Law Commons^™

Tradable Patent Rights, Ian Ayres, Gideon Parchomovsky

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Patent thickets may inefficiently retard cumulative innovation. This paper explores two alternative mechanisms that may be used to weed out patent thickets. Both mechanisms are intended to reduce the number of patents in our society. The first mechanism we discuss is price based regulation of patents through a system of increasing renewal fees. The second and more innovative mechanism is quantity based regulation through the establishment of a system of Tradable Patent Rights. The formalization of tradable patent rights would essentially create a secondary market for patent permits in which patent protection will be bought and sold.

The Short And Puzzling Life Of The “Implicit Minority Discount” In Delaware Appraisal Law, Lawrence A. Hamermesh, Michael L. Wachter

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The “implicit minority discount,” or IMD, is a fairly new concept in Delaware appraisal law. A review of the case law discussing the concept, however, reveals that it has emerged haphazardly and has not been fully tested against principles that are generally accepted in the financial community. While control share blocks are valued at a premium because of the particular rights and opportunities associated with control, these are elements of value that cannot fairly be viewed as belonging either to the corporation or its shareholders. In corporations with widely dispersed share holdings, the firm is subject to agency costs that …

The Ubit: Leveling An Uneven Playing Field Or Tilting A Level One?, Michael S. Knoll

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After grateful alumni acquired the Mueller Spaghetti Company on behalf of New York University, and the courts held that the university did not have to pay tax on the pasta maker’s income, Mueller’s competitors cried foul. Congress responded to their pleas and enacted the unrelated business income tax (UBIT). The UBIT subjects an otherwise tax-exempt entity, such as a charitable institution or a religious organization, to tax on its income from a trade or business that is not substantially related to the organization’s tax-exempt purpose. The UBIT is widely viewed as leveling the playing field between taxable for-profit businesses and …

Prejudgment Interest In International Arbitration, Jeffrey M. Colon, Michael S. Knoll

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Tribunals in international arbitration are regularly asked by claimants to award prejudgment interest. Unless foreclosed by an agreement between the parties, there is widespread agreement prejudgment interest should put the claimant in the same position as it would have been had it not been injured by the respondent. However, there is little consensus how to calculate prejudgment interest in order to accomplish that purpose. In this Essay, we describe the proper method of calculating prejudgment interest based on sound financial principles. Using the paradigm that the respondent has forced the claimant to make an involuntary loan to the respondent, we …

The Legal Periphery Of Dominant Firm Conduct, Herbert J. Hovenkamp

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This essay explores two different but related problems and how U.S. antitrust law and EU competition law approach them. The first is the offense of attempt to monopolize, which concerns the acts that a firm that is not yet dominant might undertake in order to become dominant. The second is the offense of monopoly or dominant firm leveraging, which occurs when a firm uses its dominant position in one market to cause some kind of harm in a different market where it also does business.

The language of EU and U.S. provisions concerning dominant firms provokes one to think that …

Hedge Funds In Corporate Governance And Corporate Control, Marcel Kahan, Edward B. Rock

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Hedge funds have become critical players in both corporate governance and corporate control. In this article, we document and examine the nature of hedge fund activism, how and why it differs from activism by traditional institutional investors, and its implications for corporate governance and regulatory reform. We argue that hedge fund activism differs from activism by traditional institutions in several ways: it is directed at significant changes in individual companies (rather than small, systemic changes), it entails higher costs, and it is strategic and ex ante (rather than intermittent and ex post). The reasons for these differences may lie in …

The Missing Monitor In Corporate Governance: The Directors' And Officers' Liability Insurer, Tom Baker, Sean J. Griffith

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This article reports the results of empirical research on the monitoring role of directors’ and officers’ liability insurance (D&O insurance) companies in American corporate governance. Economic theory provides three reasons to expect D&O insurers to serve as corporate governance monitors: first, monitoring provides insurers with a way to manage moral hazard; second, monitoring provides benefits to shareholders who might not otherwise need the risk distribution that D&O insurance provides; and third, the “bonding” provided by risk distribution gives insurers a comparative advantage in monitoring. Nevertheless, we find that D&O insurers neither monitor corporate governance during the life of the insurance …

Hedge Funds And Governance Targets, William W. Bratton

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Corporate governance interventions by hedge fund shareholders are triggering debates between advocates of management empowerment and advocates of aggressive monitoring by actors in the capital markets. This Article intervenes with an empirical question: What, based on the record so far, have the hedge funds actually done to their targets? Information has been collected on 130 domestic firms identified in the business press since 2002 as targets of activist hedge funds, including the funds’ demands, their tactics, and the results of their interventions for the targets’ governance and finance. The survey results show that the hedge funds have an enviable record …

Reasonable Emissions Of Greenhouse Gases: Efficient Abatement For A Stock Pollutant, Howard F. Chang

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No abstract provided.

Who Writes The Rules For Hostile Takeovers, And Why? The Peculiar Divergence Of Us And Uk Takeover Regulation, John Armour, David A. Skeel Jr.

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No abstract provided.

Restraints On Innovation, Herbert J. Hovenkamp

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Beginning with the work of Joseph Schumpeter in the 1940s and later elaborated by Robert W. Solow's work on the neoclassical growth model, economics has produced a strong consensus that the economic gains from innovation dwarf those to be had from capital accumulation and increased price competition. An important but sometimes overlooked corollary is that restraints on innovation can do far more harm to the economy than restraints on traditional output or pricing. Many practices that violate the antitrust laws are best understood as restraints on innovation rather than restraints on pricing.

While antitrust models for assessing losses that result …

The Promise And Perils Of Credit Derivatives, Frank Partnoy, David A. Skeel Jr.

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In this Article, we begin what we believe will be a fruitful area of scholarly inquiry: an in-depth analysis of credit derivatives. We survey the benefits and risks of credit derivatives, particularly as the use of these instruments affect the role of banks and other creditors in corporate governance. We also hope to create a framework for a more general scholarly discussion of credit derivatives. We define credit derivatives as financial instruments whose payoffs are linked in some way to a change in credit quality of an issuer or issuers. Our research suggests that there are two major categories of …

Compaq Redux: Implicit Taxes And The Question Of Pre-Tax Profit, Michael S. Knoll

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This paper takes a new look at the cross-border dividend-stripping transactions that gave rise to the Fifth Circuit’s opinion in Compaq v. Commissioner and the Eighth Circuit’s opinion in IES Industries v. Commissioner. In both cases, the circuit courts held for the taxpayers and rejected the Commissioner’s claim that the transactions lacked economic substance because the taxpayers were sure to lose money on the transactions before taxes. These cases generated extensive commentary that was split into two diametrically opposed camps. One group argued that the decisions were correct because the transactions were economically profitable business transactions. The other group argued …

Legitimacy And Corporate Governance, Cary Coglianese

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Parallels between corporate governance and state governance appear to be growing. This essay focuses on the suggestion that corporate governance is becoming structured much more like public government in certain ways. This shift may well be helpful for enhancing credibility and confidence in capital markets, but it also raises important questions. Will reforms enacted in the post-Enron era limit managers' discretion to innovate, take risks, and respond quickly to changing economic circumstances? How far should society go in imposing on corporations the kinds of procedures found commonly in democratic governments?

Criminalization Of Corporate Law: The Impact On Shareholders And Other Constituents, Jill E. Fisch

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No abstract provided.

Fiduciary Duties And The Analyst Scandals, Jill E. Fisch

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No abstract provided.

Does Analyst Independence Sell Investors Short?, Jill E. Fisch

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Regulators responded to the analyst scandals of the late 1990s by imposing extensive new rules on the research industry. These rules include a requirement forcing financial firms to separate investment banking operations from research. Regulators argued, with questionable empirical support, that the reforms were necessary to eliminate analyst conflicts of interest and ensure the integrity of sell-side research.

By eliminating investment banking revenues as a source for funding research, the reforms have had substantial effects. Research coverage of small issuers has been dramatically reduced—the vast majority of small capitalization firms now have no coverage at all. The market for research …

Predicting Corporate Governance Risk: Evidence From The Directors' & Officers' Liability Insurance Market, Tom Baker, Sean J. Griffith

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No abstract provided.

Keeping The Internet Neutral?: Tim Wu And Christopher Yoo Debate, Tim Wu, Christopher S. Yoo

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"Net neutrality" has been among the leading issues of telecommunications policy this decade. Is the neutrality of the Internet fundamental to its success, and worth regulating to protect, or simply a technical design subject to improvement? In this debate-form commentary, Tim Wu and Christopher Yoo make clear the connection between net neutrality and broader issues of national telecommunications policy.

Private Standards, Public Governance: A New Look At The Financial Accounting Standards Board, William W. Bratton

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The Financial Accounting Standards Board (the “FASB”) presents a puzzle: How has this private standard setter managed simultaneously (1) to remain independent, (2) to achieve institutional stability and legitimacy, and (3) to operate in a politicized context in the teeth of op-position from its own constituents? This Article looks to governance design to account for this institutional success. The FASB’s founders made a strategic choice to create a regulatory agency that sought independence rather than political responsiveness. The FASB also set out a coherent theory of accounting, the “Conceptual Framework,” to contain and direct its decisions. The Conceptual Framework contributed …