failing a congressional response, there may exist remedies under state law and through the efforts of private parties to achieve these ends.

Agency Costs of Venture Capitalist Control in Startups

Jesse M. Fried, Mira Ganor

Venture capitalists investing in U.S. startups typically receive preferred stock and extensive control rights. Various explanations for each of these arrangements have been offered. However, scholars have failed to notice that these arrangements, when combined, often lead to a highly unusual corporate governance structure: one where preferred shareholders, rather than common shareholders, control the board and therefore the firm itself The purpose of this Article is threefold: (1) to highlight the unusual governance structure of these VC-backed startups; (2) to show that preferred shareholder control can give rise to potentially large agency costs; and (3) to suggest legal reforms that may help VCs and entrepreneurs reduce these agency costs and improve corporate governance in startups.

Tough on Crime: How Campaigns for State Judiciary Violate Defendants’ Due Process Rights

Joanna Cohn Weiss

Elected judges often run “tough on crime” campaigns, which raises concerns that they will be biased against criminal defendants once on the bench. Indeed, studies show that elected judges give harsher punishments to criminal defendants as elections near. Nevertheless, in Republican Party of Minnesota v. White, the Supreme Court found that an elected judge can still be considered impartial even if he knows that his decisions throughout a case might affect his job security. This Note argues that the Supreme Court’s decision in White failed to account for a key factor complicating the election of unbiased judges: media coverage of crime and elections. The media dynamics at work in elections and the particular way judges respond to them may lead to criminal cases being heard by judges who are biased against defendants. To correct this problem, states must affirmatively act to protect criminal defendants’ right to a fair trial by adopting broad recusal requirements. States must change their codes of judicial conduct to allow for mandatory recusal of judges who run tough-on-crime election campaigns.

Parent-Child Speech and Child Custody Speech Restrictions

Eugene Volokh

The “best interests of the child” test—the normal rule applied in custody disputes between two parents—leaves family court judges ample room to consider a parent’s ideology. Parents have had their rights limited or denied partly based on their advocacy of atheism, racism, homosexuality, adultery, nonmarital sex, Communism, Nazism, pacifism and disrespect for the flag, fundamentalism, polygamy, and religions that make it hard for children to “fit in the western way of life in this society.”

Courts have also penalized or enjoined speech that expressly or implicitly criticizes the other parent, even when the speech has a broader ideological dimension. One parent, for instance, was ordered to “make sure that there is nothing in the religious upbringing or teaching that the minor child is exposed to that can be considered homophobic,” because the other parent was homosexual. Another mother was stripped of custody partly because she accurately told her 12-year-old daughter that her ex-husband, who had raised the daughter from birth, wasn’t in fact the girl’s biological father.

Courts have also restricted a parent’s religious speech when such speech was seen as inconsistent with the religious education that the custodial parent was providing. The cases generally rest on the theory (sometimes pure speculation, sometimes based on some evidence in the record) that the children will be made confused and unhappy by the contradictory teachings, and will be less likely to take their parents’ authority seriously.

This article argues these restrictions are generally unconstitutional, except when they’re narrowly focused on preventing one parent from undermining the child’s relationship with the other. But in the process the article makes several observations that may be helpful whether or not readers endorse this proposal: (1) The best interests test lets courts engage in a wide range of viewpoint-based speech restrictions. (2) The First Amendment is implicated not only when courts issue orders restricting parents’ speech, but also when courts make custody or visitation decisions based on such speech. (3) Even when the cases involve religious speech, the Free Speech Clause is probably a stronger barrier to the judge’s penalizing the speech than are the Religion Clauses. (4) If parents in intact families have First Amendment rights to speak to their children, without the government’s restricting the speech under a “best interests” standard, then parents in broken families generally deserve the same rights. (5) Parents in intact families should indeed be free to speak to their children—but not primarily because of their self-expression rights, or their children’s interests in hearing the parents’ views. Rather, the main reason to protect parental speech rights is that today’s child listeners will grow up into the next generation’s adult speakers. (6) Attempts to allow restrictions only when the speech imminently threatens likely psychological harm (or even causes actual psychological harm) to children may seem appealing, but will likely prove unhelpful.

Civil Rights Injunctions Over Time: A Case Study of Jail and Prison Court Orders

Margo Schlanger

Lawyers obtained the first federal court orders governing prison and jail conditions in the 1960s. This and other types of civil rights injunctive practice flourished in the 1970s and early 1980s. But a conventional wisdom has developed that such institutional reform litigation peaked long ago and is now moribund. This Article’s longitudinal account of jail and prison court-order litigation establishes that, to the contrary, correctional court-order litigation did not decline in the late 1980s and early 1990s. Rather, there was essential continuity from the early 1980s until 1996, when enactment of the Prison Litigation Reform Act (PLRA) reduced both the stock of old court orders and the flow of new court orders. Even today, ten years after passage of the PLRA, the civil rights injunction is more alive in the prison and jail setting than the conventional wisdom recognizes. Yet while the volume of court-order litigation had, prior to 1996, remained stable, the nature of court-order practice changed from a “kitchen sink” model to something much more precise. Where in the 1970s litigation tended to be broad in scope, with loose standards of causation and sweeping remedies, through the 1980s and 1990s litigation grew ever more resource-intensive, and addressed increasingly narrow topics with more rigorous proof and causation requirements. This Article argues that this change was caused not only by the increasing conservativism of the federal bench, but more interestingly by a generalized skepticism about issues of causation in law, the increased presence of large pro bono firms accustomed to a resource-intensive mode of litigation, and the salience of several extraordinarily extensive litigations as models.

The Demand for Immutable Contracts: Another Look at the Law and Economics of Contract Modifications

Kevin E. Davis

One of the most challenging questions in contract law is whether parties should be free to create contracts that limit their own freedom of contract and thereby, in effect, contract over the scope of freedom of contract itself. So far the debate has revolved around the enforceability of “anti-modification clauses,” which state that subsequent modifications to the contract in which they are contained will be unenforceable. The courts appear reluctant to enforce anti-modification clauses. Some rominent law and economics scholars have argued that in certain circumstances parties would benefit from being able to make their contracts immutable and that courts therefore should enforce anti-modification clauses. This Article advances several claims that contradict the underlying remises of this argument. It begins by setting out a variety of reasons why the demand for immutable contracts, or at least those created by adopting anti-modification clauses, might be low. The central claim is that although anti-modification clauses may be unenforceable, contracting parties can duplicate their economic effects by using a technique labeled the “representative trustee technique.” The essence of this technique is that the parties agree to turn over the benefits of any modification to a trust with a large number of beneficiaries. The conceptual building blocks of the representative trustee technique are all familiar, yet there is no indication of its use in practice. If valid, these observations are inconsistent with the idea that there is a significant demand for enforceable anti-modification clauses. It is, however, possible that, contrary to the primary argument in this Article, contracting parties are unaware of the possibility of adopting the representative trustee technique. In that case, the analysis here is still relevant because it suggests that once the technique is publicized it will satisfy at least some of the demand for enforceable antimodification clauses. In any case, there seems to be no compelling reason to heed calls to enforce anti-modification clauses.

Best Practices

David Zaring

In traditional administrative law, agencies pass rules and courts review them. But what if agencies stopped acting by rule and started leading by example? With best practices rulemaking—a theoretically voluntary way of coordinating administrative action both within and across agencies—leading by example is what agencies are increasingly doing. Although best practices rulemaking has been largely ignored by the legal literature, regulation through best practices has increased sevenfold in the past ten years in the federal government alone, touching every aspect of administrative law. This paper describes and evaluates best practices rulemaking, tracking its origins in business management, its adoption by the public sector, and analyzing how it works in that sector. It does so through a series of case studies, in particular a study of the use of best practices to regulate water pollution. An examination of best practices in practice shows that although they purport to be “best,” there is nothing particularly “best” about them. The rulemaking technique is a way of obtaining common practices, not ideal ones. Accordingly, best practices rulemaking is particularly useful for setting regulatory standards where the precise content of the standard is not particularly important. As best practices rulemaking (along with other forms of horizontal, informal agency action) continues to grow and grow apart from judicial supervision, Congress may want to ensure that this new technique of administrative law is adequately publicized and at least partially supervised through passage of a disclosure-oriented “Informal Administrative Procedure Act.”