Posted by: Erik Hovenkamp | 16th Oct, 2017

Toward a Comprehensive Theory of Antitrust and IP Settlements

Post by Erik Hovenkamp.

When will private settlements advance the normative objectives espoused by the relevant area of law, as opposed to straying away from them?  One sensible metric is to assess the similarity between (1) the positions the parties maintain post-settlement; and (2) the positions the parties would have maintained had they litigated (accounting for possible post-trial contracting).   Given that the outcome of litigation can rarely be predicted with certainty, we can interpret the second prong as the expected result of litigation—as weighted by the relative likelihoods the parties assign to the different possible outcomes.  To illustrate, suppose my doctor’s treatment of me causes me to suffer $1000 in harm, and there is a 50% chance that he will be held liable for negligence.  Then we will settle for about $500, for we cannot mutually agree on anything else.  This is precisely the expected result of litigation, and hence the settlement is representative of how the courts would apply the law to our dispute.

If we ignore things that might skew negotiations in one party’s favor (e.g. asymmetric ability to cover litigation costs), the above result is essentially a corollary of the Coase theorem.  If the court’s judgment won’t affect the final allocation of rights, then the parties just bargain over the distribution of welfare. Neither party will accept less than it expects to get through litigation, which is a function of the legal standards that would be applied by a court.  Thus, under these circumstances, private settlements will “emulate the law.”

But as I have emphasized previously, one important feature of the IP-antitrust interface is that the parties to a dispute are often prohibited from contracting out of a judgment that fails to maximize their (joint) profits.  Competitors in a patent dispute cannot “undo” a holding that the patent is invalid or noninfringed in order to revive the patent’s exclusionary power; they are obligated to stick with open competition.  The result is that rival firms often have a shared interest in settling an IP dispute on terms that deviate substantially from their expectations about litigation.  Specifically, if they expect litigation to produce a relatively competitive result (e.g. because the patent is likely invalid), they prefer to evade that outcome by settling on terms that restrain competition substantially, resulting in higher prices and larger profits.   The result is that these settlements do a very bad job of promoting IP and antitrust policy objectives; they do not emulate the law.  

In my recent paper with Jorge Lemus, Proportional Restraints and the Patent System, we propose a comprehensive standard for evaluating patent settlements under the antitrust laws, along with a set of economic tools for administering it practicably.  In what follows, I provide an overview of the underlying problem and our proposed solution.  Read More…

Samuel Beswick, Frank Knox Memorial Fellow, SJD candidate, Harvard Law School

One of the major catalysts behind the resurgence in England and Wales of the law of unjust enrichment has been the influence of fundamental rights jurisprudence of the European Union. Where a member state levies charges on persons contrary to EU law (such as discriminatory taxes), the European Court of Justice (ECJ) recognizes an entitlement to repayment. While the right to restitution arises from EU law, the content of the remedy is grounded in the domestic law of each member state. This dynamic is intended to preserve the respective competencies and autonomy of national courts and the ECJ.

In England, the private law of unjust enrichment has been the vehicle for vindicating the EU restitutionary right. The challenges of integrating EU principles into the recognized domestic causes of action—the ‘unjust factors’ of an ultra vires charge (Woolwich EBS v IRC) and mistake of law (Kleinwort Benson v Lincoln CC)—have in turn influenced the ECJ’s growing “remedies jurisprudence.”

In her paper on The European Court of Justice’s ‘Remedies Jurisprudence’ and the Role of Domestic Courts—How to Transfer Principle alongside Competence, presented at last Wednesday’s Private Law Workshop, Rebecca Williams contends that the law defining the EU restitutionary right faces a coherence problem. The right is grounded in the ECJ’s two primary limiting principles on member state procedural autonomy: the principle of equivalence (by which the rules governing disputes with an EU law dimension “cannot be less favourable” than those governing similar domestic disputes), and the principle of effectiveness (by which the exercise of EU rights may not be rendered “virtually impossible or excessively difficult” by rules of national procedural law). Ultimately, it is the ECJ that determines whether the remedies provided in national law satisfy these primary principles.

The general trend in the unjust enrichment cases has been toward EU-level intervention. Yet, in contrast to its member state damages liability jurisprudence, the ECJ has generally shown reluctance to specify the content and bounds of the restitutionary right. This has injected considerable ambiguity and unpredictability into the restitutionary jurisprudence. In distilling the relatively abstract principles and, in some cases, inconsistent holdings into their domestic actions, the English courts have come to develop more expansive remedies against the state than what subsequent ECJ guidance suggests is necessary.

Williams proposes that both the ECJ and national courts could take steps to improve matters. At the member state level, courts should not take too deferential a line when referring questions of law up to the ECJ, and when they do they should articulate their view of the law so as constructively to influence the content of private law principles at the European level. At the European level, the ECJ should recognize that the more it becomes involved in developing an EU remedies jurisprudence, the greater responsibility it holds for comprehensive and principled reasoning.

Post by Sadie Blanchard

The Yale Law School Center for Private Law will host the Private Funds Conference: Private Equity, Hedge Funds, and Venture Capital on November 17, 2017. The conference will bring leading theorists from law, economics, finance, and sociology into dialogue with people with experience at the highest levels of experience with private funds, including from law practice, financial firms, and institutional investors.

Oliver Hart, winner of the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, will give the keynote address.
Stephen Fraidin, Vice Chairman of Pershing Square Capital Management, will give the lunchtime address.

New York CLE Credit will be available. Yale Law School has been certified by the New York State Continuing Legal Education Board as an Accredited Provider of CLE programs.  To receive a CLE Certificate of Attendance, New York State requires you to sign in. If you leave earlier than the scheduled 4:00 p.m. end time of the conference, you must also sign out to receive CLE credit. CLE reading materials will be posted on the event website before the conference.

More details and registration are at law.yale.edu

Post by Patrick Goold

2017 marks the bicentennial of Harvard Law School. It is fitting, therefore, that the first Private Law Workshop of the semester focused on intellectual legal history and, in part, the influence of some of Harvard’s most prominent law professors. Shyamkrishna Balganesh presented his work-in-progress Copyright as Legal Process. In it, Balganesh argues that copyright underwent a “quiet metamorphosis” in the twentieth century. Under the influence of the Legal Process School of jurisprudence, copyright evolved from private law to public law. What’s more, this evolution has entailed a fundamental transformation in the conception of law at the heart of modern copyright.

From 1870 to 1950, copyright law was, according to Balganesh, normatively and structurally part of American private law. The “private law conception” of copyright crystalized during the age of Legal Formalism (or Classical Legal Thought), and was characterized by a focus on the horizontal legal relationship between the copyright owner and the copyist. The owner’s copyright was, axiomatically, an individual right; users of the protected work were duty-bound not to copy; he who copied the work wronged the owner. This right-duty relationship was largely self-justifying. Courts rarely discussed the “purpose” of copyright law; on the occasions they did, they claimed copyright’s purpose was to uphold a right-duty relationship, and that any broader social goals were merely a welcome by-product. Furthermore, the private law conception involved a particular understanding of judicial reasoning. When adjudicating copyright disputes, courts rarely appealed to policy, nor paid particular deference to the wording or history of the Copyright Act 1909. Instead, courts tended to search for established “copyright principles” (such as the idea-expression dichotomy, or the nature of authorship) and reasoned therefrom.

Perhaps surprisingly, the private law conception of copyright – according to Balganesh –  was largely maintained through the Legal Realist period. While the Realists claimed legal doctrine was indeterminate and thus were skeptical that judicial reasoning could be objective, they nevertheless valorized the judiciary (and notably a number of high-profile Realists served on the bench). Realism emphasized judicial creativity in solving cases, while simultaneously placing little faith in statutory interpretation. As a result, when adjudicating copyright disputes, courts continued to show Congress little deference, but instead trusted judicial craftsmanship to resolve the particularized problems that arose. Read More…

Post by Greg Klass

I hope those interested in contract law are aware of the ALI’s project for a Restatement of the Law of Consumer Contracts. It is a major undertaking, both in its attempt to synthesize existing law in this area and as a statement about how common law courts can best address business-consumer transactions.

There is a lot to say on the substance of current draft (which the ALI doesn’t seem to have on its website). The Reporters’ core move is give up on robust ex ante consumer assent—shrinkwrap and browsewrap are both ok, as are notice-only business-side modifications—and to protect consumers through stronger ex post judicial review for substantive unconscionability. I’m not sure this is the all-things-considered best way to go. Mandatory terms crafted by regulators might provide businesses more certainty and consumers more protection. The Reporters’ approach might be the best common law courts can do. But I worry that enshrining it in a Restatement could deter regulatory innovation. That said, I am a big fan of draft sections 6, 7 and 8, which together would limit businesses’ ability to integrate standard terms. The logic of the parol evidence rule falls apart when we know one side hasn’t read the writing in question. Read More…

Save the Date

The Yale Law School Center for Private Law will host a Private Equity Conference on November 17, 2017. The conference will bring leading theorists from law, economics, finance, and sociology into dialogue with people with experience at the highest levels of private equity, including from law practice, financial firms, and institutional investors. 

Oliver Hart, winner of the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, will give the keynote address.

Other speakers include:

Jon Ballis, Kirkland & Ellis

Rosemary Batt, Cornell University, ILR School

Neil Fligstein, UC Berkeley Sociology Department

Stephen Fraidin, Pershing Square Capital Management

Will Gaybrick, Stripe

Adam Goldstein, Princeton University Department of Sociology

Victoria Ivashina, Harvard Business School

Andrew Metrick, Yale School of Management

Meridee Moore, Watershed Asset Management

John Morley, Yale Law School

Alan Schwartz, Yale Law School

David Swensen, Chief Investment Officer, Yale University

 

Location: Yale Law School, 127 Wall St., New Haven, CT

Time: Approximately 9:45 a.m.-4:00 p.m.

Cost: There is no cost associated with this event, though pre-registration is required. Registration information will be available soon at this link.

CLE: New York CLE Credit will be available.

The conference is sponsored by the Kirkland & Ellis Fund for the Study of Private Law.

Post by Eric Claeys, George Mason University, Antonin Scalia Law School

In a recent post, Henry Smith made some perceptive observations about the state of contemporary intellectual property scholarship.  Henry was commenting on a panel at a recent conference, in which panelists stressed that “treating intellectual property as a kind of property does not mean assuming it is absolute.”  And he noted that what he called “external” accounts of IP are much better-represented than what he called “internal” or “interpretivist” approaches to IP. 

I have offered a few thoughts on Henry’s post already, and I hope to offer a few other thoughts in due time.  I am extremely interested in Henry’s question because I have been working on an article focusing on those same questions.  As luck would have it, I just received news that the article was accepted for publication in the journal Jurisprudence.  I’d like to take a minute to flag the article (still in draft form) and summarize its arguments.

The article is titled “Intellectual Property and Practical Reason.”  The article’s main intention is to show how general principles of a certain family of normative theories supply basic guidance for the field of IP. The theory-family covers theories loosely associated with natural law and rights-based forms of eudaemonist or perfectionist political theory.  (In what follows, I’ll describe these approaches as “rights-based perfectionist” approaches.)  In IP, Wendy Gordon, Ken Himma, Adam Moore, Rob Merges, Adam Mossoff’s, and my own work on Lockean labor theory all fall in this family.  But so do Nussbaum-Sen “capabilities” theories, and (at least on some interpretations) Rawlsian fairness theories. Read More…

Post by Patrick Goold

I recently had the pleasure of attending the “Future of Law & Economics and the Legacy of Guido Calabresi” conference held at Boston University School of Law. It examined the methodological, institutional, and conceptual issues raised by Judge Calabresi’s new book, The Future of Law and Economics. After two fun days, packed with delightful anecdotes about Calabresi and the early days of the Law and Economics movement, the question I found myself asking was: How do the ideas in this new book relate to the New Private Law project? My sense, which I will explain in this short post, is that there is a strong synergy between that project and Calabresi’s vision for Law and Economics.

At the core of Calabresi’s book is a distinction between “Economic Analysis of Law” (EAL) and “Law and Economics” (L&E). EAL uses economic theory to “analyze the legal world.”  EAL scholars explain and justify legal reality through the prism of efficiency. Where that reality does not fit economic theory, the EAL scholar proclaims the law to be “irrational” and in need of reform. The classical precursor to this approach is that of Jeremy Bentham, who tested moral beliefs against a theory of utilitarianism, and dismissed what did not fit the theory as vague generalities and “nonsense upon stilts.” The prominence of EAL scholarship today is due, in part, to the influential writings of Richard Posner.
Read More…

Post by John Golden

On June 12, the United States Supreme Court granted certiorari with respect to the first question presented in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 (S. Ct. 2017):

Whether inter partes review—an adversarial process used by the Patent and Trademark Office (PTO) to analyze the validity of existing patents—violates the Constitution by extinguishing private property rights through a non-Article III forum without a jury.

This grant gives new prominence to a question flagged in my post of May 30, the question of whether patents involve public or private rights for purposes of U.S. administrative law.  In this context, the question is refracted through a definition of “public rights” that the Supreme Court has developed to delimit the scope of Article III courts’ exclusive powers.  A determination that patent rights are more properly viewed as “private” than “public” could lead to a conclusion that inter partes review, as well as other new mechanisms for the administrative review of patent validity, are unconstitutional.  Read More…

Post by John Golden

Intersections between statutory law and traditional private law principles loom large in two recent patent law decisions of the United States Supreme Court.  For this, we can partly thank the United States Court of Appeals for the Federal Circuit.  As discussed in my first NPL blog post, the Federal Circuit preceded the Supreme Court in taking the cases for en banc review.  The en banc circuit obligingly produced holdings that the Court could not resist overruling.

In the first case, SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S. Ct. 954 (2017), the Supreme Court held that laches cannot block a claim for damages from patent infringement when that infringement has occurred within the statutorily allowed period of six years before the filing of the claim.  Seven of the eight Justices involved in deciding SCA Hygiene agreed that this outcome followed straightforwardly from the Court’s 2014 decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), which addressed similar questions regarding laches, damages, and the Copyright Act’s three-year statute of limitations.  Writing for the Court with what appeared to be restrained exasperation, Justice Alito began his opinion by stating, “We return to a subject that we addressed in Petrella ….”  Alito’s opinion proceeded to emphasize that laches arose from equity and that the case before the Court involved “application of the defense to a claim for damages, a quintessential legal remedy.”  In the Court’s view, a statute of limitations such as the Patent Act’s six-year limitation on backward-looking damages “necessarily reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than the sort of case-specific judicial determination that occurs when a laches defense is asserted.”  Application of a laches defense in the face of this congressional judgment “is beyond the Judiciary’s power.” Read More…

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