Archives For Legal Profession

Conflict of Interest in Prosecuting Police Officers: Examining the Incentives Facing District Attorneys

Ben Sperry —  10 December 2020

High-profile cases like those of Michael Brown in Ferguson, Missouri, and Breonna Taylor in Louisville, Kentucky, have garnered attention from the media and the academy alike about decisions by grand juries not to charge police officers with homicide. 

While much of this focus centers on alleged racial bias on the part of police officers and the criminal justice system writ large, it’s also important to examine the perverse incentives faced by local district attorneys tasked with prosecuting police.

District attorneys rely on close professional relationships with police officers and law enforcement departments to prosecute criminal cases. Professional incentives require district attorneys to win cases. They can’t do that without cooperation from the police who investigate and bring criminal complaints. Moreover, police unions have disproportionate influence on district attorney elections.

Applying a law & economics lens to criminal justice offers a way forward that could better align incentives to prosecute police officers who break the law.

The legal profession is regulated largely by the rules of professional conduct developed by bar associations in each jurisdiction. The stated goal of these rules is to promote legal ethics among attorneys admitted to the bar. But these rules can also be understood economically. The organized bar can use legal ethics rules to increase its members’ profits in two main ways: by restricting entry to the practice of law and by adopting efficient rules that reduce the costs of contracting between lawyers and clients.

The bar’s rules can restrict competition in the market by requiring prospective lawyers to have graduated from an accredited law school and passed a bar exam, or to have substantial experience in another jurisdiction before they are allowed to waive in. The ability to practice law in a given jurisdiction without having taken the necessary steps to become a member of the bar is limited to pro hac vice rules that require working with a member of the bar. The result of the limitations allows lawyers to raise prices higher than they would without the restrictions on competition.

But the rules also can promote economically efficient outcomes. For instance, conflict-of-interest rules prevent lawyers from representing clients who have interests directly adverse to other clients, or where there would be significant risk that representation would be materially limited by responsibilities to other clients or former clients. (See, for example, Rule 1.7 of the American Bar Association’s Model Rules of Professional Conduct.) Many of these conflicts are waivable, but some are not. 

It is worth considering why these rules make sense economically. In a world devoid of transaction costs and strategic behavior, lawyers and clients could negotiate complete contracts for each representation, which would include compensation for those who would possibly be hurt by conflicts. But that’s not the real world. Conflict-of-interest rules are designed to overcome the principal-agent problems that arise from representing clients with adverse interests, including the potential use of information from representations to the detriment of those clients. Thus, conflict-of-interest rules supply efficient defaults that generally limit potentially harmful representation. 

Incentives in prosecuting police

Imagine the following scenario: a local district attorney works with a municipal police officer on a number of cases over the years, relying upon that officer’s evidence and testimony to prosecute criminal defendants. A video of the officer is later posted on YouTube showing him beating a non-resisting handcuffed citizen with his baton. The district attorney must now make the decision of whether to charge the officer with potential crimes. 

The bar’s usual conflict-of-interest rules, as described above, do not apply the same way to prosecutors. The prosecutor’s client is presumed to be the public, rather than the police officers with whom they work on a daily basis. Thus, the district attorney is not deemed to face an ethical problem in prosecuting the officer, despite their long-standing professional institutional relationship. The rules of professional conduct don’t require a district attorney to recuse herself from the case.

Following the incentives, it is no surprise that prosecutors often give benefit of the doubt to police officers in allegations of criminal conduct. One of a prosecutor’s primary jobs is to ensure judges and juries believe the testimony of police officers. Future relationships with officers may be impaired by police prosecutions that are perceived by law enforcement to be unfair.  

Elections are ineffective checks on prosecutorial power

While in theory (and sometimes in fact), public elections could serve as a check on district attorneys who fail to live up to their duty to prosecute unlawful behavior by police officers, there are reasons to be skeptical that they successfully do so consistently. Public choice economics helps explain why.

The public as a whole is dispersed and unorganized, especially when it comes to its interest as potential victims of the criminal justice system. On the other hand, police unions and associations are organized to forward the interest of law enforcement officers. Indeed, among the benefits police unions commonly provide to members are lawyers to defend against civil rights lawsuits and criminal prosecutions. Police unions and associations also can exert significant influence on  who is chosen to be district attorney in the first place. Such organized interests often are among the leaders in spending and campaigning for or against district attorney candidates. By contrast, the voting public tends to have far less information about and interest in those elections. 

Getting the incentives right

In pursuing institutional reform, it is important both to get the incentives right and to remain cognizant of trade-offs. The goal should be to align incentives so that there is no disincentive for prosecuting police officers criminally if the facts call for it. Some popular proposed reforms, however, could be both legally deficient or suffer from similar incentive problems.

For instance, a number of California district attorneys and candidates have called for an amendment to the state’s rules of professional conduct to define it as a conflict of interest for a district attorney candidate to receive campaign contributions from a police union. While this calls out the same problem identified here, the proposal would be subject to challenge on First Amendment grounds for targeting political speech, and on equal protection grounds for preferencing other groups over police unions. 

Other possibilities, such as escalating police prosecutions to the state attorney general’s office, face the same public choice and conflict-of-interest problems identified for local district attorneys. 

One way to avoid the conflict of interest inherent in police prosecutions might be to appoint special prosecutors when there are police defendants. Bar associations could create a panel of lawyers for appointment in such cases, much like some jurisdictions have for indigent defendants. The special prosecutor would need investigatory power and the ability to carry out the case on behalf of the public. 

Conclusion

The incentives faced by district attorneys contribute to the problem of insufficient prosecution of police officers who engage in criminal behavior. Prosecutors who generally rely upon close professional relationships with police officers have a conflict of interest when it comes to cases where police officers are the defendants. A new path is needed to get the incentives right.

In Constitutional Law, Facebook, First Amendment, Legal Profession, Platforms, Regulation, Truth on the Market , , ,
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For the Bar, Competition is Always “Unethical”

Jonathan M. Barnett —  8 June 2020

This guest post is by Jonathan M. Barnett, Torrey H. Webb Professor of Law at the University of Southern California, Gould School of Law.

State bar associations, with the backing of state judiciaries and legislatures, are typically entrusted with a largely unqualified monopoly over licensing in legal services markets. This poses an unavoidable policy tradeoff. Designating the bar as gatekeeper might protect consumers by ensuring a minimum level of service quality. Yet the gatekeeper is inherently exposed to influence by interests with an economic stake in the existing market. Any licensing requirement that might shield uninformed consumers from unqualified or opportunistic lawyers also necessarily raises an entry barrier that protects existing lawyers against more competition. A proper concern for consumer welfare therefore requires that the gatekeeper impose licensing requirements only when they ensure that the efficiency gains attributable to a minimum quality threshold outweigh the efficiency losses attributable to constraints on entry.

There is increasing reason for concern that state bar associations are falling short of this standard. In particular, under the banner of “legal ethics,” some state bar associations and courts have blocked or impeded entry by innovative “legaltech” services without a compelling consumer protection rationale.

The LegalMatch Case: A misunderstood platform

This trend is illustrated by a recent California appellate court decision interpreting state regulations pertaining to legal referral services. In Jackson v. LegalMatch, decided in late 2019, the court held that LegalMatch, a national online platform that matches lawyers and potential clients, constitutes an illegal referral service, even though it is not a “referral service” under the American Bar Association’s definition of the term, and the California legislature had previously declined to include online services within the statutory definition.

The court’s reasoning: the “marketing” fee paid by subscribing attorneys to participate in the platform purportedly runs afoul of state regulations that proscribe attorneys from paying a fee to referral services that have not been certified by the bar. (The lower court had felt differently, finding that LegalMatch was not a referral service for this purpose, in part because it did not “exercise any judgment” on clients’ legal issues.)

The court’s formalist interpretation of applicable law overlooks compelling policy arguments that strongly favor facilitating, rather than obstructing, legal matching services. In particular, the LegalMatch decision illustrates the anticompetitive outcomes that can ensue when courts and regulators blindly rely on an unqualified view of platforms as an inherent source of competitive harm.

Contrary to this presumption, legal services referral platforms enhance competition by reducing transaction-cost barriers to efficient lawyer-client relationships. These matching services benefit consumers that otherwise lack access to the full range of potential lawyers and smaller or newer law firms that do not have the marketing resources or brand capital to attract the full range of potential clients. Consistent with the well-established economics of platform markets, these services operate under a two-sided model in which the unpriced delivery of attorney information to potential clients is financed by the positively priced delivery of interested clients to subscribing attorneys. Without this two-sided fee structure, the business model collapses and the transaction-cost barriers to matching the credentials of tens of thousands of lawyers with the preferences of millions of potential clients are inefficiently restored. Some legal matching platforms also offer fixed-fee service plans that can potentially reduce legal representation costs relative to the conventional billable hour model that can saddle clients with unexpectedly or inappropriately high legal fees given the difficulty in forecasting the required quantity of legal services ex ante and measuring the quality of legal services ex post.

Blocking entry by these new business models is likely to adversely impact competition and, as observed in a 2018 report by an Illinois bar committee, to injure lower-income consumers in particular. The result is inefficient, regressive, and apparently protectionist.

Indeed, subsequent developments in this litigation are regrettably consistent with the last possibility. After the California bar prevailed in its legal interpretation of “referral service” at the appellate court, and the Supreme Court of California declined to review the decision, LegalMatch then sought to register as a certified lawyer referral service with the bar. The bar responded by moving to secure a temporary restraining order against the continuing operation of the platform. In May 2020, a lower state court judge both denied the petition and expressed disappointment in the bar’s handling of the litigation.

Bar associations’ puzzling campaign against “LegalTech” innovation

This case of regulatory overdrive is hardly unique to the LegalMatch case. Bar associations have repeatedly acted to impede entry by innovators that deploy digital technologies to enhance legal services, which can drive down prices in a field that is known for meager innovation and rigid pricing. Puzzlingly from a consumer welfare perspective, the bar associations have taken actions that impede or preclude entry by online services that expand opportunities for lawyers, increase the information available to consumers, and, in certain cases, place a cap on maximum legal fees.

In 2017, New Jersey Supreme Court legal ethics committees, following an “inquiry” by the state bar association, prohibited lawyers from partnering with referral services and legal services plans offered by Avvo, LegalZoom, and RocketLawyer. In 2018, Avvo discontinued operations due in part to opposition from multiple state bar associations (often backed up by state courts).

In some cases, bar associations have issued advisory opinions that, given the risk of disciplinary action, can have an in terrorem effect equivalent to an outright prohibition. In 2018, the Indiana Supreme Court Disciplinary Commission issued a “nonbinding advisory” opinion stating that attorneys who pay “marketing fees” to online legal referral services or agree to fixed-fee arrangements with such services “risk violation of several Indiana [legal] ethics rules.”

State bar associations similarly sought to block the entry of LegalZoom, an online provider of standardized legal forms that can be more cost-efficient for “cookie-cutter” legal situations than the traditional legal services model based on bespoke document preparation. These disputes are protracted and costly: it took LegalZoom seven years to reach a settlement with the North Carolina State Bar that allowed it to continue operating in the state. In a case pending before the Florida Supreme Court, the Florida bar is seeking to shut down a smartphone application that enables drivers to contest traffic tickets at a fixed fee, a niche in which the traditional legal services model is likely to be cost-inefficient given the relatively modest amounts that are typically involved.

State bar associations, with supporting action or inaction by state courts and legislatures, have ventured well beyond the consumer protection rationale that is the only potentially publicly-interested justification for the bar’s licensing monopoly. The results sometimes border on absurdity. In 2006, the New Jersey bar issued an opinion precluding attorneys from stating in advertisements that they had appeared in an annual “Super Lawyers” ranking maintained by an independent third-party publication. In 2008, based on a 304-page report prepared by a “special master,” the bar’s ethics committee vacated the opinion but merely recommended further consideration taking into account “legitimate commercial speech activities.” In 2012, the New York legislature even changed the “unlicensed practice of law” from a misdemeanor to a felony, an enhancement proposed by . . . the New York bar (see here and here). 

In defending their actions against online referral services, the bar associations argue that these steps are necessary to defend the public’s interest in receiving legal advice free from any possible conflict of interest. This is a presumptively weak argument. The associations’ licensing and other requirements are inherently tainted throughout by a “meta” conflict of interest. Hence it is the bar that rightfully bears the burden in demonstrating that any such requirement imposes no more than a reasonably necessary impediment to competition. This is especially so given that each bar association often operates its own referral service.

The unrealized potential of North Carolina State Board of Dental Examiners v. FTC

Bar associations might nonetheless take the legal position that they have statutory or regulatory discretion to take these actions and therefore any antitrust scrutiny is inapposite. If that argument ever held water, that is clearly no longer the case.

In an undeservedly underapplied decision, North Carolina State Board of Dental Examiners v. FTC, the Supreme Court held definitively in 2015 that any action by a “non-sovereign” licensing entity is subject to antitrust scrutiny unless that action is “actively supervised” by, and represents a “clearly articulated” policy of, the state. The Court emphasized that the degree of scrutiny is highest for licensing bodies administered by constituencies in the licensed market—precisely the circumstances that characterize state bar associations.

The North Carolina decision is hardly an outlier. It followed a string of earlier cases in which the Court had extended antitrust scrutiny to a variety of “hard” rules and “soft” guidance that bar associations had issued and defended on putatively publicly-interested grounds of consumer protection or legal ethics.

At the Court, the bar’s arguments did not meet with success. The Court rejected any special antitrust exemption for a state bar association’s “advisory” minimum fee schedule (Goldfarb v. Virginia State Bar (1975)) and, in subsequent cases, similarly held that limitations by professional associations on advertising by members—another requirement to “protect” consumers—do not enjoy any special antitrust exemption. The latter set of cases addressed specifically both advertising restrictions on price and quality by a California dental association (California Dental Association v. FTC (1999) ) and blanket restrictions on advertising by a bar association (Bates v. State Bar of Arizona (1977 )). As suggested by the bar associations’ recent actions toward online lawyer referral services, the Court’s consistent antitrust decisions in this area appear to have had relatively limited impact in disciplining potentially protectionist actions by professional associations and licensing bodies, at least in the legal services market. 

A neglected question: Is the regulation of legal services anticompetitive?

The current economic situation poses a unique historical opportunity for bar associations to act proactively by enlisting independent legal and economic experts to review each component of the current licensing infrastructure and assess whether it passes the policy tradeoff between protecting consumers and enhancing competition. If not, any such component should be modified or eliminated to elicit competition that can leverage digital technologies and managerial innovations—often by exploiting the efficiencies of multi-sided platform models—that have been deployed in other industries to reduce prices and transaction costs. These modifications would expand access to legal services consistent with the bar’s mission and, unlike existing interventions to achieve this objective through government subsidies, would do so with a cost to the taxpayer of exactly zero dollars.

This reexamination exercise is arguably demanded by the line of precedent anchored in the Goldfarb and Bates decisions in 1975 and 1977, respectively, and culminating in the North Carolina Dental decision in 2015. This line of case law is firmly grounded in antitrust law’s underlying commitment to promote consumer welfare by deterring collective action that unjustifiably constrains the free operation of competitive forces. In May 2020, the California bar took a constructive if tentative step in this direction by reviving consideration of a “regulatory sandbox” to facilitate experimental partnerships between lawyers and non-lawyers in pioneering new legal services models. This follows somewhat more decisive action by the Utah Supreme Court, which in 2019 approved commencing a staged process that may modify regulation of the legal services market, including lifting or relaxing restrictions on referral fees and partnerships between lawyers and non-lawyers.

Neither the legal profession generally nor the antitrust bar in particular has allocated substantial attention to potentially anticompetitive elements in the manner in which the practice of law has long been regulated. Restrictions on legal referral services are only one of several practices that deserve a closer look under the policy principles and legal framework set forth most recently in North Carolina Dental and previously in California Dental. A few examples can illustrate this proposition. 

Currently limitations on partnerships between lawyers and non-lawyers constrain the ability to achieve economies of scale and scope in the delivery of legal services and preclude firms from offering efficient bundles of complementary legal and non-legal services. Under a more surgical regulatory regime, legal services could be efficiently bundled with related accounting and consulting services, subject to appropriately targeted precautions against conflicts of interest. Additionally, as other commentators have observed and as “legaltech” innovations demonstrate, software could be more widely deployed to provide “direct-to-consumer” products that deliver legal services at a far lower cost than the traditional one-on-one lawyer-client model, subject to appropriately targeted precautions that reflect informational asymmetries in individual and small-business legal markets.

In another example, the blanket requirement of seven years of undergraduate and legal education raises entry costs that are not clearly justified for all areas of legal practice, some of which could potentially be competently handled by practitioners with intermediate categories of legal training. These are just two out of many possibilities that could be constructively explored under a more antitrust-sensitive approach that takes seriously the lessons of North Carolina Dental and the competitive risks inherent to lawyer self-regulation of legal services markets. (An alternative and complementary policy approach would be to move certain areas of legal services regulation out of the hands of the legal profession entirely.)

Conclusion

The LegalMatch case is indicative of a largely unexploited frontier in the application of antitrust law and principles to the practice of law itself. While commentators have called attention to the antitrust concerns raised by the current regulatory regime in legal services markets, and the evolution of federal case law has increasingly reflected these concerns, there has been little practical action by state bar associations, the state judiciary or state legislatures. This might explain why the delivery of legal services has changed relatively little during the same period in which other industries have been transformed by digital technologies, often with favorable effects for consumers in the form of increased convenience and lower costs. There is strong reason to believe a rigorous and objective examination of current licensing and related limitations imposed by bar associations in legal services markets is likely to find that many purportedly “ethical” requirements, at least when applied broadly and without qualification, do much to inhibit competition and little to protect consumers. 

In Corporate & Securities Law, Legal Profession, Platforms, Regulation, Truth on the Market , , , , , ,
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Economic Calculation in the Public Defender’s Office

Ben Sperry —  10 July 2019

After spending a few years away from ICLE and directly engaging in the day to day grind of indigent criminal defense as a public defender, I now have a new appreciation for the ways economic tools can explain behavior that I had not before studied. For instance, I think the law and economics tradition, specifically the insights of Ludwig von Mises and Friedrich von Hayek on the importance of price signals, can explain one of the major problems for public defenders and their clients: without price signals, there is no rational way to determine the best way to spend one’s time.

I believe the most common complaints about how public defenders represent their clients is better understood not primarily as a lack of funding, as a lack of effort or care, or even simply as a lack of time for overburdened lawyers, but as an allocation problem. In the absence of price signals, there is no rational way to determine the best way to spend one’s time as a public defender. (Note: Many jurisdictions use the model of indigent defense described here, in which lawyers are paid a salary to work for the public defender’s office. However, others use models like contracting lawyers for particular cases, appointing lawyers for a flat fee, relying on non-profit agencies, or combining approaches as some type of hybrid. These models all have their own advantages and disadvantages, but this blog post is only about the issue of price signals for lawyers who work within a public defender’s office.)

As Mises and Hayek taught us, price signals carry a great deal of information; indeed, they make economic calculation possible. Their critique of socialism was built around this idea: that the person in charge of making economic choices without prices and the profit-and-loss mechanism is “groping in the dark.”

This isn’t to say that people haven’t tried to find ways to figure out the best way to spend their time in the absence of the profit-and-loss mechanism. In such environments, bureaucratic rules often replace price signals in directing human action. For instance, lawyers have rules of professional conduct. These rules, along with concerns about reputation and other institutional checks may guide lawyers on how to best spend their time as a general matter. But even these things are no match for price signals in determining the most efficient way to allocate the scarcest resource of all: time.

Imagine two lawyers, one working for a public defender’s office who receives a salary that is not dependent on caseload or billable hours, and another private defense lawyer who charges his client for the work that is put in.

In either case the lawyer who is handed a file for a case scheduled for trial months in advance has a choice to make: do I start working on this now, or do I put it on the backburner because of cases with much closer deadlines? A cursory review of the file shows there may be a possible suppression issue that will require further investigation. A successful suppression motion would likely lead to a resolution of the case that will not result in a conviction, but it would take considerable time – time which could be spent working on numerous client files with closer trial dates. For the sake of this hypothetical, there is a strong legal basis to file suppression motion (i.e., it is not frivolous).

The private defense lawyer has a mechanism beyond what is available to public defenders to determine how to handle this case: price signals. He can bring the suppression issue to his client’s attention, explain the likelihood of success, and then offer to file and argue the suppression motion for some agreed upon price. The client would then have the ability to determine with counsel whether this is worthwhile.

The public defender, on the other hand, does not have price signals to determine where to put this suppression motion among his other workload. He could spend the time necessary to develop the facts and research the law for the suppression motion, but unless there is a quickly approaching deadline for the motion to be filed, there will be many other cases in the queue with closer deadlines begging for his attention. Clients, who have no rationing principle based in personal monetary costs, would obviously prefer their public defender file any and all motions which have any chance whatsoever to help them, regardless of merit.

What this hypothetical shows is that public defenders do not face the same incentive structure as private lawyers when it comes to allocation of time. But neither do criminal defendants. Indigent defendants who qualify for public defender representation often complain about their “public pretender” for “not doing anything for them.” But the simple truth is that the public defender is making choices on how to spend his time more or less by his own determination of where he can be most useful. Deadlines often drive the review of cases, along with who sends the most letters and/or calls. The actual evaluation of which cases have the most merit can fall through the cracks. Often times, this means cases are worked on in a chronological manner, but insufficient time and effort is spent on particular cases that would have merited more investment because of quickly approaching deadlines on other cases. Sometimes this means that the most annoying clients get the most time spent on their behalf, irrespective of the merits of their case. At best, public defenders are acting like battlefield medics and attempt to perform triage by spending their time where they believe they can help the most.

Unlike private criminal defense lawyers, public defenders can’t typically reject cases because their caseload has grown too big, or charge a higher price in order to take on a particularly difficult and time-consuming case. Therefore, the public defender is stuck in a position to simply guess at the best use of their time with the heuristics described above and do the very best they can under the circumstances. Unfortunately, those heuristics simply can’t replace price signals in determining the best use of one’s time.

As criminal justice reform becomes a policy issue for both left and right, law and economics analysis should have a place in the conversation. Any reforms of indigent defense that will be part of this broader effort should take into consideration the calculation problem inherent to the public defender’s office. Other institutional arrangements, like a well-designed voucher system, which do not suffer from this particular problem may be preferable.

In Law & Economics, Legal Profession, Truth on the Market , , , ,
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Bill MacLeod: A Personal Reflection on Fred McChesney

Geoffrey Manne —  7 November 2017

William C. MacLeod is a partner at Kelley, Drye & Warren LLP, where he chairs the firm’s Antitrust and Competition practice group. He is a former director of the Bureau of Consumer Protection at the FTC.

It is only with hindsight that we can appreciate the naïveté of conventional wisdom. In 1970, when Fred McChesney left Holy Cross College, serious economists were advocating the dismantling of large American companies, supposedly because they had grown too large to compete effectively.  Regulations were multiplying, as were the bureaucracies Congress created to impose them. OSHA, EPA, CPSC, to name a few, were reordering behavior from the factory floor to the family room. A Republican president outdid them all with an executive order freezing wages and prices across the economy, divorcing the dollar from the gold standard, and taxing imports to protect US producers. These measures met the acclaim of the intelligentsia and the media by and large. The learned classes were already concerned that communist economies were performing better than the capitalism in the US.

The legal profession offered a coveted career in those days of expanding government. A regulatory state needs tens of thousands lawyers to promulgate, enforce, observe and resist the rules that direct economic activity and restrict property rights. Fresh out of college, Fred wanted to be a lawyer. He left for the Ivy League and entertained visions of practice in elite institutions of law. The visions evaporated in the drudgery of cases. Fortunately for us, Fred found that preparing for a traditional practice neither challenged his intellect nor inspired his passion.

For those who knew Fred, whose passion for good people and great ideas was unmatched, it is no surprise that the encounter that changed his life came in an economics class. Nor is it a surprise, for those who have heard Louis DeAlessi, that the class was his course in price theory. There Fred started to explore the myriad ways in which people enjoy life, liberty and the pursuit of happiness (or maximize utility within budget constraints, as the economists eloquently put it). Many of those pursuits, this young Washingtonian saw, found riches and faced ruin on Capitol Hill.

Louis told Fred of a place not far away where a future Nobel laureate, James Buchanan, had broken ground in the largely uncharted territory of public choice. Fred packed his bags for Charlottesville and the University of Virginia. By that time, Buchanan had decamped, but UVA remained a hub of the discipline that explored the economic implications of public and private ownership of property, and the costs of collective control of the means of production. Among their many accomplishments, the economists in Rouss Hall examined the Soviet economy through the lens of their new learning, and they were among the first to predict the economic decline of that supposed juggernaut. Rumor has it that they were working for the CIA, economic spies at your service. If you wanted to learn the economic consequences of government activity, UVA was a great place to go.

That is why I went, that is where I met Fred, and that is when he became my friend for life. Together we studied, wrote, worked, and spun rock and roll records, sometimes all at once, as we tried to absorb the wisdom of Bill Breit, Ken Elzinga, Roland McKean, John Moore, Warren Nutter, Roger Sherman and Leland Yeager. We treated the radio station like a lending library for oldies unattainable anywhere else. We took our final exam in public finance the gray day after Bobby Darren died. And we learned to appreciate the magic of markets. Perhaps most gratifying, we saw weary refuges return from Washington’s war on free markets, every one sadder, wiser, and ready to teach a new generation that Hayek and Friedman were right. Not even brilliant believers in the market can run it better than free customers and competitors can.

Charlottesville was paradise, but it couldn’t hold Fred. That great academic entrepreneur and talent scout, Henry Manne, looked to UVA for the core of his team at the Law and Economics Center in the University of Miami. Fred was one of Henry’s first recruits. A year later, I was one of Fred’s. He returned to Charlottesville, helped me pack my old Ford, and joined me for a twenty-four-hour rolling concert with Dion, Chubby, Fats, the Marvelettes, Ronettes and Searchers serenading the countryside all the way.

We enjoyed every minute of L&EC. When judges and professors came to Miami to teach and learn economics at Henry’s Institutes, we welcomed them, and Fred made more friends for life. He wrote his dissertation and published a pathbreaking study with Tim Muris on the economic effects of legal restrictions in the legal profession. Fred joined the law review, played with the champions of UM Intramural Softball, acquired academic honors, and landed a clerkship in the Ninth Circuit Court of Appeals.

Then the elite law firms came calling, but a life of law practice had gained no power over Fred after he’d seen economics. Tim Muris lured him to the FTC, where Fred evaluated enforcement proposals with the eye of an economics professor and supervised the Commission’s advocacy of competition where public and private barriers had kept it at bay. A career capstone for many a student of law and economics, wielding the power of the government was not what Fred wanted to do. He wanted to explain it. He left the FTC and embarked on the career that would make his own name in public choice economics.

I cannot do justice to the body of Fred’s prodigious scholarly contributions in this note. Instead, I will describe just one and invite you to sample another.

To frame the first, remember (as Ken Elzinga’s students all do) Alfred Marshall’s famous illustration of supply and demand: the two forces are like blades of a scissors, neither of which can serve without the other. Public choice for years had recognized how the economic incentives of individuals in the private and public sectors could create thriving throngs of rent seekers, bent on shaping rules to their benefit. One would have thought that the counterpart would have been equally obvious to political economists, but it wasn’t. The literature had largely neglected the other blade of the scissors, until Fred described it in Money for Nothing, Politicians, Rent Extraction, and Political Extortion, which explained that rent seekers need scarce resources. Of course, no entity can create scarcity better than government can. Its ability to do so, Fred observed, spawned eager rent extractors, as well as rent seekers. People with the power to take property or impair its full enjoyment could exact payments simply by threatening to do it. They could even forbear – do nothing – and still reap rewards of extraction, just by posing the threat. If scarcity can be made, and government has been doing it for centuries, markets will form on both sides of it. A young Fred McChesney had lived through a painful episode of socially engineered scarcity in the 1970s. He wrote the book on it twenty years later.

Finally, for an invitation to the economics of property rights, here is a link to a lecture Fred gave thirty years ago in the heart of a country he loved but could not explain. The setting was France, and at the time a socialist government was taking property rights from the private sector and appropriating them for a public purpose. You can see in the lecture that Fred was pondering the mystery he later solved in Money for Nothing. French rent creators were keeping seekers and extractors fully occupied. Consumers and sellers of goods and services suffered the consequences.

A new administration in France is still struggling to repair the damage of the rent creation in the 1980s. Meanwhile, back in the USA, as a new tax code makes its way through the halls of Congress, we all would do well to watch out for politicians, extortion, and rent extraction. They could be coming to a wallet near you.

Thanks, Fred.  We owe you a lot of rent.

Yours always,

Bill MacLeod

In Legal Profession, Regulation, Truth on the Market ,
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Si Monumentum Requiris, Circumspice

Alden Abbott —  20 January 2015

The famous epitaph that adorns Sir Christopher Wren’s tomb in St. Paul’s Cathedral – Si monumentum requiris, circumspice (“if you seek his monument, look around you”) – applies equally well to Henry Manne, who passed away on January 17.  Wren left a living memorial to his work in St. Paul’s and the many other churches he designed in the City of London.  Manne’s living memorial consists in the law and economics institutions which he created and nurtured during a long and productive career.

Manne is justly deemed one of the three founders of the law and economics movement, along with Guido Calabresi and the late Ronald Coase.  Manne’s original work on the theory of the firm and the efficiency justifications for insider trading was brilliant and provocative.  Of greatest lasting significance, however, was his seminal role in creating and overseeing institutions designed to propagate law and economics throughout the legal profession – such as the Law and Economics Institutes for Professors, Judges and Economists, and the Center for Law and Economics at Emory University (later moved to George Mason University).  Furthermore, with the expansion of law and economics programs to include foreign participants, law and economics insights are influencing litigation, transactions, and regulatory analysis in many countries.  Manne’s initiative and entrepreneurial spirit were a critical catalyst in helping trigger this transformation.

The one institution that is perhaps most intimately associated with Manne and his philosophy – Manne’s St. Paul’s Cathedral, if you will – is George Mason Law School in Arlington, Virginia.  When Manne became George Mason’s Dean in 1986, he arrived at a fledgling school of no particular distinction, which was overshadowed by major long-established Washington D.C. law schools.  Manne immediately went about overhauling the faculty, bringing in scholars with a strong law and economics orientation, and reinstituting the Center for Law and Economics at Mason.  Within a few years Mason Law became a magnet for first rate young law and economics scholars of a free market bent who found a uniquely collegial atmosphere at Mason.  Mason retained its law and economics orientation under subsequent deans.  Today its faculty is not only a source of pathbreaking scholarship, it is a fount of wisdom that provides innovative (and highly needed) advice to help inform and improve Washington D.C. policy debates.  This would not have been possible without Henry Manne’s academic leadership and foresight.  (Full disclosure – I have been an adjunct professor at George Mason Law School since 1991.)

Finally, I should mention that those of us who write for Truth on the Market (TOTM), not to mention countless other websites that share TOTM’s philosophical orientation, are indebted to Henry Manne for his seminal role in the law and economics movement.  I am sure that I speak for many in offering my heartfelt condolences to Henry’s son, Geoffrey Manne, the driving force behind TOTM.  Geoff, like the visitors to Christopher Wren’s masterwork, we look around us and delight in your father’s accomplishments.

In Law & Economics, Legal Profession, Regulation , ,
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Geoffrey Manne on the Importance of Sensible Guidance for UMC Enforcement

Geoffrey Manne —  1 August 2013

Geoffrey Manne is Lecturer in Law at Lewis & Clark Law School and Executive Director of the International Center for Law & Economics

Josh and Maureen are to be commended for their important contributions to the discussion over the proper scope of the FTC’s Section 5 enforcement authority. I have commented extensively on UMC and Section 5, Josh’s statement, and particularly the problems if UMC enforcement against the use of injunctions to enforce FRAND-encumbered SEPs before (see, for example, here, here and here). I’d like to highlight here a couple of the most important issues from among these comments along with a couple of additional ones.

First, there is really no sensible disagreement over Josh’s harm to competition prong. And to the extent there is disagreement over the proper role for efficiencies, given the existence of compelling arguments that we don’t need Section 5 at all (see, e.g., Joe Sims and James Cooper), what might have seemed like a radical position in Josh’s statement that the FTC enforce UMC only where no efficiencies exist, Josh’s position is actually something of a middle ground. In any case, the first prong of Josh’s statement (the harm to competition requirement) really should attract unanimity, as it essentially has here today, and all of the FTC’s commissioners should come out and say so, even if debate persists over the second prong. This alone would provide an enormous amount of certainty and sense to the FTC’s UMC enforcement decisions.

Second, sensible, predictable guidance is essential. In her recent speech, echoing the fundamental issue laid out so well in Josh’s statement and elaborated on in his accompanying speech, Maureen notes that:

For many decades, the Commission’s exercise of its UMC authority has launched the agency into a sea of uncertainty, much like the agency weathered when using its unfairness authority in the consumer protection area in the 1970s. In issuing our 1980 statement on the concept of “unfair acts or practices” under our consumer protection authority, the Commission acknowledged the uncertainty that had surrounded the concept of unfairness, admitting that “this uncertainty has been honestly troublesome for some businesses and some members of the legal profession.” This characterization just as aptly describes the state of our UMC authority today.

It seems uncontroversial that some guidance is required, and a pseudo-common law of un-adjudicated settlements lacking any doctrinal analysis simply doesn’t provide sufficient grounds to separate the fair from the unfair. (What follows is drawn from our amicus brief in the Wyndham case).

The FTC’s current approach to UMC enforcement denies companies “a reasonable opportunity to know what is prohibited” and thus follow the law. The FTC has previously suggested that its settlements and Congressional testimony offers all the guidance a company would need—see, e.g., here and here, where Chairwoman Ramirez noted that

Section 5 of the FTC Act has been developed over time, case-by-case, in the manner of common law. These precedents provide the Commission and the business community with important guidance regarding the appropriate scope and use of the FTC’s Section 5 authority.

But settlements (and testimony summarizing them) do not in any way constrain the FTC’s subsequent enforcement decisions; they cannot alone be the basis by which the FTC provides guidance on its UMC authority because, unlike published guidelines, they do not purport to lay out general enforcement principles and are not recognized as doing so by courts and the business community. It is impossible to imagine a court faulting the FTC for failure to adhere to a previous settlement, particularly because settlements are not readily generalizable and bind only the parties who agree to them. As we put it in our Wyndham amicus brief:

Even setting aside this basic legal principle, the gradual accretion of these unadjudicated settlements does not solve the vagueness problem: Where guidelines provide cumulative analysis of previous enforcement decisions to establish general principles, these settlements are devoid of doctrinal analysis and offer little more than an infinite regress of unadjudicated assertions.

Rulemaking is generally preferable to case-by-case adjudication as a way to develop agency-enforced law because rulemaking both reduces vagueness and constrains the mischief that unconstrained agency actions may cause. As the Court noted in SEC v. Chenery Corp.,

The function of filling in the interstices of [a statute] should be performed, as much as possible, through this quasi-legislative promulgation of rules to be applied in the future.

Without Article III court decisions developing binding legal principles ,and with no other meaningful form of guidance from the FTC, the law will remain unconstitutionally vague. And the FTC’s approach to enforcement also allows the FTC to act both arbitrarily and discriminatorily—backed by the costly threat of the CID process and Part III adjudication. This means the company faces two practically certain defeats—before the administrative law judge and then the full Commission, each a public relations disaster. The FTC appears to be perfectly willing to use negative media to encourage settlements: The House Oversight Committee is currently investigating whether a series of leaks by FTC staff to media last year were intended to pressure Google to settle the FTC’s antitrust investigation into the company’s business practices.

Third, if the FTC doesn’t act to constrain itself, the courts or Congress will do so, and may do more damage to the FTC’s authority than any self-imposed constraints would.

The power to determine whether the practices of almost any American business are “unfair” methods of competition (particularly if UMC retains the broad reach Tim Wu outlines in his post) makes the FTC uniquely powerful. This power, if it is to be used sensibly, allows the FTC to protect consumers from truly harmful business practices not covered by the FTC’s general consumer protection authority. But without effective enforcement of clear limiting principles, this power may be stretched beyond what Congress intended.

In 1964, the Commission began using its unfairness power to ban business practices that it determined offended “public policy.” Emboldened by vague Supreme Court dicta from Sperry & Hutchinson comparing the agency to a “court of equity,” the Commission set upon a series of rulemakings and enforcement actions so sweeping that the Washington Post dubbed the agency the “National Nanny.” The FTC’s actions eventually prompted Congress to briefly shut down the agency to reinforce the point that it had not intended the agency to operate with such expansive authority. The FTC survived as an institution only because, in 1980, it (unanimously) issued a Policy Statement on Unfairness laying out basic limiting principles to constrain its power and assuring Congress that these principles would be further developed over time—principles that Congress then codified in Section 5(n) of the FTC Act.

And for a time, the Commission used its unfairness power sparingly and carefully, largely out of fear of reawakening Congressional furor. Back in 1980, the FTC itself declared that

The task of identifying unfair trade practices was therefore assigned to the Commission, subject to judicial review, in the expectation that the underlying criteria would evolve and develop over time.

Yet we know little more today than we did in 1980 about how the FTC analyzes each prong of Section 5.

Moreover, courts may not support enforcement given this ambiguity, and in our Wyndham brief we supported Wyndham’s motion to dismiss for exactly this reason (and that was brought under the Commission’s unfairness authority where it even has some guidelines). As we wrote:

Since the problem is a lack of judicial adjudication, it might seem counter-intuitive that the court should dismiss the FTC’s suit on the pleadings. But this is precisely the form of adjudication required: The FTC needs to be told that its complaints do not meet the minimum standards required to establish a violation of Section 5 because otherwise there is little reason to think that the FTC’s complaints will not continue to be the Commission’s primary means of building law (what amounts to “non-law law”). But even if the FTC re-files its unadjudicated complaint to explain its analysis of the prongs of the Unfairness Doctrine, it will not have solved yet another fundamental problem: its failure to provide Wyndham with sufficient guidance ex ante as to what “reasonable” data security practices would be.

The same could be said of the FTC’s UMC enforcement. Section 5(n) applies to UMC, and states that:

The Commission shall have no authority under this section or section 57a of this title to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination.

Finally, applying this to FRAND-encumbered SEPs, as I have previously discussed, is problematic. As Kobayashi and Wright note in discussing the N-Data case,

[T]he truth is that there was little chance the FTC could have prevailed under the more rigorous Section 2 standard that anchors the liability rule to a demanding standard requiring proof of both exclusionary conduct and competitive harm. One must either accept the proposition that the FTC sought Section 5 liability precisely because there was no evidence of consumer harm or that the FTC believed there was evidence of consumer harm but elected to file the Complaint based only upon the Section 5 theory to encourage an expansive application of that Section, a position several Commissioners joining the Majority Statement have taken in recent years. Neither of these interpretations offers much evidence that N-Data is sound as a matter of prosecutorial discretion or antitrust policy.

None of the FTC’s SEP cases has offered anything approaching proof of consumer harm, and this is where any sensible limiting principles must begin—as just about everyone here today seems to agree. Moreover, even if they did adduce evidence of harm, the often-ignored problem of reverse holdup raises precisely the concern about over-enforcement that Josh’s “no efficiencies” prong is meant to address. Holdup may raise consumer prices (although the FTC has not presented evidence of this), but reverse holdup may do as much or more damage.

The use of injunctions to enforce SEPs increases innovation, the willingness to license generally and the willingness to enter into FRAND commitments in particular–all to the likely benefit of consumer welfare. If the FTC interprets its UMC authority in a way that constrains the ability of patent holders to effectively police their patent rights, then less innovation would be expected–to the detriment of consumers as well as businesses. An unfettered UMC authority will systematically curtail these benefits, quite possibly without countervailing positive effects.

And as I noted in a post yesterday, these costs are real. Innovative technology companies are responding to the current SEP enforcement environment exactly as we would expect them to: by avoiding the otherwise-consumer-welfare enhancing standardization process entirely—as statements made at a recent event demonstrate:

Because of the current atmosphere, Lukander said, Nokia has stepped back from the standardisation process, electing either not to join certain standard-setting organisations (SSOs) or not to contribute certain technologies to these organisations.

Section 5 is a particularly problematic piece of this, and sensible limits like those Josh proposes would go a long way toward mitigating the problem—without removing enforcement authority in the face of real competitive harm, which remains available under the Sherman Act.

In Administrative Law, Antitrust & Competition, Constitutional Law, Exclusionary Conduct, Federal Trade Commission, Google, Intellectual Property, International Center for Law & Economics, Legal Profession, Patent, Platforms, Regulation, Section 5, Unfair Methods of Competition Symposium , , , , , , , , ,
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Dear DOJ: Take a Look at the Law Schools.

Thom Lambert —  24 November 2012

The U.S. Department of Justice sued eBay last week for agreeing not to poach employees from rival Intuit. According to the Department’s press release, “eBay’s agreement with Intuit hurt employees by lowering the salaries and benefits they might have received and deprived them of better job opportunities at the other company.” DOJ maintains that agreements among rivals not to compete for workers have long been deemed per se illegal. (Indeed, Google, Apple, Adobe, and Pixar quickly settled antitrust claims based on similar non-poaching arrangements in 2010.)

DOJ is right to attack this type of arrangement. Apart from harming individual employees, non-poaching agreements occasion a societal harm: They preclude labor resources from being channeled to their highest and best uses. To poach a competitor’s star employee, you must offer to pay that employee more than she’s currently making (or otherwise adjust the terms of her employment in a way she deems desirable). Her current employer will usually have a chance to counter your offer. If you win the bidding war, it’s likely because the current employer’s willingness-to-pay for the employee—an amount reflective of the degree by which the employee enhances her firm’s value—is less than yours. If you can derive more value from the employee, you should have her. When employers agree to limit competition for workers, they preclude labor resources from flowing to their highest and best ends, causing an “allocative inefficiency.”

So perhaps DOJ should go after the members of the Association of American Law Schools. Pursuant to a Statement of Good Practices to which AALS members scrupulously adhere, each law school has agreed to limit competition with its rivals by refraining from making lateral offers of employment after March 1 each year. Unlike the eBay/Intuit arrangement, the competing law schools’ trade restraint is applicable for only part of the year–from March 1 until the fall hiring season–but it has the same basic effect as the eBay arrangement. And, despite the law schools’ claims to the contrary, it isn’t justified on efficiency grounds.

By preventing law professors from credibly threatening to leave their existing employers after March 1, the AALS restraint significantly reduces professors’ ability to negotiate higher wages or more favorable employment terms. If you announce a competing school’s offer six weeks before fall classes start, you’re much more likely to receive an attractive counter-offer from your current employer than you would be if you sprang the news of your potential departure six months before the start of classes, when you’re more easily replaced. What’s more, law schools generally don’t tell professors what they’ll be earning the following year until after March 1, when it’s too late for a disgruntled professor to secure another offer elsewhere. The AALS restraint thus artificially depresses the salaries of a school’s most desirable professors.

Now this might not seem like something to get worked up over. Most people think law professors are a spoiled lot. They have relatively low teaching loads and, despite the fact that most lack PhDs, they generally earn a good deal more than most academics. Why should DOJ intervene on behalf of these fat cats? Because the law schools’ non-poaching arrangement diminishes the quality of legal education. Here’s why.

At most law schools, where equality of end-states tends to be fetishized, professors are generally compensated in lock-step according to seniority. There’s some variation, but apart from endowed positions, starting salaries and annual raises are around the same level for everyone.

Talent and effort, by contrast, are not evenly distributed. Most law schools have some super-stars who are exceptional teachers and scholars, a number of “solid” professors who put in their time and provide competent teaching and enough scholarship to stay engaged, and a fair bit of dead weight. Lock-step compensation depresses the incentive to move into the first category and enhances the attractiveness of the last. It’s favored by administrators, though, because it permits them to avoid awkward conversations about merit.

If late-in-time departures of professors were a real possibility, administrators would have a stronger incentive to keep their most productive folks happy. They could stand to lose teachers with low course enrollments, so they probably wouldn’t worry too much about keeping their salaries relatively high. They’d also know that their less productive scholars are unlikely to receive a late offer. But highly productive scholars who also provide lots of the thing the law school is ultimately selling–law teaching–would likely begin to earn higher salaries than their less valuable colleagues. With compensation more accurately reflecting the value professors provide, labor resources would be allocated more efficiently. And, of course, law professors would have an increased incentive to make themselves both “poachable” and indispensable by firing on all cylinders–teaching, scholarship, and service.

But don’t the law schools need their non-poaching arrangement in order to prevent scheduling disorder that would hurt students? That’s certainly what they claim. The “Statement of Good Practices” memorializing the law schools’ collusive agreement begins:

[T]he departure of a full-time law teacher always requires changes at the law school. Unless the school is given sufficient time to make the necessary arrangements to find another to offer the instruction given by the departing teacher, the reasonable expectations of students will be  frustrated and the school’s educational program otherwise disrupted. To serve  the best interests of the program of legal education from which the teacher is departing and that to which she or he may be going, the Association urges that law schools and law faculty members follow these suggested practices….

A horizontal restraint of trade, though, isn’t necessary to prevent the sort of harm the law schools envision. If a law school believes it needs some amount of lead time to prepare for a professor’s departure, it may unilaterally negotiate contracts with its professors obligating them to provide a certain amount of notice before any departure and specifying liquidated damages for breach. Unlike the “one-size-fits-all” AALS restraint, such contracts could accommodate heterogeneous needs and preferences. For example, required lead times and the amount of liquidated damages could vary based on the location of the school (urban with lots of adjunct possibilities vs. rural with few), the degree to which the professor’s course offerings require a specialized background (Securities Regulation vs. Contracts), and the pedagogical importance of the courses (Business Organizations vs. Law & Literature). Moreover, this contractarian approach, unlike the AALS’s horizontal restraint, would further allocative efficiency across law schools: If Raider Law is willing to pay Target Law’s hot professor an amount that will increase her salary and cover the liquidated damages she owes Target because of an untimely departure, then Raider must value her more than Target and should get her. Thus, it is possible to achieve the practical benefit the AALS restraint purports to pursue without using a horizontal restraint and in a manner that permits allocative efficiency.

A horizontal agreement not to compete should not be allowed to stand when a less restrictive, easily achieved vertical option could secure the retraint’s benefits. See, e.g., Maricopa County Med. Soc’y (condemning an efficiency-enhancing maximum price-fixing agreement among physicians and observing that the procompetitive benefit occasioned by the restraint could be achieved via vertical agreements rather than a horizontal restraint); NCAA (refusing to allow the need for competitive balance to immunize a naked horizontal restraint because such balance could be achieved less restrictively); cf. Professional Engineers (horizontal agreement not to engage in price negotiations in order to assure high-quality engineering illegal when substantive quality standards could achieve same result).

Perhaps one day the DOJ will acknowledge that American law schools are competitors and, for the benefit of law students and the legal profession, ought to act like it.

In Antitrust & Competition, Apple, Google, Justice Department, Law & Economics, Legal Profession, Platforms, Regulation, Truth on the Market , , ,
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Larry Ribstein wins ABA’s Martin I. Lubaroff Award

Geoffrey Manne —  10 August 2012

We are delighted to report that the ABA Business Law Section has posthumously awarded Larry Ribstein its Martin I. Lubaroff Award, presented annually to a lawyer who has consistently demonstrated leadership, scholarship, and outstanding service in LLCs, Partnerships and Unincorporated Entities law.  That describes no one so well as Larry.

The award was established in 2001 to honor the memory of Marty Lubaroff who untimely passed away on January 1, 2001. Marty was the quintessential lawyer–careful, thorough, exacting, engaging, insightful, precise, provocative and persistent, while gentle, kind and courteous. He was a good friend and mentor to scores of lawyers in Delaware and throughout the United States. Marty was a long-time member of, and key participant in, the LLCs, Partnerships and Unincorporated Entities Committee. He chaired the Limited Partnerships Subcommittee at the time of his death.

Larry’s influence continues to be felt and acknowledged.  In addition to the GMU Law & Economics Center conference Josh mentioned, the Illinois College of Law is honoring Larry with a conference and memorial fund of its own:

In recognition and celebration of Professor Ribstein’s innumerous contributions to legal scholarship and the academy, the College of Law will host a conference in October 2013, the proceedings of which will be published in a special edition of theUniversity of Illinois Law Review. And in honor of Professor Ribstein’s incredible influence on students, colleagues, and the legal profession, the College has established The Larry E. Ribstein Memorial Fund. The Fund will be used to support a series of initiatives to advance the intellectual life of the University of Illinois College of Law, including a signature lecture series, workshops for junior faculty members, and innovations designed to more effectively bridge the worlds of legal theory and legal practice.

In Corporate & Securities Law, Legal Profession, Regulation ,
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GMU Law & Economics Center Presents “Unlocking the Law: Building on the Work of Professor Larry Ribstein”

Josh Wright —  25 July 2012

I’m very pleased to announce the George Mason Law & Economics Center is hosting a program focusing on our friend and colleague Larry Ribstein’s scholarship on the market for law.   Henry Butler and Bruce Kobayashi have put together a really wonderful program of folks coming together not to celebrate Larry’s work — but to use it as a platform for further discussion and for legal scholars to engage in these important issues.

Interested readers might want to check out the TOTM Unlocking the Law Symposium.

The announcement follows and I hope to see some of you there on Friday, November 9, 2012 at GMU Law.
The Henry G. Manne Program in Law and Regulatory Studies presents Unlocking the Law: Building on the Work of Professor Larry Ribstein to be held at George Mason University School of Law, Friday, November 9th, 2012. The conference will run from 8:00 A.M. to 4:00 P.M.

OVERVIEW: In a series of influential and provocative articles, Professor Larry Ribstein examined the forces behind the recent upheaval in the market for legal services. These forces included increased global competition, changes in the demand for legal services resulting from the expanded role of the in-house counsel, and the expanded use of technology. His analysis showed that changes in the market for legal services were not just the result of a cyclical downturn in the economy. Rather, the profound changes in the market reflected building competitive pressures that exposed the flaws in the business model used by large firms to provide legal services. His recent writings also examined the broader implications of this upheaval for legal education, the private production of law, and whether legal innovation will be hindered by or hasten the demise of the current system of professional regulation of lawyers.

Professor Ribstein passed away suddenly on December 24, 2011. In the wake of the terrible loss of their close friend and colleague, Professors Henry Butler and Bruce Kobayashi (along with several other colleagues at Mason Law) have decided to honor Larry through a conference designed to capture and expand on the spirit of Larry’s recent work. The Unlocking the Law Conference seeks to advance these goals by inviting legal scholars to present their views and engage in a vibrant discussion about the present and future of the market for legal services. The panels at this conference will showcase 14 papers written specifically for this occasion and presented to the public for the first time.

This conference is organized by Henry N. Butler, Executive Director of the Law & Economics Center and George Mason Foundation Professor of Law, and Bruce H. Kobayashi, Professor of Law, George Mason University School of Law through a new Project on Legal Services Reform – under the auspices of the Mason Law & Economics Center. The Project on Legal Services Reform seeks to continue and extend the important work on legal innovation, legal education, law firms, and legal regulation produced by Larry. We hope to encourage scholars who have not worked in these areas to read Larry’s work, critique it in the same manner in which Larry famously commented on papers, and expand (or even restrict or redirect) the thrust of Larry’s work. In essence, this project is about “Larry as Catalyst.”

For background information, you might want to visit TRUTH ON THE MARKET (http://www.truthonthemarket.com), which held an online symposium on this topic on September 19 and 20, 2011.

REGISTRATION: You must pre-register for this event. To register, please send a message with your name, affiliation, and full contact information to: Jeff Smith, Coordinator, Henry G. Manne Program in Law and Regulatory Studies, jsmithQ@gmu.edu

AGENDA:

Friday, November 9, 2012:

Panel I. The Future of Legal Services and Legal Education

How the Structure of Universities Determined the Fate of American Law Schools
– Henry G. Manne, Distinguished Visiting Professor, Ave Maria School of Law; Dean Emeritus, George Mason University School of Law

The Undergraduate Option for Legal Education
– John O. McGinnis, George C. Dix Professor in Constitutional Law, Northwestern University School of Law

Panel II. Deregulating Legal Services

The Deprofessionalization of Profession Services: What Law and Medicine Have in Common and How They Differ
– Richard A. Epstein, Laurence A. Tisch Professor of Law, New York University School of Law

The Future of Licensing Lawyers
– M. Todd Henderson, Professor of Law, University of Chicago Law School

Failing the Legal System: Why Lawyers and Judges Need to Act to Authorize the Organizational Practice of Law
– Gillian K. Hadfield, Richard L. and Antoinette Schamoi Kirtland Professor of Law and Professor of Economics, University of Southern California Gould School of Law

Globalization and Deregulation of Legal Services
– Nuno Garoupa, Professor and H. Ross and Helen Workman Research Scholar, University of Illinois College of Law; Co-Director, Illinois Program on Law, Behavior, and Social Science

Panel III. Law Firms and Competition Between Lawyers

From Big Law to Lean Law
– William D. Henderson, Professor of Law and Van Nolan Faculty Fellow, Indiana University Maurer School of Law; Director, Center on the Global Legal Profession

Glass Half Full: The Significant Upsides to the Changes in the American Legal Market
– Benjamin H. Barton, Professor of Law, University of Tennessee College of Law

An Exploration of Price Competition Among Lawyers
– Clifford Winston, Senior Fellow, Economics Studies, Brooking Institution

Panel IV. Reputation, Fiduciary Duties, and Agency Costs

Lawyers as Reputational Intermediaries: Sovereign Bond Issuances (1820-2012)
– Michael H. Bradley, F.M. Kirby Professor of Investment Banking Emeritus, Fuqua School of Business, Duke University; Professor of Law, Duke University School of Law
– Mitu Gulati, Professor of Law, Duke University School of Law
– Irving A. De Lira Salvatierra, Graduate Student, Department of Economics, Duke University

The Fiduciary Society
– Jason Scott Johnston, Henry L. and Grace Doherty Charitable Foundation Professor of Law and Nicholas E. Chimicles Research Professor in Business Law and Regulation, University of Virginia School of Law

Class Action Lawmakers and the Agency Problem
– Barry E. Adler, Bernard Petrie Professor of Law and Business and Associate Dean for Information Systems and Technology, New York University School of Law

Panel V. Private Lawmaking and Adjudication

Decentralizing the Lawmaking Function: Should There Be Intellectual Property Rights in Law?
– Robert G. Bone, G. Rollie White Teaching Excellence Chair in Law, University of Texas at Austin School of Law

Arbitration, the Law Market, and the Law of Lawyering
– Erin O’Hara O’Connor, Milton R. Underwood Chair in Law, Vanderbilt University Law School
– Peter B. Rutledge, Herman E. Talmadge Chair of Law, University of Georgia Law School

VENUE:
George Mason University School of Law
3301 Fairfax Drive
Arlington, VA 22201

FURTHER INFORMATION: For more information regarding this conference or other initiatives of the Law & Economics Center, please visit: http://www.MasonLEC.org

Call or send an email to: Tel: (703) 993-8040, Email: lec@gmu.edu

The Henry G. Manne Program in Law & Economics honors the legacy of Henry G. Manne, Dean Emeritus of George Mason Law School and founder of the Law & Economics Center. Manne was a trailblazer in the development of law and economics, not only as a prominent and influential scholar, but also as an academic entrepreneur. He spurred the development of law and economics into the most influential area of legal scholarship through his Economics Institutes for Law Professors and Law Institutes for Economics Professors. The Manne Program promotes law-and-economics scholarship by funding faculty research and hosting research roundtables and academic conferences.

http://www.MasonManne.org

In Banking, Constitutional Law, Corporate & Securities Law, Financial Regulation, Intellectual Property, Jurisdictional Competition, Law & Economics, Legal Profession, Regulation, Unlocking the Law Symposium , , , , , ,
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Further Empirical Evidence on Forum Shopping in Philadelphia Civil Courts

Josh Wright —  6 February 2012

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…

In International Center for Law & Economics, Jurisdictional Competition, Legal Profession, Truth on the Market , , ,
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Remembering Larry Ribstein

totmauthor —  2 January 2012

[Note: Professor Roberta Romano asked that we post her remembrance of Larry Ribstein, which we are glad to do below]

I was terribly saddened and, quite frankly, dumbfounded when I heard that Larry Ribstein had passed away. I had seen Larry approximately three weeks before when he gave a workshop at Yale and the last thought that would have crossed my mind would have been that I would be receiving such horrible news. At the time, Larry mentioned in his no-nonsense way numerous projects that he had in the works and how much he was looking forward to spending the Spring semester in New York. It is exceedingly difficult to accept that all of this will not happen.

Although life is transient, Larry’s scholarship will endure.  His work on the non-corporate business form (the “uncorporation” as he put it) must be consulted by anyone venturing to work in the area, which has become one of increasing importance, as evidenced by the greater attention given to it in casebooks and law school classes, a resurgence integrally related to Larry’s writings. He also successfully arbitraged his insights on uncorporations into our understanding of corporations. To take one example, his research examining small business operators’ choice of the limited liability company form over the limited liability partnership advanced our understanding of the importance of network externalities. Of course, he was as well a preeminent scholar in corporate law.  His outstanding critique of the enactment and implementation of the Sarbanes-Oxely Act is but one example. And there is much more. His keen ability to draw connections across fields led to enduring contributions in franchising law, choice of law, and the legal profession, to name just a few.  I would be remiss to not mention as well his entertaining, and insightful work on Hollywood’s portrayal of business.  It always seemed to me to be a shining example of the motto, Who says corporate law is not fun?  Larry was an original and creative voice, and he fearlessly ventured into, and took positions on, areas which the meek would scrupulously avoid. He will be missed.

In Corporate & Securities Law, Legal Profession, Regulation, Truth on the Market ,
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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.

In Amazon, China, Federalism, Intellectual Property, International, International Center for Law & Economics, Legal Profession, Platforms, Regulation, Truth on the Market ,
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