Volume 91, Number 1 (November 2017)
- Patenting Elasticities
Article by Clark D. Asay
- Middle-Value Speech
Article by David S. Han
- Puerto Rico and the Netherworld of Sovereign Debt Restructuring
Article by Mitu Gulati & Robert K. Rasmussen
Over the last decade, a growing consensus has emerged: there are too many patents, and they are causing a host of problems. These problems include patent “trolling,” patent “wars,” and other wasteful societal costs. In explaining this patent overabundance, some scholars have pinpointed the United States Patent Office, the governmental body responsible for issuing patents, as the main culprit. Others have blamed patent holders themselves, identifying a number of incentives these parties have to pursue patents even in cases where doing so makes little economic sense. Overall, these analyses thus typically assume a high and relatively uniform demand for patents among inventive parties—one that the United States Patent Office is only too willing to satisfy.
Yet this focus on excessive patenting obscures the reality that parties likely differ significantly in their demand for patents and other forms of intellectual property. In economic parlance, different inventive parties are likely to exhibit different “elasticities,” or sensitivities, in their demand for patents and other types of intellectual property. This Article uses economic principles to disaggregate intellectual property demand by highlighting a number of factors that may affect a party’s demand for patents and other forms of intellectual property. It argues that resource-constrained parties are more likely to exhibit more elastic demand for patents, meaning they are more sensitive to the costs of patenting, both in general and relative to the costs of other intellectual property forms. As a result, rising costs of patenting are more likely to lead resource-constrained parties to forego patenting and rely on alternative, cheaper forms of intellectual property protection when available. Well-capitalized parties, on the other hand, are more likely to exhibit relatively inelastic, high demand for patents, regardless of the costs of other intellectual property types that may otherwise function as substitutes. Thus, well-capitalized parties tend to patent en masse and complement patenting with additional intellectual property protections when available.
With this theoretical framework in place, the Article then assesses several recent judicial and legislative changes in patent and trade secrecy laws, including the Defend Trade Secrets Act of 2016, the Leahy-Smith America Invents Act of 2011, and several important Supreme Court patent law cases. Overall, these changes have largely weakened patent rights while potentially strengthening other forms of intellectual property law such as trade secrecy. Many argue the patent law changes in particular are a step in the right direction. This Article’s analysis suggests these changes may suppress resource-constrained parties’ demand for patents while having little to no effect on well-capitalized parties’ demand for patents or other forms of intellectual property. Hence, these intellectual property changes may mean that resource-constrained parties patent even less relative to their well-capitalized counterparts, instead relying on other forms of intellectual property when available. The Article concludes by assessing this possibility and other potential implications for intellectual property law, innovation, and the economy more generally.
One of the cornerstones of First Amendment doctrine is the general rule that content-based restrictions on all speech—apart from a few narrow categories of low-value speech—are evaluated under strict scrutiny. As many have observed, this rule has produced considerable strain within the doctrine because it applies the same onerous standard throughout the vast and varied expanse of all non-low-value speech, which includes not only the core, highest-value speech for which such stringent protection is clearly warranted, but also less valuable speech to which the application of strict scrutiny is often dissonant. Nevertheless, traditional accounts maintain that this blunt, highly prophylactic approach is necessary given the significant costs and risks associated with granting courts greater discretion to make value-based speech distinctions.
This Article challenges these accounts. I argue that courts should more explicitly recognize a broad conceptual category of what I call “middle-value speech”—that is, speech that falls within the hazy center of the speech-value spectrum between clearly high-value speech, like political speech or truthful news reporting, and clearly low-value speech, like true threats or incitement. The scope of such speech is vast, potentially encompassing speech as diverse as public disclosures of sensitive private data, sexually explicit speech, professional advice, search engine results, and false statements of fact. Yet current First Amendment doctrine broadly fails to recognize middle-value speech as a discrete conceptual category, and this failure has produced substantial costs in the form of doctrinal distortion and a lack of analytical transparency. These costs have grown precipitously—and will continue to grow—in conjunction with the First Amendment’s broad expansion beyond the familiar precincts of core ideological expression into increasingly eclectic varieties of speech.
I therefore propose an adjustment to the doctrinal framework. Rather than broadly presume that all speech outside of the low-value categories is subject to maximum First Amendment protection, courts should affirmatively designate and carve out the particular categories of high-value speech that merit such protection, in a manner similar to how courts have dealt with low-value speech. Once both low-value and high-value speech categories have been carved out, all remaining uncategorized speech is, by definition, middle-value speech, and courts should adopt intermediate scrutiny as the default rule applicable to all such speech. This approach would greatly reduce the doctrinal distortion and analytical opacity associated with the traditional default rule of strict scrutiny, and it would do so at a limited cost to doctrinal consistency and administrability.
Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in an attempt to pull Puerto Rico back from the abyss. The reason for this drastic action—a special insolvency regime available only for Puerto Rico—was plain: the Commonwealth had accumulated debts well beyond its ability to repay. Its economy was in such a dreadful state that even if one were to declare an indefinite moratorium on all of its debt payments, it would still be the case that the island could not make ends meet without a drastic overhaul of both its operations and its finances. Yet prior to congressional action there was no moratorium. The island’s creditors were demanding money, and the government’s cash reserves were nearing depletion. Disaster seemed imminent.
Congress provided a glimmer of hope to the American citizens of Puerto Rico. PROMESA, at least temporarily, put a halt to the creditors’ collection efforts. It also created a proceeding that in essence replicates Chapter 9 of the Bankruptcy Code for the Commonwealth, as well as an alternative path relying on consensual restructuring coupled with the power to bind holdout creditors. Puerto Rico gained two options that it lacked prior to the legislation’s passage. But the price for these protections was steep. A control board was put in place that effectively took over control of the territory’s finances and the conduct of any insolvency proceedings. The members of this board were appointed by elected officials in Washington. The elected government of Puerto Rico had no right to appoint or veto any members. Given potential constitutional infirmities with the control board, it remains to be seen whether this last-minute action is sufficient to save the island from total financial collapse.
We here are interested in a different type of abyss than the one that spurred Congress to act. Prior to the passage and signing of PROMESA, Puerto Rico inhabited a netherworld of debt adjustment. In Puerto Rico v. Franklin California Tax-Free Trust, the U.S. Supreme Court held that the Bankruptcy Code provided no relief for Puerto Rico or its municipalities and at the same time precluded Puerto Rico from enacting an insolvency regime of its own. The Commonwealth could neither repair to federal law to restructure some of the debts plaguing it nor could it enact legislation to address the fiscal crisis. In essence, Puerto Rico was faced with crushing debt and no mechanism to take action, other than attempts to have bondholders voluntarily agree to haircuts (something that bondholders are loath to do). Puerto Rico gamely undertook such efforts for some of its debt, but while these attempts may have shown glimmers of optimism to some, each of them eventually fell apart. Not a single group of creditors was willing to restructure its debt to a sustainable level. Puerto Rico was in fiscal purgatory.
While the issue was not before the Supreme Court in Franklin, we want to explore whether the Constitution allows Congress to put Puerto Rico into such a bind. Can it take away a government’s power to enact a restructuring regime and put nothing in its place? Put in contractual terms, do the implicit terms of the deal struck between Puerto Rico and the U.S. federal government when Puerto Rico transitioned from the status of a colony to a “freely associated state” in 1952 allow Congress to eliminate in full Puerto Rico’s ability to restructure the debt of its municipalities? This question encompasses both the situation that existed in Puerto Rico prior to the enactment of PROMESA and the potential lacuna that could arise should a state enact a restructuring law for its own debts and Congress seek to void such action. We submit that the answer is no.
Our analysis proceeds in three parts. In the first, we describe the financial situation facing Puerto Rico, its attempts to address that situation, and the Supreme Court’s recent decision in Franklin. This articulation of the problem highlights the ills that can occur when a sovereign entity has the power to issue debt but lacks a means for resolving financial distress. We then ask the question of whether, when it comes to states, the allocation of authority between them and the federal government would allow Congress to put them in such an untenable situation. States under our federal system retain core functions. The power to issue and restructure debts, we submit, resides in this core. Indeed, prior Supreme Court precedent holds that the power to issue debt necessarily includes the power to create a mechanism for restructuring that debt. We argue that while Congress can adjust this power by replacing a state’s scheme with one of its own, it cannot, consistent with federalism, prohibit state action while putting nothing in its place.
We then turn our attention to Puerto Rico. The much-vilified Insular Cases seem to imply that Congress has substantial leeway in all matters regarding Puerto Rico. We show, however, that the colonial conception of the relationship between Puerto Rico and the U.S. federal government, on which those cases rest, cannot form the basis for determining what the allocation of authority between Congress and Puerto Rico is today. Congress transferred sovereignty to Puerto Rico. It established and implemented a process by which the island became a commonwealth. As part of that transfer of sovereignty—something that was done in the post-Second World War era, when colonial outposts were to be phased out as a matter of the new international order—Congress authorized and then approved Puerto Rico’s constitution, which expressly gave the Puerto Rican government the power to issue debt and impose taxes. This action, we submit, necessarily also gave Puerto Rico the power to enact a restructuring regime. Congress could negate Puerto Rico’s right to put in place a restructuring regime, but only if it were to put in place some substitute mechanism. Prohibiting the enactment of any means of restructuring its obligations cannot pass constitutional muster.
United States government surveillance has reached a point where the government “c[an] construct a complete electronic narrative of an individual’s life: their friends, lovers, joys, sorrows.” In June 2013, Edward Snowden released thousands of confidential documents from the National Security Agency (“NSA”) regarding classified government surveillance programs. The documents brought to light the fact that that the NSA was spying on individuals, including foreign citizens, and deliberately misleading Congress about these activities. According to Snowden, the spying was so extensive that the spying measures, including a program known as “PRISM,” involved the improper mass collection of data from citizens worldwide through NSA interactions with telecom giants like Google, Microsoft, and Facebook, and by tapping into global fiber optic cables.
These revelations sent shockwaves around the globe, and the backlash was swift and unforgiving. One thing became clear to Americans and the rest of the world: the NSA and the U.S. government had prioritized the massive collection of private information over and above the personal privacy rights of the global population. The concept of throwing civil liberties to the wayside through grossly intrusive surveillance pushed Snowden to step forward and reveal what he had seen all too closely. He no longer wanted to “live in a world ‘where everything that I say, everything that I do, everyone I talk to, every expression of love or friendship is recorded.’”
Across the Atlantic, the priorities of European Union member nations stand in stark contrast to those of the United States. The EU takes a much stronger stance on privacy and data protection and restricts how companies transfer data to non-EU nations. In the EU’s Data Protection Directive (the “Directive”), the right to privacy is described as a “fundamental right[ ] and freedom[ ].” This sentiment is echoed in other landmark EU documents such as the Convention for the Protection of Human Rights and Fundamental Freedoms.
Despite the very different treatment of the right to privacy in the U.S. and EU, we live in an era of lightning-quick information transfers and an interconnected global economy in which the sharing of private data (including names, IP addresses, health care information, and so forth) across borders is essential to companies conducting business worldwide. The current state of the world necessitates that data flow seamlessly from country to country. This reality led to the EU’s Safe Harbor Decision (“Safe Harbor”), allowing American companies to self-certify their compliance with certain heightened privacy restrictions when handling the private information of EU citizens and thus facilitating the transfer of information from the EU to the U.S. However, the Safe Harbor was invalidated in Schrems v. Data Protection Commissioner (“Schrems I”). This left American companies to rely on other EU-approved data transfer mechanisms—namely, Model Clauses, Binding Corporate Rules (“BCRs”), or specific statutory derogations. In need of a replacement for the Safe Harbor, the EU and the United States agreed on a new deal known as the “Privacy Shield,” despite heavy criticism. An additional layer of complexity exists due to the fact that the Directive, which long governed the handling of private information in the EU, is now being replaced with the significantly stronger General Data Protection Regulation (“GDPR”).
This Note will argue that in light of the pending commencement of the GDPR, American companies relying on the Privacy Shield are exposed to potential risk, as it fails to satisfy the “essentially equivalent protection” standard set forth in Schrems I, and that alternative data protection mechanisms, such as Model Clauses or BCRs, have serious drawbacks and face similar questions regarding their validity. Subsequently, I will discuss some of the potential alternative mechanisms that companies can use to best mitigate exposure to the risks inherent in transatlantic data transfers.
Part I of this Note will describe the background that has led to the current uncertainty in the validity of the various data protection mechanisms. This Part will discuss the key principles behind data privacy protections, the Schrems I case and the subsequent invalidation of the Safe Harbor, the buildup to the Privacy Shield, and the other possible transfer mechanisms. Part II will discuss the fundamental differences between the United States’ and the European Union’s approaches to protecting individuals’ private information. This section will highlight the irreconcilable differences between U.S. surveillance policies and the EU’s view of the fundamental right to privacy. Part III will discuss the pending implementation of the GDPR and the relevant changes this directive will have to the current transatlantic data transfer legal regime. Part IV will outline the shortcomings inherent in the Privacy Shield, Model Clauses, and BCRs individually. Part V will conclude this Note by briefly discussing potential alternatives that companies can use to attempt to weather the shaky data privacy landscape that exists today. The proposed alternatives include obtaining consent, using codes of conduct and certification, and layering transfer mechanisms.
The estate tax and income tax rules independently attempt to either promote or deter different behaviors. The interaction of these different rules often leads to disparate or unintended consequences to taxpayers: for example, achieving an overall lower effective tax rate by paying more estate tax to lower the income tax rate. This overlay of the estate tax rules on the income tax rules is a key problem at the core of our tax system. Yet, few scholars focus on this topic.
In this Article, I document the actual behavior of the trust and estate bar. By looking at how attorneys approach the intersection of estate and income taxes, I demonstrate deficiencies in the current scholarly belief, which is based largely on anecdotal information, that the wealthy have a preference for paying less or no estate tax. I show the real-world preferences that indicate wealthy taxpayers are paying high levels of estate tax to minimize the income tax incidents. After showing the shift of preferences and the resulting overall tax loss to the fisc, the Article then proposes useful policy solutions, such as elimination of the estate tax or using death as an income tax triggering event.