Archives For torts

For those who follow these things (and for those who don’t but should!), Eric Goldman just posted an excellent short essay on Section 230 immunity and account terminations.

Here’s the abstract:

An online provider’s termination of a user’s online account can be a major-and potentially even life-changing-event for the user. Account termination exiles the user from a virtual place the user wanted to be; termination disrupts any social network relationship ties in that venue, and prevents the user from sending or receiving messages there; and the user loses any virtual assets in the account, which could be anything from archived emails to accumulated game assets. The effects of account termination are especially acute in virtual worlds, where dedicated users may be spending a majority of their waking hours or have aggregated substantial in-game wealth. However, the problem arises in all online environments (including email, social networking and web hosting) where account termination disrupts investments made by users.

Because of the potentially significant consequences from online user account termination, user-rights advocates, especially in the virtual world context, have sought legal restrictions on online providers’ discretion to terminate users. However, these efforts are largely misdirected because of 47 U.S.C. §230(c)(2) (“Section 230(c)(2)”), a federal statutory immunity. This essay, written in conjunction with an April 2011 symposium at UC Irvine entitled “Governing the Magic Circle: Regulation of Virtual Worlds,” explains Section 230(c)(2)’s role in immunizing online providers’ decisions to terminate user accounts. It also explains why this immunity is sound policy.

But the meat of the essay (at least the normative part of the essay) is this:

Online user communities inevitably require at least some provider intervention. At times, users need “protection” from other users. The provider can give users self-help tools to reduce their reliance on the online provider’s intervention, but technological tools cannot ameliorate all community-damaging conduct by determined users. Eventually, the online provider needs to curb a rogue user’s behavior to protect the rest of the community. Alternatively, a provider may need to respond to users who are jeopardizing the site’s security or technical infrastructure. . . .  Section 230(c)(2) provides substantial legal certainty to online providers who police their premises and ensure the community’s stability when intervention is necessary.

* * *

Thus, marketplace incentives work unexpectedly well to discipline online providers from capriciously wielding their termination power. This is true even if many users face substantial nonrecoupable or switching costs, both financially and in terms of their social networks. Some users, both existing and prospective, can be swayed by the online provider’s capriciousness—and by the provider’s willingness to oust problem users who are disrupting the community. The online provider’s desire to keep these swayable users often can provide enough financial incentives for the online provider to make good choices.

Thus, broadly conceived, § 230(c)(2) removes legal regulation of an online provider’s account termination, making the marketplace the main governance mechanism over an online provider’s choices. Fortunately, the marketplace is effective enough to discipline those choices.

Eric doesn’t talk explicitly here about property rights and transaction costs, but that’s what he’s talking about.  Well-worth reading as a short, clear, informative introduction to this extremely important topic.

Late last year, with support from the International Center for Law and Economics, I published a paper that empirically analyzed the Philadelphia civil court system. That study focused upon the Philadelphia Complex Litigation Center (PCLC) which handles large mass tort programs including asbestos cases, hormone therapy replacement cases, various prescription drug-related injuries, and other mass tort programs. The PCLC has recently come under criticism for the use of a number of controversial procedures including the consolidation of asbestos cases and the use of reverse-bifurcation methods, where a plaintiff’s damages are calculated prior to the establishment of liability. That paper considered publicly available data from the Administrative Office of Pennsylvania Courts to analyze trends in docketed and pending civil cases in Philadelphia compared to other non-Philadelphia Pennsylvania counties, cases in federal court, and a national sample of state courts.

The study highlighted some unusual trends.  Philadelphia case dockets are disproportionately larger relative to both its population and other state and federal courts.  Philadelphia plaintiffs are also relatively more likely to prefer jury trials and less likely to settle than other non-Philadelphia Pennsylvania plaintiffs.  The data appear to support the conclusion that Philadelphia courts demonstrate a meaningful preference for plaintiffs, by coaxing “business” from other courts and providing them with a unique combination of advantages; indeed, the PCLC’s own stated goals include a desire to “[take] business away from other courts.”   While these strategies have no doubt successfully increased litigation in Philadelphia, and benefit local Philadelphia attorneys, they also bring a substantial cost to Philadelphia businesses and consumers.

I’ve now conducted a preliminary supplemental analysis (available here) designed to test the proposition that the majority of plaintiffs in the PCLC are out-of-state without an apparent or substantive connection to either Philadelphia or even the State of Pennsylvania.  I considered a sample of about 1,400 of the mass-tort cases in the PCLC to determine if the plaintiff filing the case had a home address or had sustained the complained of injury either in Philadelphia or Pennsylvania. Although the findings are preliminary, the results indicate that a substantial fraction of plaintiffs with cases pending at the PCLC have no discernible or relevant connection to Philadelphia or Pennsylvania. This supplement to the original study provides strong evidence that the PCLC has succeeded in attracting a large number of out-of-state cases that comprise a substantial portion of the civil cases in Philadelphia.

The main conclusions of this supplemental analysis are as follows:

  • Of the 1,357 cases in the sample, 913 (67.2%) were brought by plaintiffs who live out-of-state without any apparent connection to Pennsylvania or Philadelphia.
  • Only 180 cases (13.3%) reveal plaintiffs who live in or allege injury in Philadelphia.
  • The most substantial case types where the plaintiffs were overwhelmingly out-of-state are hormone therapy, denture adhesive cream, and Paxil birth defect cases.
  • Although most or all of the companies involved in these cases do business in Philadelphia and a few have some sort of administrative offices there, the vast majority of defendants do not have their principal place of business in Philadelphia or even in Pennsylvania. It is unlikely that venue was moved to the PCLC in most or any of the cases.

A chart summarizing the results is available here at Table 1.

Continue Reading…

Medical Devices

Paul H. Rubin —  18 April 2011

The GAO has recently issued a report on medical devices.  The thrust of the report is that “high-risk” medical devices do not receive enough scrutiny from the FDA and that recalls are not handled well.  This report and other evidence indicates that the FDA is likely to require more testing of devices.  As of now, most medical devices are approved on a fast track that requires significantly less testing than that required for new drugs.  (As I have discussed in a forthcoming Cato Journal article, medical devices are also subject to more immunity from state produce liability lawsuits.)

The GAO report is remarkable.  The GAO defines its mission as

“Our Mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. We provide Congress with timely information that is objective, fact-based, nonpartisan, nonideological, fair, and balanced.”

But the report on medical devices is entirely unbalanced.  It deals only with procedures for approval and the recall process (both of which are judged inadequate.)  There is no discussion of either costs or benefits.   That is, no evidence is presented that there is any actual harm from the “flawed” approval and recall processes.  Even more importantly, there is no evidence presented about the benefits to consumers from easy and rapid approval of medical devices.

As is well known, virtually all economists who have studied the FDA drug approval process have concluded that it causes serious harm by delaying drugs.  The import of the GAO Report is that we should duplicate that harm with medical devices.  This is an odd and perverse way of providing a “benefit” to the American people.

The state of New York is considering a cap on noneconomic damages (“pain and suffering”) for malpractice in order to save money.  The New York Times story asks

“… who benefits from caps — doctors or insurers — and whether the measures inflict unintended negative consequences upon victims of medical errors, including plaintiffs’ inability to find lawyers to take their cases.”

But in fact the evidence is that consumers actually benefit from such a cap. In a paper published in the Journal of Law and Economics in 2007 Joanna Shepherd and I examined the effect of various tort reforms on accidental death rates in states for the period 1981-2000.  We found that overall states that had passed tort reforms had lower accidental death rates, probably because of the increased availability of physicians in emergency rooms and other settings.  For the particular case of damage caps, we found that overall these caps led to a total of 5000 fewer deaths.  So we can have our cake and eat it too — caps will save money and also make New Yorkers safer.

Michael Abramowicz over at Concurring Opinions has an interesting post about the ongoing litigation between economists John Lott and Steven Levitt. Lott’s suit alleges that Levitt defamed him in his recent book Freakonomics by suggesting that Lott’s research on the relation between guns and crime could not be “replicated” by other scholars and in a subsequent email to an economist suggesting that Lott had paid $15,000 to the Journal of Law & Economics to publish in a special issue a series of articles supporting Lott’s views on guns. This week, a federal district court in Chicago granted Levitt’s motion to dismiss the claim concerning the statement in Freakonomics but denied his motion to dismiss the claim concerning the email.

Abramowicz suggests in his post that Lott’s “potential damages are almost certainly low” and that this case “though not technically frivolous” is “of a type that our legal system does not handle well” and “a vexatious use of the legal system, because the cost of bringing the claim seems much larger than any plausible reputational damage to Lott.”

Leaving the merits of the dispute aside, my question is this: if the cost of bringing the claim is really much larger than any damages that Lott may recover, then why is Lott pursuing the case? Isn’t Lott’s pursuit of the case strong evidence that he believes he could recover more than his costs?

Moreover, if indeed the claim is worth less than the cost of litigating it, why is Levitt vigorously defending the suit? Why have he and HarperCollins (his publisher) spent so much money disputing liability (e.g., by filing the motion to dismiss) rather than simply relaxing, knowing that damages won’t be very high? Isn’t it just as “vexatious” to dispute a vexatious claim as it is to assert one?

The answer, I think, is that defamation suits implicate subjective nonpecuniary interests that are difficult for courts to value. The formal legal remedies available in such cases are thus usually undercompensatory and pale in comparison to the reputational effects of winning or losing. While the financial stakes may be low, more is at stake than simply the money. The case is about reputation, not money. Hence the current legal quagmire. Even a generous financial settlement is therefore not likely to satisfy Mr. Lott, and by the same token an admission of having made a false statement is not something that Mr. Levitt would likely consider offering.

Here’s my suggestion for the most efficient way to end the dispute: in exchange for Lott’s agreement to dismiss the suit with prejudice, Levitt could agree to issue a statement not admitting to having defamed Lott but rather simply saying that he respects John Lott’s intellect and his work as an economist even though he remains skeptical about Lott’s work on guns and crime.

Hopefully a settlement along these lines is in the works, especially now that HarperCollins is out of the case and Levitt will have to start paying his lawyers out of his own pocket. But then again, settlement of the case would deprive bloggers of an interesting topic about which to comment!

Morrison at ELS Blog

Josh Wright —  18 December 2006

Ed Morrison (Columbia) has a great series of guest blogs at the always worth reading ELS Blog on a few research questions in bankruptcy and torts as well as a methodological entry. I am a little bit late with the link (his guest stint ended December 8th ), but I really enjoyed the posts. Here are the links:

Why are Small Business Bankruptcies so Rare?;

Propensity Score Matching; and More on Propensity Score Matching;

Do Consumers Want Insurance Coverage for Pain and Suffering? (proposing a diff-in-diff estimation strategy for answering this question based on California’s Prop 213);

and How Inefficient is Tort Law?

Domain Name Hijacking

Keith Sharfman —  6 November 2006

Dan Solove over at Concurring Opinions reports on an insidious practice that unfortunately has become increasingly common: domain name hijacking.

Here’s how it works. The original owner of a popular website fails to renew its domain name prior to the expiration of the owner’s entitlement. An opportunistic “hijacker” then purchases the name and offers to sell it back to the original owner for a tidy sum. The original owner is then left with an unhappy choice: pay the hijacker off, or set up shop under a new domain name with the loss of traffic that such a switch inevitably entails.

The latest victim of such a hijacking scheme is Crescat Sententia, a popular blog that used to be located at http://www.crescatsententia.org/ but now has been forced to move to http://www.crescatsententia.net/.

Dan suggests that domain name hijacking of this sort may well be characterized as copyright infringement. But because the case for copyright protection isn’t clear cut, he wonders if there are other legal protections too.

Here’s my suggestion for another theory of liability: intentional interference with prospective economic advantage. The elements of that tort–(1) an economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff; (2) knowledge by the defendant of the existence of the relationship, (3) intentional acts on the part of the defendant designed to disrupt the relationship, (4) actual disruption of the relationship; and (5) damages to the plaintiff proximately caused by the acts of the defendant–all seem to be present here. The original website has an economic relationship with its existing readers or patrons; the hijacker knows about this relationship; the hijacker intentionally acts to disrupt the relationship by acquiring the domain name; the loss of the domain name actually disrupts the relationship by shutting down the old site without indicating where a new site, if any, is located; and the original owner is thereby damaged.

As matter of policy and economics, there isn’t any positive social value associated with domain name hijacking. Indeed, once transaction and switching costs are considered, the conduct actually entails social losses. One would therefore hope (or perhaps a la Posner even dare to predict) that the common law would forbid and deter such conduct. Applying the tort of intentional interference with prospective economic advantage would do just that. And so even if the copyright case against domain name hijacking isn’t airtight, the common law should come to the rescue.

Hijackers beware!