Archives For Federalism

U.S. antitrust law focuses primarily on private anticompetitive restraints, leaving the most serious impediments to a vibrant competitive process – government-initiated restraints – relatively free to flourish.  Thus the Federal Trade Commission (FTC) should be commended for its July 16 congressional testimony that spotlights a fast-growing and particularly pernicious species of (largely state) government restriction on competition – occupational licensing requirements.  Today such disciplines (to name just a few) as cat groomers, flower arrangers, music therapists, tree trimmers, frozen dessert retailers, eyebrow threaders, massage therapists (human and equine), and “shampoo specialists,” in addition to the traditional categories of doctors, lawyers, and accountants, are subject to professional licensure.  Indeed, since the 1950s, the coverage of such rules has risen dramatically, as the percentage of Americans requiring government authorization to do their jobs has risen from less than five percent to roughly 30 percent.

Even though some degree of licensing responds to legitimate health and safety concerns (i.e., no fly-by-night heart surgeons), much occupational regulation creates unnecessary barriers to entry into a host of jobs.  Excessive licensing confers unwarranted benefits on fortunate incumbents, while effectively barring large numbers of capable individuals from the workforce.  (For example, many individuals skilled in natural hair braiding simply cannot afford the 2,100 hours required to obtain a license in Iowa, Nebraska, and South Dakota.)  It also imposes additional economic harms, as the FTC’s testimony explains:  “[Occupational licensure] regulations may lead to higher prices, lower quality services and products, and less convenience for consumers.  In the long term, they can cause lasting damage to competition and the competitive process by rendering markets less responsive to consumer demand and by dampening incentives for innovation in products, services, and business models.”  Licensing requirements are often enacted in tandem with other occupational regulations that unjustifiably limit the scope of beneficial services particular professionals can supply – for instance, a ban on tooth cleaning by dental hygienists not acting under a dentist’s supervision that boosts dentists’ income but denies treatment to poor children who have no access to dentists.

What legal and policy tools are available to chip away at these pernicious and costly laws and regulations, which largely are the fruit of successful special interest lobbying?  The FTC’s competition advocacy program, which responds to requests from legislators and regulators to assess the economic merits of proposed laws and regulations, has focused on unwarranted regulatory restrictions in such licensed professions as real estate brokers, electricians, accountants, lawyers, dentists, dental hygienists, nurses, eye doctors, opticians, and veterinarians.  Retrospective reviews of FTC advocacy efforts suggest it may have helped achieve some notable reforms (for example, 74% of requestors, regulators, and bill sponsors surveyed responded that FTC advocacy initiatives influenced outcomes).  Nevertheless, advocacy’s reach and effectiveness inherently are limited by FTC resource constraints, by the need to obtain “invitations” to submit comments, and by the incentive and ability of licensing scheme beneficiaries to oppose regulatory and legislative reforms.

Former FTC Chairman Kovacic and James Cooper (currently at George Mason University’s Law and Economics Center) have suggested that federal and state antitrust experts could be authorized to have ex ante input into regulatory policy making.  As the authors recognize, however, several factors sharply limit the effectiveness of such an initiative.  In particular, “the political feasibility of this approach at the legislative level is slight”, federal mandates requiring ex ante reviews would raise serious federalism concerns, and resource constraints would loom large.

Antitrust law challenges to anticompetitive licensing schemes likewise offer little solace.  They are limited by the antitrust “state action” doctrine, which shields conduct undertaken pursuant to “clearly articulated” state legislative language that displaces competition – a category that generally will cover anticompetitive licensing requirements.  Even a Supreme Court decision next term (in North Carolina Dental v. FTC) that state regulatory boards dominated by self-interested market participants must be actively supervised to enjoy state action immunity would have relatively little bite.  It would not limit states from issuing simple statutory commands that create unwarranted occupational barriers, nor would it prevent states from implementing “adequate” supervisory schemes that are designed to approve anticompetitive state board rules.

What then is to be done?

Constitutional challenges to unjustifiable licensing strictures may offer the best long-term solution to curbing this regulatory epidemic.  As Clark Neily points out in Terms of Engagement, there is a venerable constitutional tradition of protecting the liberty interest to earn a living, reflected in well-reasoned late 19th and early 20th century “Lochner-era” Supreme Court opinions.  Even if Lochner is not rehabilitated, however, there are a few recent jurisprudential “straws in the wind” that support efforts to rein in “irrational” occupational licensure barriers.  Perhaps acting under divine inspiration, the Fifth Circuit in St. Joseph Abbey (2013) ruled that Louisiana statutes that required all casket manufacturers to be licensed funeral directors – laws that prevented monks from earning a living by making simple wooden caskets – served no other purpose than to protect the funeral industry, and, as such, violated the 14th Amendment’s Equal Protection and Due Process Clauses.  In particular, the Fifth Circuit held that protectionism, standing alone, is not a legitimate state interest sufficient to establish a “rational basis” for a state statute, and that absent other legitimate state interests, the law must fall.  Since the Sixth and Ninth Circuits also have held that intrastate protectionism standing alone is not a legitimate purpose for rational basis review, but the Tenth Circuit has held to the contrary, the time may soon be ripe for the Supreme Court to review this issue and, hopefully, delegitimize pure economic protectionism.  Such a development would place added pressure on defenders of protectionist occupational licensing schemes.  Other possible avenues for constitutional challenges to protectionist licensing regimes (perhaps, for example, under the Dormant Commerce Clause) also merit being explored, of course.  The Institute of Justice already is performing yeoman’s work in litigating numerous cases involving unjustified licensing and other encroachments on economic liberty; perhaps their example can prove an inspiration for pro bono efforts by others.

Eliminating anticompetitive occupational licensing rules – and, more generally, vindicating economic liberties that too long have been neglected – is obviously a long-term project, and far-reaching reform will not happen in the near term.  Nevertheless, while we the currently living may in the long run be dead (pace Keynes), our posterity will be alive, and we owe it to them to pursue the vindication of economic liberties under the Constitution.

Government impediments to the efficient provision of health care services in the United States are legion.  While much recent attention has focused on the federal Patient Protection and Affordable Care Act, which by design reduces consumer choice and competition, harmful state law restrictions have long been spotlighted by the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ).  For example, research demonstrates that state “certificate of need” (CON) laws, which require prior state regulatory approval of new hospitals and hospital expansions, “create barriers to entry and expansion to the detriment of health care competition and consumers.

Less attention, however, has been focused on relatively new yet insidious state anticompetitive restrictions that have been adopted by three states (North Carolina, South Carolina, and New York), and are being considered by other jurisdictions as well – “certificates of public advantage” (COPAs).  COPAs are state laws that grant federal and state antitrust law immunity to health care providers that enter into approved “cooperative arrangements” that it is claimed will benefit state health care quality.  Like CONs, however, COPAs are likely to undermine, rather than promote, efficient and high quality health care delivery, according to the FTC.

As the FTC has pointed out, federal antitrust law already permits joint activity by health care providers that benefits consumers and is reasonably necessary to create efficiencies.  A framework for assessing such activity is found in joint FTC and DOJ Statements of Antitrust Enforcement in Health Care, supplemented by subsequent agency guidance documents.  Moreover, no antitrust exemption is needed to promote efficient cooperative arrangements, because the antitrust laws already allow procompetitive collaborations among competitors.

While COPA laws are not needed to achieve socially desirable ends, they create strong incentives for unnecessary competitive restrictions among rival health care providers, which spawn serious consumer harm.  As the bipartisan Antitrust Modernization Commission observed, “[t]ypically, antitrust exemptions create economic benefits that flow to small, concentrated interest groups, while the costs of the exemption are widely dispersed, usually passed on to a large population of consumers through higher prices, reduced output, lower quality and reduced innovation.”  In short, one may expect that well-organized rent-seekers generally will be behind industry-specific antitrust exemptions.  This is no less true in health care than in other sectors of the economy.

Legislators should not assume that competitive problems created by COPAs can be cured by active supervision carried out by state officials.  Such supervision is difficult, costly, and prone to error, particularly because the supervised entities will have every incentive to mischaracterize their self-serving actions as welfare-enhancing rather than welfare-reducing.  In effect, state supervision absent antitrust sanction may devolve into a form of ad hoc economic regulation, subject to all the imperfections of regulation, including regulatory capture by special interests.

A real world example of the difficulties in regulating COPA arrangements is outlined in a 2011 state-commissioned economic analysis (2011 Study) of the 1995 COPA agreement (NC-COPA) between the State of North Carolina and Mission Health Systems (MHS).  In 1993 the State of North Carolina enacted a COPA statute, which grants federal and state antitrust immunity to parties that submit their cooperative agreements to active supervision by the State of North Carolina.  In 1995, to forestall a DOJ antitrust investigation into the merger of the only two acute-care hospitals in Asheville, North Carolina, MHS, the parent of the acquiring hospital, sought and was granted a COPA by the State.  (This COPA agreement was the first in North Carolina and the first in the nation.)  MHS subsequently expanded into additional health care ventures in western North Carolina, subject to state regulatory supervision specified in NC-COPA and thus free from antitrust scrutiny.  The 2011 Study identified a number of potentially harmful consequences flowing from this regulatory scheme:  (1) by regulating MHS’s average margin across all services and geographic areas, NC-COPA creates an incentive for MHS to expand into lower-margin markets to raise price in core markets without violating margin cap limitations; (2) NC-COPA’s cost cap offers only limited regulatory protection for consumers and creates undesirable incentives for MHS to increase outpatient prices and volumes; and (3) NC-COPA creates an incentive and opportunity for MHS to evade price or margin regulation in one market by instead imposing price increases in a related, but unregulated, market.  Moreover, the 2011 Study concluded that the NC-COPA was unnecessary to address competitive concerns attributable to the 1995 merger.  The State of North Carolina has not yet responded to recommendations in the Study for amending the NC-COPA to address these ills.  What the Study illustrates is that even assuming the best of intentions by regulators, COPAs raise serious problems of implementation and are likely to have deleterious unanticipated effects.  State governments would be well advised to heed the advice of federal (and state) antitrust enforcers and avoid the temptation to substitute regulation for competitive market forces subject to general antitrust law.

In sum, state legislatures should resist the premise that health care competitors will somehow advance the “public interest” if they are freed from antitrust scrutiny and subjected to COPA regulation.  Efficient joint activity can proceed without such special favor, whose natural effect is to incentivize welfare-reducing anticompetitive conduct – conduct which undermines, rather than promotes, health care quality and the general welfare.

William Buckley once described a conservative as “someone who stands athwart history, yelling Stop.” Ironically, this definition applies to Professor Tim Wu’s stance against the Supreme Court applying the Constitution’s protections to the information age.

Wu admits he is going against the grain by fighting what he describes as leading liberals from the civil rights era, conservatives and economic libertarians bent on deregulation, and corporations practicing “First Amendment opportunism.” Wu wants to reorient our thinking on the First Amendment, limiting its domain to what he believes are its rightful boundaries.

But in his relatively recent piece in The New Republic and journal article in U Penn Law Review, Wu bites off more than he can chew. First, Wu does not recognize that the First Amendment is used “opportunistically” only because the New Deal revolution and subsequent jurisprudence has foreclosed all other Constitutional avenues to challenge economic regulations. Second, his positive formulation for differentiating protected speech from non-speech will lead to results counter to his stated preferences. Third, contra both conservatives like Bork and liberals like Wu, the Constitution’s protections can and should be adapted to new technologies, consistent with the original meaning.

Wu’s Irrational Lochner-Baiting

Wu makes the case that the First Amendment has been interpreted to protect things that aren’t really within the First Amendment’s purview. He starts his New Republic essay with Sorrell v. IMS (cf. TechFreedom’s Amicus Brief), describing the data mining process as something undeserving of any judicial protection. He deems the application of the First Amendment to economic regulation a revival of Lochner, evincing a misunderstanding of the case that appeals to undefended academic prejudice and popular ignorance. This is important because the economic liberty which was long protected by the Constitution, either as matter of federalism or substantive rights, no longer has any protection from government power aside from the First Amendment jurisprudence Wu decries.

Lochner v. New York is a 1905 Supreme Court case that has received more scorn, left and right, than just about any case that isn’t dealing with slavery or segregation. This has led to the phenomenon (my former Constitutional Law) Professor David Bernstein calls “Lochner-baiting,” where a commentator describes any Supreme Court decision with which he or she disagrees as Lochnerism. Wu does this throughout his New Republic piece, somehow seeing parallels between application of the First Amendment to the Internet and a Liberty of Contract case under substantive Due Process.

The idea that economic regulation should receive little judicial scrutiny is not new. In fact, it has been the operating law since at least the famous Carolene Products footnote four. However, the idea that only insular and discrete minorities should receive First Amendment protection is a novel application of law. Wu implicitly argues exactly this when he says “corporations are not the Jehovah’s Witnesses, unpopular outsiders needing a safeguard that legislators and law enforcement could not be moved to provide.” On the contrary, the application of First Amendment protections to Jehovah’s Witnesses and student protesters is part and parcel of the application of the First Amendment to advertising and data that drives the Internet. Just because Wu does not believe businesspersons need the Constitution’s protections does not mean they do not apply.

Finally, while Wu may be correct that the First Amendment should not apply to everything for which it is being asserted today, he does not seem to recognize why there is “First Amendment opportunism.” In theory, those trying to limit the power of government over economic regulation could use any number of provisions in the text of the Constitution: enumerated powers of Congress and the Tenth Amendment, the Ninth Amendment, the Contracts Clause, the Privileges or Immunities Clause of the Fourteenth Amendment, the Due Process Clause of the Fifth and Fourteenth Amendments, the Equal Protection Clause, etc. For much of the Constitution’s history, the combination of these clauses generally restricted the growth of government over economic affairs. Lochner was just one example of courts generally putting the burden on governments to show the restrictions placed upon economic liberty are outweighed by public interest considerations.

The Lochner court actually protected a small bakery run by immigrants from special interest legislation aimed at putting them out of business on behalf of bigger, established competitors. Shifting this burden away from government and towards the individual is not clearly the good thing Wu assumes. Applying the same Liberty of Contract doctrine, the Supreme Court struck down legislation enforcing housing segregation in Buchanan v. Warley and legislation outlawing the teaching of the German language in Meyer v. Nebraska. After the New Deal revolution, courts chose to apply only rational basis review to economic regulation, and would need to find a new way to protect fundamental rights that were once classified as economic in nature. The burden shifted to individuals to prove an economic regulation is not loosely related to any conceivable legitimate governmental purpose.

Now, the only Constitutional avenue left for a winnable challenge of economic regulation is the First Amendment. Under the rational basis test, the Tenth Circuit in Powers v. Harris actually found that protecting businesses from competition is a legitimate state interest. This is why the cat owner Wu references in his essay and describes in more detail in his law review article brought a First Amendment claim against a regime requiring licensing of his talking cat show: there is basically no other Constitutional protection against burdensome economic regulation.

The More You Edit, the More Your <sic> Protected?

In his law review piece, Machine Speech, Wu explains that the First Amendment has a functionality requirement. He points out that the First Amendment has never been interpreted to mean, and should not mean, that all communication is protected. Wu believes the dividing lines between protected and unprotected speech should be whether the communicator is a person attempting to communicate a specific message in a non-mechanical way to another, and whether the communication at issue is more speech than conduct. The first test excludes carriers and conduits that handle or process information but have an ultimately functional relationship with it–like Federal Express or a telephone company. The second excludes tools, those works that are purely functional like navigational charts, court filings, or contracts.

Of course, Wu admits the actual application of his test online can be difficult. In his law review article he deals with some easy cases, like the obvious application of the First Amendment to blog posts, tweets, and video games, and non-application to Google Maps. Of course, harder cases are the main target of his article: search engines, automated concierges, and other algorithm-based services. At the very end of his law review article, Wu finally states how to differentiate between protected speech and non-speech in such cases:

The rule of thumb is this: the more the concierge merely tells the user about himself, the more like a tool and less like protected speech the program is. The more the programmer puts in place his opinion, and tries to influence the user, the more likely there will be First Amendment coverage. These are the kinds of considerations that ultimately should drive every algorithmic output case that courts could encounter.

Unfortunately for Wu, this test would lead to results counterproductive to his goals.

Applying this rationale to Google, for instance, would lead to the perverse conclusion that the more the allegations against the company about tinkering with its algorithm to disadvantage competitors are true, the more likely Google would receive First Amendment protection. And if Net Neutrality advocates are right that ISPs are restricting consumer access to content, then the analogy to the newspaper in Tornillo becomes a good one–ISPs have a right to exercise editorial discretion and mandating speech would be unconstitutional. The application of Wu’s test to search engines and ISPs effectively puts them in a “use it or lose it” position with their First Amendment rights that courts have rejected. The idea that antitrust and FCC regulations can apply without First Amendment scrutiny only if search engines and ISPs are not doing anything requiring antitrust or FCC scrutiny is counterproductive to sound public policy–and presumably, the regulatory goals Wu holds.

First Amendment Dynamism

The application of the First Amendment to the Internet Age does not involve large leaps of logic from current jurisprudence. As Stuart Minor Benjamin shows in his article in the same issue of the U Penn Law Review, the bigger leap would be to follow Wu’s recommendations. We do not need a 21st Century First Amendment that some on the left have called for—the original one will do just fine.

This is because the Constitution’s protections can be dynamically applied, consistent with original meaning. Wu’s complaint is that he does not like how the First Amendment has evolved. Even his points that have merit, though, seem to indicate a stasis mentality. In her book, The Future and Its Enemies, Virginia Postrel described this mentality as a preference for a “controlled, uniform society that changes only with permission from some central authority.” But the First Amendment’s text is not a grant of power to the central authority to control or permit anything. It actually restricts government from intervening into the open-ended society where creativity and enterprise, operating under predictable rules, generate progress in unpredictable ways.

The application of current First Amendment jurisprudence to search engines, ISPs, and data mining will not necessarily create a world where machines have rights. Wu is right that the line must be drawn somewhere, but his technocratic attempt to empower government officials to control innovation is short-sighted. Ultimately, the First Amendment is as much about protecting the individuals who innovate and create online as those in the offline world. Such protection embraces the future instead of fearing it.

In Continental T.V. v. GTE Sylvania (1977), Justice Powell observed that antitrust law should go easy on manufacturer restraints on dealer resale because manufacturers could always decide to integrate forward into distribution and bypass dealers altogether.  As anyone who has followed electric car manufacturer Tesla’s recent travails will know, Justice Powell’s observation is not true of the auto industry.  Dealer franchise laws in most states require car manufacturers to sell through independent dealers.  Tesla apparently would like to bypass the traditional dealership model and sell directly to customers, which is landing the company in legal hot waters in many states, including traditionally “free market” states like Texas, Virginia, and North Carolina.

Tesla is the offspring of the South African-American entrepreneur Elon Musk, who also brought us Pay-Pal and SpaceX.  The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested.  Extraordinarily for a startup, in the first quarter of 2013, Tesla Model S sales exceeded the top line offerings of the established German luxury brands, Mercedes, BMW, and Audi.  Indeed, more Teslas were sold than BMW 7 series and Audi A8s combined.

One would imagine that Tesla’s biggest problem would be economic and technological—creating the infrastructure for battery-pack swap and charging facilities necessary to persuade customers that powering their Teslas will be as seamless as pumping gas at a filling station.  (Telsa’s recently announced 90-second battery pack swap will go a long way in that direction).  Alas, Tesla’s major stumbling block seems to be more legal than technological.  Tesla wants to open its own showrooms and sell directly to customers.  The powerful car dealers’ lobby has been invoking decades-old dealer franchising laws to block Tesla’s progress, insisting that Tesla must sell through independent, franchised dealers like other car companies do.  Tesla has been lobbying for legislative reforms at the state level, thus far with mixed success.

The basic economics of the problem are straightforward.  As Ronald Coase taught us, whether a car manufacturer keeps the distribution function in house or buys distribution services on the market is a question of the agency and transactions costs of those respective forms of distribution.  There are many reasons why manufacturers might prefer to distribute through independent dealers.  This shifts the investment in distribution to someone other than the manufacturer, allowing the manufacturer to focus on its core competence in research and development and manufacturing.  It shifts managerial decisions to managers with local market knowledge.  It may create economies of scale or scope as dealers sell several different brands under a single roof.

But there are also good reasons why a manufacturer might prefer to sell directly to consumers.  The manufacturer may be concerned that the dealers will focus more on short-term sales maximization rather than long-term investment in building the brand.  (This could be particularly concerning to a company like Tesla that is introducing a disruptive new technology that still needs to be proven in the market).  The manufacturer may worry that independent dealers will be insufficiently loyal and push other brands.  It may fret that local dealers will be unsophisticated about new technologies and that training and monitoring will be easier if retail distribution stays in house.

There is no a priori reason to favor one model or the other, and I have no idea whether Tesla is better off distributing through traditional dealer networks.  But I find it hard to fathom any good reason why the law should prohibit a car manufacturer from picking whatever distribution model it thinks best.  As a newcomer to these state dealer laws, I’ve been trying to keep an open mind that they might be supported by some legitimate policy concern and not pure protectionism.  Unfortunately, whenever a dealer-aligned speaker opens his mouth to defend these laws, the case that it’s just protectionism gets stronger.

One argument I’ve seen attributed to the auto dealers—and I sincerely hope that there’s some mistake and this is not actually an argument they’re making—is that creating “competition” in retail distribution of Tesla cars is necessary to prevent Tesla from price gouging customers. The idea that a vertically integrated manufacturer has a “monopoly” over the brand’s retail distribution that needs to be broken up by outsourcing the retail function to independent dealers is farcical.  If Tesla has market power, it will extract the full monopoly profit regardless of whether it sells to dealers or end users.  (It will be fully embedded in either the wholesale or resale price).  Since retail distribution is just a cost of doing business, Tesla will increase its monopoly profits by minimizing the cost of retail distribution since then it will sell more cars.  If anything, as economists have long recognized, outsourcing the retail distribution function to locally dominant automobile dealers could lead to double marginalization and increased prices.

A second argument is that having local dealers is necessary to ensure that customers are adequately served.  For example, Bob Glaser of the North Carolina Automobile Dealer’s Association has asserted that the restrictions are a form of “consumer protection,” since “a dealer who has invested a significant amount of capital in a community is more committed to taking care of that area’s customers.”  The obvious rejoinder is that Tesla has as much or more of an interest as the dealers in seeing that customers get the level of service they’re willing to pay for.   If Tesla gets a bad reputation for quality, it will fail.  I suppose that one might worry if  Tesla were a fly-by-night operation selling customers an expensive durable good at a high price and then fleeing with its profits and leaving customers without support.  But that’s obviously unlikely of a company that’s pouring billions of dollars into the creation of a new product and a recharging and battery swapping infrastructure.  Car manufacturers make considerably larger fixed capital investments than do dealers and I’m sure that the dealer failure and exit rate is considerably higher than that of manufacturers.

A related argument is that dealers play an important role in complying with local laws regarding titling and safety inspection.  But this argument doesn’t work either.  First, observe that at present most states only prohibit manufacturers from opening their own dealerships—they don’t prohibit online sales from outside the state.  (North Carolina recently passed a statute banning online sales as well).  There’s no reason why a manufacturer-owned dealership should be less capable of complying with local laws than an independent dealer.  Second, why should Internet sales involve evasion of state titling and safety inspection laws?  Internet sales can just as easily be subject to the same titling and inspection requirements as dealer-initiated sales.

Another argument I’ve heard is that prohibiting manufacturers from integrating forward into distribution is necessary to prevent them from competing unfairly with their own franchised dealers by undercutting them on price.  The logic of this argument is a little fuzzy. What would a manufacturer set up franchised dealers only to undercut them ruinously?  I suppose it might be some variant of the usual free-rider arguments—the manufacturer would set up independent dealers, free-ride on their local brand promotion, and then cut them out once the brand was established.  (Why the dealers can’t contractually bargain for protections from this isn’t clear).  But all of this is a lark for present purposes.  It clearly doesn’t apply to Tesla, which wants to avoid franchising altogether.  At most, if one were worried about “undercutting,” the rule should be a prohibition on manufacturer retail operations for manufacturers that also franchise, not for those that bypass franchising altogether.

Some people have quite fairly complained that Tesla shouldn’t be given special exemptions when other car companies are bound by the dealer restrictions.  For sure, but that cuts in favor of amending or repealing these laws altogether, not enforcing them against Tesla.  If anything, if it’s true that Tesla would obtain a competitive advantage by bypassing traditional dealer networks, consumers should want this advantage available to all car companies.  To put it other way, this argument is basically an admission that the dealer laws are raising car prices.

The last argument I’ve heard—and it’s a real doozy—is that independent dealers are civic bastions of local communities and therefore deserve to be specially protected.  Never mind the fact that many auto dealerships are owned and operated by large regional chains rather than local Boy Scouts troopmasters.  Why on God’s green earth should we single out automobiles for economic protectionism in order to subsidize local civic participation?  Why stop with automobiles?  Why not household appliances, twinkies, and lingerie?   And who is to say that Tesla will be any less civic minded than franchised auto dealers?  Further, if the model of direct distribution is so superior to franchised distribution that eliminating legal restrictions would put the dealers out of business, there must be something systematically inefficient about franchised distribution.  In that case, both consumers and local communities would be better served if state legislatures just levied a tax on auto sales and distributed them pro rata to local civic organizations.

Since the arguments for dealer laws are so weak, I’m left with the firm impression that this is just special interest rent-seeking of the worst kind.  It’s a real shame that Tesla—seemingly one of the most innovative, successful, and environmentally correct American industrial firms of the last decade—is going to have to spend tens of millions of dollars and may eventually have to cut shady political deals for the right to sell its own products.  I’m ordinarily a fan of federalism and states’ rights, but if the current debacle continues, it may be necessary for Congress to step in with preemptive federal legislation.

I filed comments today on the FTC’s proposed Settlement Order in the Google standards-essential patents (SEPs) antitrust case. The Order imposes limits on the allowable process for enforcing FRAND licensing of SEPs, an area of great complexity and vigorous debate among industry, patent experts and global standards bodies. The most notable aspect of the order is its treatment of the process by which Google and, if extended, patent holders generally may attempt to enforce their FRAND-obligated SEPs through injunctions.

Unfortunately, the FTC’s enforcement action in this matter had no proper grounding in antitrust law. Under Supreme Court doctrine there is no basis for liability under Section 2 of the Sherman Act because the exercise of lawfully acquired monopoly power is not actionable under the antitrust laws. Apparently recognizing this, the Commission instead brought this action under Section 5 of the FTC Act. But Section 5 provides no basis for liability either, where, as here, there is no evidence of consumer harm. The Commission’s Order continues its recent trend of expanding its Section 5 authority without judicial oversight, charting a dangerously unprincipled course.

The standard-setting organizations (SSOs) that govern the SEPs in this case have no policies prohibiting the use of injunctions. Even if an SSO agreement (or a specific license) did disallow them, seeking an injunction would be a simple breach of contract. Reading a limitation on injunctions into the SSO agreement is in severe tension with the normal rules of contract interpretation. To turn Motorola’s effort to receive a reasonable royalty for its patents by means of an injunction into an antitrust problem seems directly to undermine the standard-setting process. It also seems to have no basis in law.

My comments rely heavily on Bruce Kobayashi and Josh Wright’s article, Federalism, Substantive Preemption, and Limits on Antitrust: An Application to Patent Holdup, published in Competition Policy and Patent Law Under Uncertainty: Regulating Innovation (Manne & Wright, eds.).

For previous posts on the topic see, e.g.:

My former student and recent George Mason Law graduate (and co-author, here) Angela Diveley has posted Clarifying State Action Immunity Under the Antitrust Laws: FTC v. Phoebe Putney Health System, Inc.  It is a look at the state action doctrine and the Supreme Court’s next chance to grapple with it in Phoebe Putney.  here is the abstract:

The tension between federalism and national competition policy has come to a head. The state action doctrine finds its basis in principles of federalism, permitting states to replace free competition with alternative regulatory regimes they believe better serve the public interest. Public restraints have a unique ability to undermine the regime of free competition that provides the basis of U.S.- and state-commerce policies. Nevertheless, preservation of federalism remains an important rationale for protecting such restraints. The doctrine has elusive contours, however, which have given rise to circuit splits and overbroad application that threatens to subvert the state action doctrine’s dual goals of federalism and competition. The recent Eleventh Circuit decision in FTC v. Phoebe Putney Health System, Inc. epitomizes the concerns associated with misapplication of state action immunity. The U.S. Supreme Court recently granted the FTC’s petition for certiorari and now has the opportunity to more clearly define the contours of the doctrine. In Phoebe Putney, the FTC has challenged a merger it claims is the product of a sham transaction, an allegation certain to test the boundaries of the state action doctrine and implicate the interpretation of a two-pronged test designed to determine whether consumer welfare-reducing conduct taken pursuant to purported state authorization is immune from antitrust challenge. The FTC’s petition for writ of certiorari raises two issues for review. First, it presents the question concerning the appropriate interpretation of foreseeability of anticompetitive conduct. Second, the FTC presents the question whether a passive supervisory role on the state’s part can be construed as state action or whether its approval of the merger was a sham. In this paper, I seek to explicate the areas in which the state action doctrine needs clarification and to predict how the Court will decide the case in light of precedent and the principles underlying the doctrine.

Go read the whole thing.

Imagine if you picked up your morning paper to read that one of your astronomy professors had publicly questioned whether the earth, in fact, revolves around the sun.  Or suppose that one of your economics professors was quoted as saying that consumers would purchase more gasoline if the price would simply rise.  Or maybe your high school math teacher was publicly insisting that 2 + 2 = 5.  You’d be a little embarrassed, right?  You’d worry that your colleagues and friends might begin to question your astronomical, economic, or mathematical literacy.

Now you know how I felt this morning when I read in the Wall Street Journal that my own constitutional law professor had stated that it would be “an unprecedented, extraordinary step” for the Supreme Court to “overturn[] a law [i.e., the Affordable Care Act] that was passed by a strong majority of a democratically elected Congress.”  Putting aside the “strong majority” nonsense (the deeply unpopular Affordable Care Act got through the Senate with the minimum number of votes needed to survive a filibuster and passed 219-212 in the House), saying that it would be “unprecedented” and “extraordinary” for the Supreme Court to strike down a law that violates the Constitution is like saying that Kansas City is the capital of Kansas.  Thus, a Wall Street Journal editorial queried this about the President who “famously taught constitutional law at the University of Chicago”:  “[D]id he somehow not teach the historic case of Marbury v. Madison?”

I actually know the answer to that question.  It’s no (well, technically yes…he didn’t).  President Obama taught “Con Law III” at Chicago.  Judicial review, federalism, the separation of powers — the old “structural Constitution” stuff — is covered in “Con Law I” (or at least it was when I was a student).  Con Law III covers the Fourteenth Amendment.  (Oddly enough, Prof. Obama didn’t seem too concerned about “an unelected group of people” overturning a “duly constituted and passed law” when we were discussing all those famous Fourteenth Amendment cases — Roe v. Wade, Griswold v. Connecticut, Romer v. Evans, etc.)  Of course, even a Con Law professor focusing on the Bill of Rights should know that the principle of judicial review has been alive and well since 1803, so I still feel like my educational credentials have been tarnished a bit by the President’s “unprecedented, extraordinary” remarks.

Fortunately, another bit of my educational background somewhat mitigates the reputational damage inflicted by the President’s unfortunate comments.  This morning, the judge for whom I clerked, Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit, called the President’s bluff.

Here’s a bit of transcript from this morning’s oral argument in Physicians Hospital of America v. Sebelius, a case involving a challenge to the Affordable Care Act:

Judge Jerry E. Smith: Does the Department of Justice recognize that federal courts have the authority in appropriate circumstances to strike federal statutes because of one or more constitutional infirmities?

Dana Lydia Kaersvang (DOJ Attorney): Yes, your honor. Of course, there would need to be a severability analysis, but yes.

Smith: I’m referring to statements by the President in the past few days to the effect…that it is somehow inappropriate for what he termed “unelected” judges to strike acts of Congress that have enjoyed — he was referring, of course, to Obamacare — what he termed broad consensus in majorities in both houses of Congress.

That has troubled a number of people who have read it as somehow a challenge to the federal courts or to their authority or to the appropriateness of the concept of judicial review. And that’s not a small matter. So I want to be sure that you’re telling us that the attorney general and the Department of Justice do recognize the authority of the federal courts through unelected judges to strike acts of Congress or portions thereof in appropriate cases.

KaersvangMarbury v. Madison is the law, your honor, but it would not make sense in this circumstance to strike down this statute, because there’s no –

Smith: I would like to have from you by noon on Thursday…a letter stating what is the position of the Attorney General and the Department of Justice, in regard to the recent statements by the President, stating specifically and in detail in reference to those statements what the authority is of the federal courts in this regard in terms of judicial review. That letter needs to be at least three pages single spaced, no less, and it needs to be specific. It needs to make specific reference to the President’s statements and again to the position of the Attorney General and the Department of Justice.

I must say, I’m pretty dang proud of Judge Smith right now.  And I’m really looking forward to reading that three-page, single-spaced letter.

May 21-25 the GMU LEC will be hosting its Workshop on Empirical Methods for Law Professors once again this year.  Applications are available at the links below — and more information is available here.

The Workshop on Empirical Methods for Law Professors is designed to teach law professors the conceptual and practical skills required to (1) understand and evaluate others’ empirical studies, and (2) design and implement their own empirical studies. Participants are not expected to have background in statistical knowledge or empirical skills prior to enrollment. Instructors have been selected in part to demonstrate the development of empirical studies in a wide-range of legal and institutional settings including: antitrust, business law, bankruptcy, class actions, contracts, criminal law and sentencing, federalism, finance, intellectual property, and securities regulation. Class sessions will provide participants opportunities to learn through faculty lectures, drawing upon data and examples for cutting edge empirical legal studies, and participating in experiments. There will be numerous opportunities for participants to discuss their own works-in-progress or project ideas with the instructors.

Click Here to Apply

WORKSHOP FACULTY:

Eric Helland, Ph.D., Claremont-McKenna College
http://www.cmc.edu/academic/faculty/profile.asp?Fac=159

Jonathan Klick, J.D., Ph.D., University of Pennsylvania School of Law
http://www.law.upenn.edu/cf/faculty/jklick/

Bruce Kobayashi, Ph.D., George Mason University School of Law
http://www.law.gmu.edu/faculty/directory/fulltime/kobayashi_bruce

Joshua Wright, J.D., Ph.D., George Mason University School of Law
http://www.law.gmu.edu/faculty/directory/fulltime/wright_joshua

SCHEDULE:

The workshop will take place at:
George Mason University School of Law
3301 N. Fairfax Drive
Arlington, VA 22201
http://law.gmu.edu

The Workshop will begin on Monday May 21, at 8:30 a.m. and conclude on Friday May 25, at 12:00 pm. Classes on May 21 – 24 will run from 8:30 am to 4:30 pm, and include lectures and applied “hands-on” sessions. On May 25, the participants will have an opportunity to present their own empirical projects or “works in progress” and receive feedback from instructors and other participants.

Topics covered include:

• Research Design
• Finding Data
• Basic Probability Theory
• Descriptive Statistics
• Formulating Testable Hypotheses
• Specification
• Statistical Inference
• Cross-Sectional Regression
• Time Series Regression
• Panel Data Techniques
• Sensitivity Analysis
• Experimental Methods

Click here to see the draft agenda.

REGISTRATION AND TUITION:

Click Here to Apply

Tuition for the Workshop on Empirical Methods is $1000 (with a discounted rate of $850 if received by April 1, 2012) for the first professor from a law school and $600 for additional registrants from the same school.

 

Larry Ribstein, RIP

Geoffrey Manne —  24 December 2011

This morning our dear colleague, Larry Ribstein, passed away.  The intellectual life of everyone who knew him, of this blog, and of the legal academy at large is deeply diminished for his passing.

For me, as for many others, Larry was an important influence, not only intellectually but personally, as well.  Larry was the godfather of this blog, which got its start when a few of us, including Bill Sjostrom, Josh, Thom and me, pinch hit for Larry at Ideoblog in November 2005.  It took eight of us, including my dad, to fill his shoes, and still his traffic went down.  More than anyone else, Larry was instrumental in my decision to leave law teaching to work at Microsoft.  Completely unsure what to do and worried about how it would affect my ability to return to law teaching, I called Larry, who had no doubt.  He sealed the deal by pointing out that a move like that one would open some completely unanticipated, and potentially great, career paths and telling me not to worry so much about getting back to law teaching.  He was right, of course, and, thus also an important influence on the creation of the International Center for Law and Economics.  And Larry was a friend, one of those I always looked forward to seeing at ALEA and other conferences, more than once providing the necessary marginal incentive to attend.

We grieve for Ann, Sarah and Susannah and mourn his passing.

UPDATE:

The outpouring in the blogosphere from Larry’s friends, admirers, colleagues, and the like is, not surprisingly, moving.  As we find them and receive them from friends who ask us to post them here, we will continue to collect remembrances here.

Don Boudreaux

I didn’t know Larry very well, but on those four or five occasions when we were together at seminars I unfailingly learned from – and enjoyed – his contributions.  He was a scholar who wasted no words; every one – verbally from his mouth, and written from his keyboard – moved the discussion forward.

Saul Levmore

Larry’s passing is a sad and grave loss. I liked his independence of mind.

Daniel Martin Katz

This is a sad day for the American Legal Academy

Pejman Yousefzadeh

Professor Ribstein was a decent, kind man, who was also a brilliant scholar with penetrating insights. Academia in general–and legal scholarship in particular–will be poorer for his absence.

Francis Pileggi

Although I only “knew him through blogging” and via emails and cross-linking on each of our blogs, I feel a great loss and a void by his absence.

Cynthia Williams

It is hard to imagine the University of Illinois College of Law without Larry.

Champaign News-Gazette (with quotes from Andy Morriss, Nuno Garoupa, Henry Butler and Bruce Smith)

Friends and colleagues of Larry Ribstein say they’ll remember him as a first-rate legal scholar and original thinker who enjoyed debate and was an expert in business law.  They also recall him as a generous person who was a gifted photographer and an authority on movies and the law.

Washington Legal Foundation

Larry’s work, educational innovations, and always original scholarship were an inspiration to us at WLF, and we will miss him.

Federalist Society

A friend of the Federalist Society’s, Professor Ribstein was a man of great courage, intellect, and wisdom.

Alan Palmiter

We owe it to ourselves and especially to our students that Larry stay with us.

Tom Ginsburg

Larry was great colleague and friend, whose passion for ideas was simply unrivaled. we will miss him greatly.

Mark Peecher

Though invariably busy, Larry seemed to always say yes to big asks that involved substantial travel and time in order to speak with others on topical, important issues — a consummate academic citizen and scholar. Like so many of you, I shall greatly miss Larry Ribstein.

Walter Olson

Legal academia is in mourning for one of its most distinguished and multitalented figures, Larry Ribstein, a key scholar in corporate law and a provocative and rigorous exponent of law and economics thinking. Larry was an early blogger (at Ideoblog and more recently Truth on the Market), an influential critic of prosecutorial and regulatory excess, and a key voice in the debate on what law schools should do. He was also, I am grateful to say, an important friend of this site over many years.

Gordon Smith

As I have reflected about Larry’s passing over the past day, I realize that he was my friend because we shared a love of ideas, and he was my mentor because he taught me the importance of getting those ideas right

Dave Hoffman

Larry Ribstein, who died earlier this week, was a galvanic force as a scholar and blogger.  I join those who’ve expressed sadness and loss at his untimely passing.

Ellen Podgor

He was an extraordinary scholar and a welcomed and strong member of the academic blogosphere

Peter Mahler

I am grateful that in this fashion I got to know Professor Larry Ribstein, who passed away unexpectedly last weekend at the peak of his prolific, dazzling career as a leading academic voice and mentor to many in diverse fields of business law and particularly in the area of unincorporated business entities.

Henry Manne

On a personal note, I have lost a delightful and valued friend, a professional and intellectual “son” who was not supposed to predecease his mentor, and my intellectual biographer . . . who taught me that I had said far more than I ever understood.  I join the others who loved Larry in sending our deepest sympathy and condolences to Ann, Sarah and Susanna.

Andy Morriss

Larry wouldn’t accept less than the best from anyone, including himself. We’re all the poorer for his untimely death; we’re all the richer for his body of work and his influence on so many. His kindness and generosity knew no bounds.  I suspect he’s already been named Associate Archangel for Research in heaven and doubled scholarly output there.

Keith Sharfman

Like everyone else, I am shaken by Larry’s untimely passing. He was a fine scholar and a truly nice person. His *generosity* is what I remember most about him, especially as relates to younger scholars.

Tom Kirkendall

Beyond his special intelligence and intellectual honesty, though, the trait that drew me most to Larry was his humanity. Although he decried how our government’s senseless criminalization of business was destroying jobs and hindering the creation of wealth, Larry cared even more deeply about the incalculable damage to executives and their families that resulted from the absurdly-long prison terms that were often the product of such dubious prosecutions. When family members of wrongfully prosecuted executives came upon Larry’s writings, many of them would reach out to Larry for support, which he generously provided to them. And I will never forget Larry’s touching note to me after he read a blog post that I wrote on the death of Bill Olis, Jamie Olis’ father.  Larry Ribstein – husband, father, lawyer, teacher, colleague, writer, counselor, friend.  A fine legacy, indeed.

Bill Sjostrom

Larry was a brilliant, prolific, and provocative scholar who will be sorely missed.

Paul Rubin

This news is devastating.  I had recently discussed his work on movies, and tried to induce him to edit a special issue for Managerial and Decision Economics.  Aside from his remarkable publishing record, his paper “Wall Street and Vine: Hollywood’s View of Business” shows that Larry had seen and remembered more movies than anyone I know.  A true tragedy.

Thom Lambert

Although I didn’t know him as well as some of my co-bloggers did, Larry very much influenced my own development as an academic. He provided excellent feedback on my own work, gave me my start as a law blogger (writing as a guest at Ideoblog), reinvigorated Truth on the Market, and continually educated, challenged, inspired, and entertained me with his prolific blogging.

J.W. Verret

When I think of what it means to be a legal scholar, in my head I will always have a picture of Larry Ribstein.

Josh Wright

The legal academy will be worse off for losing Larry’s voice as a scholar.  Larry will be greatly missed here at Truth on the Market, and as a friend.

Todd Henderson

I will miss him beyond words. I will consider it a life well lived if when I die there is at least one person left behind who feels as I do about Larry.

Larry Solum

I have fond memories of many long discussions with Ribstein.  He defended his vision of law with a tenacity and rigor that is rare, even among law professors.  Just a few days ago, Larry and I had planned to get together at the AALS meeting in Washington.  I will miss him!

Stephen Bainbridge

The first time I met Larry, I thought he would make a brilliant Mephistopheles. He was lean in body with sharp and angular facial features, ever so slightly swarthy, and somehow just a little scary. As I got to know him over many years, of course, I learned that he was a brilliant scholar with a wide array of interests, an incisive mind, a vast store of learning, and a talent for getting to the heart of the matter, but also that he was a great person and someone whose company was always a treat.

Ted Frank

But beyond the loss to legal scholarship is the loss of a good person. Larry was also a friend, but an intellectually honest one who wouldn’t hesitate to tell you when he thought you were wrong (which happened several times a year to me). But that made it all the more flattering when he demonstrated support, and he was an early supporter of mine when it was far from clear that my hare-brained quixotic scheme would accomplish anything. I’m going to miss him a lot. Condolences to his family and friends.

Kim Krawiec

Following up on Dan’s post, via Larry Solum comes the horrible, horrible news that Larry Ribstein passed away this morning.  This has shocked and devastated our household and much of the legal academy.  I’ve known Larry for many, many years.  He was a supportive senior colleague at the beginning of my career (and remained one until the end).  He was a prolific and interesting scholar with wide-ranging interests, from “uncorporations” to polygamy. He was also a good friend.  He’ll be missed by many.

Ilya Somin

No doubt there will be many analyses and appreciations of Larry’s outstanding contributions to scholarship over the coming days and weeks. My personal favorite among his many excellent works is his recent book The Law Market (coauthored with Erin O’Hara), which is perhaps the best recent book on the potential benefits of competition between state legal systems in American federalism. Larry is also well-known in the legal blogosphere for his insightful posts at Truth on the Market, where he wrote an excellent post on ABA accreditation of law schools just a few days ago.

Jeff Lipshaw

More than anything, he was alive with ideas and personality and pungent observations, whether or not you liked or agreed with them (and sometimes I didn’t).  I was proud of his praise and thanks when we finished our projects and proud that he was willing to have me as a writing partner.

Matt Bodie

I’m shocked, horrified, and saddened to hear of Larry Ribstein’s passing.  There will be time to consider his wide-ranging, innovative, and incisive scholarship in the days, months, and years to come.  For now, I offer my sympathy to his family and colleagues at Illinois.  A very sad day for legal and corporate law academia.

Nancy Rapoport

Not only was he exceptionally smart and creative, but he seemed like a very nice person.  I’ll miss reading his work, and my heart goes out to his friends and family.

Jonathan Adler

I was terribly saddened to learn that Professor Larry Ribstein suffered a stroke and died yesterday.  He was on the faculty when I studied at George Mason, though I never had the good fortune to have him as one of my professors.  I have, however, learned quite a bit from his scholarly and other writings, as well as from our occasional conversations.  He will be missed.

Erik Gerding

The label of “ideological” is often used pejoratively and casually to dismiss arguments.  But Larry was ideological in a truer sense.  He was committed to rigorously and systematically working out ideas, ideals, and their consequences.  Larry’s contribution to the academy far exceeded even his large body of scholarship.  I miss him.

C.E. Petit

Our politics did not match well, but our shared interest in the interface between individuals and their business interests led to some interesting exchanges over the years… and helped sharpen my thoughts on how authors and other creators of intellectual property should arrange their own business affairs.

Bruce Smith (Dean, University of Illinois College of Law)

Larry was a scholar of incandescent intellect, breathtaking range, and unflagging energy,” said Dean Bruce Smith. “He cared passionately about his students and about transforming legal education to meet the challenges of the twenty-first century. He invested selflessly in the professional development of junior faculty members – whether at Illinois or at other institutions. He cared deeply about the College of Law and contributed incalculably to it through his ideas, his engagement, and his counsel. And he cherished his family with a love that was boundless. Larry was a towering figure and an incomparable person, and he will be dearly missed.

Stefan Padfield

Thus, while there is obviously much in terms of scholarship that Larry is worth remembering for, what I will primarily remember him for is his inspiring kindness.

Donald Clarke

So broad is Larry’s impact that it even reaches the field of Chinese law. He had been to China and was consulted on the drafting of (what else?) China’s Partnership Law.  It is truly sad that such a terrific scholar and colleague has been lost to us.

Renee Newman Knake

I met Larry just over a year ago while giving a talk at Illinois, and found him to be incredibly generous to me as a junior scholar, both in encouraging my work and offering an opportunity to participate in the recent Truth on the Market symposium Unlocking the Law: Deregulating the Legal Profession.

States can be a wonderful laboratory and platform for jurisdictional competition.  But sometimes the laboratory seems to belong to Dr. Frankenstein and then federal law must step in to bring order.

Biff Campbell thinks Reg D has failed its intended purpose and the reason is state law.  Here’s part of the abstract:

Regulation D * * * offers businesses — especially businesses with relatively small capital requirements — fair and efficient access to vital, external capital.  * * * The data show that Regulation D is not working in the way the Commission intended or in a way that benefits society. The data reveal that companies attempting to raise relatively small amounts of capital under Regulation D overwhelmingly forego the low transaction costs of offerings under Rule 504 and Rule 505 in favor of meeting the more onerous (and more expensive) requirements of Rule 506. Additionally, these companies overwhelmingly limit their relatively small offerings to accredited investors, which dramatically reduces the pool of potential investors. This unintended and bad outcome is the result of the burdens imposed by state blue sky laws and regulations, and this has to a large degree wrecked the sensible and balanced approach of the Commission in Regulation D.  Congress. . . could solve the problem by expanding federal preemption to cover all offerings made under Regulation D.

He has a point.  Permitting the states to regulate national securities transactions enables individual states to impose regulatory costs outside their borders for the benefit of local interest groups.  This can have perverse effects — in this case, by letting individual states impede national capital formation and entrepreneurship .Indeed, a key economic rationale for federal law is to address this problem.  See Easterbrook & Fischel, Mandatory Disclosure for the Protection of Investors, 70 Virginia Law Review 669 (1984).  

But we don’t have to eliminate state securities laws, along with state law’s potential advantages of competition and experimentation, to deal with this problem.  There’s an alternative:  apply state law only to intrastate transactions, or to corporations that have contracted for the securities law of a particular state (e.g., by incorporating in the state).  In other words, apply the same choice-of-law rule to state securities law as to state corporate governance law.  I discuss this approach in Dabit, Preemption and Choice of Law and Preemption and Choice-of-Law Coordination (with O’Connor).

The Green Bag recently introduced its Journal of Law, which has in turn introduced “The Post.”   The Post features what the Green Bag describes as the “best in legal blogging.”  This is a pretty neat idea, like most everything the Green Bag does.  How does The Post select the best in legal blogging?  Judges with expertise in law, blogging, or both.

These experts represent a mix of academics and practitioners, have some experience blogging themselves (although they will not be encouraged to nominate their own writing), and – most importantly – are voracious, appreciative, and intelligent consumers of legal blogs.  They are donating their good judgment and eagle eyes in helping to curate our selections. Throughout the year, they will be nominating posts to be voted on by the panel; as editor-in-chief of The Post, I will determine how many votes are required for a post to be featured here, and I will aim to stay within a yearly range of 5-20 featured posts with a
minimum of arbitrariness or capriciousness.

I’m extremely pleased that the inaugural issue of The Post has recognized a series of my recent blog posts focusing upon Google and antitrust.  Its always nice to know somebody is reading; and it is also really flattering to be included in a list of some of the legal bloggers I read on a regular basis.  Here’s the set of bloggers and blogging recognized in the first issue of The Post:

So Much For the Commerce Clause Challenge to Individual Mandate Being “Frivolous,” The Volokh Conspiracy, July 18, 2010, by Randy Barnett

“Let ’em Play,” Volokh Conspiracy, July 18-22, 2011, by Mitch Berman

Healthcare and Federalism: Should courts strictly scrutinize federal regulation of medical services?, PrawfsBlawg, Aug. 14, 2011, by Rick Hills

Why John Edwards Probably Did Not Commit A Crime, Regardless of His Motives or Those of The Donors, Election Law Blog, June 4, 2011, by Richard Pildes

Legal Theory Lexicon: Legal Theory, Jurisprudence, and the Philosophy of Law, Legal Theory Blog, Apr. 24, 2011, by Lawrence B. Solum

Antitrust Remedies, Truth on the Market, May 10, July 11 & 13, 2011, by Josh Wright

The “Antitrust Remedies” series of posts include the following:

Barnett v. Barnett on Antitrust

Searching for Antitrust Remedies, Part I

Searching for Antitrust Remedies, Part II

If you didn’t read them the first time around — this seems like as good a time as any!  And check out the other legal blogging in The Post.

 

Alison Frankel gripes about a NJ judge’s ruling throwing out a shareholders’ derivative suit seeking to hold the J & J board accountable for problems concerning the company’s Rispardal drug. Frankel thinks the bad faith standard the court applied is not high enough.

Ted Frank responds that the fact that the company had settled criminal allegations doesn’t mean the board was irresponsible given big companies’ exposure to prosecutorial overreaching (here’s my thoughts on the problems with prosecutors).  He notes that given huge potential penalties and legal costs “even a risk-neutral set of executives would refuse to go to trial on criminal charges that they had a 95% chance of winning.”  As Ted says:

The issue is this: first, any corporate law is going to have to balance false negatives (valid suits against directors being thrown out prematurely) and false positives (invalid suits against directors costing tens of millions of dollars in time and money to resolve). Any opening up of the courtroom doors to challenge directors will reduce false negatives at the expense of more false positives; any increase in the burden to bring suit will reduce false positives at the expense of more false negatives.

Anyway, Ted continues, shareholders of NJ corporations can decide to invest in firms incorporated elsewhere if they think NJ law is too lenient on directors, aptly citing my and O’Hara’s The Law Market.

Of course Frankel might argue that the business judgment rule that the court used to decide the case is ubiquitous, leaving plaintiffs with little choice. Indeed, the only significant dissent is Nevada which is, if anything, even easier on directors than NJ.   Frankel might also argue that this indicates state corporation law is rigged for managers and that we would do better under federal law.  Perhaps what we need is a super Dodd-Frank/SOX on steroids that preempts state law and exposes managers to suits like the one NJ dismissed.

I would respond that the universal acceptance of the business judgment rule represents the market’s rejection of Frankel’s position.  If Frankel wants to complain that the market for corporate law is imperfect,  she would need to persuade me that shareholders are better off in the clutches of Congress.