Volume 33, Issue 2 (Summer 2016)
Jonathan H. Adler, Roger E. Meiners, Andrew P. Morriss & Bruce Yandle, Baptists, Bootleggers & Electronic Cigarettes, 33 Yale J. on Reg. 313 (2016). [PDF]
Electronic cigarettes pose a competitive threat to the makers of cigarettes and other tobacco products, as well as to nicotine replacement therapies such as nicotine gum and patches. A common response to such a threat is support for government regulation to suppress competition. Predictably, cigarette manufacturers and other threatened producers, as well as the governments that earn revenue from tobacco taxes, are supporting greater regulation of electronic cigarettes that would replicate the cartel-supporting rules of the Master Settlement Agreement. These efforts are aided by anti-smoking organizations that would like to prevent the growth of demand for electronic cigarettes. This episode allows application of the Bootlegger and Baptist theory of regulation. Groups with divergent interests have aligned in support of cartelizing regulation of electronic cigarettes. As with other episodes of Bootlegger and Baptist coalitions, it is unclear whether the resulting policies will serve the public interest. There is evidence that electronic cigarettes pose substantially lower health risks than traditional cigarettes and may help smokers quit or reduce their tobacco consumption. Therefore, insofar as regulation restricts electronic cigarettes, it may undermine public health.
Anna Gelpern & Erik F. Gerding, Inside Safe Assets, 33 Yale J. on Reg. 363 (2016). [PDF]
“Safe assets” is a catch-all term to describe financial contracts that market participants treat as if they were risk-free. These may include government debt, bank deposits, and asset-backed securities, among others. The International Monetary Fund estimated potential safe assets at more than $114 trillion worldwide in 2011, more than seven times the U.S. economic output that year.
To treat any contract as if it were risk-free seems delusional after apparently super-safe public and private debt markets collapsed overnight. Nonetheless, safe asset supply and demand have been invoked to explain shadow banking, financial crises, and prolonged economic stagnation. The economic literature speaks of safe assets in terms of poorly understood natural forces or essential particles newly discovered in a super-collider. Law is virtually absent in this account.
Our Article makes four contributions that help to establish law’s place in the safe asset debate and connect the debate to post-crisis law scholarship. First, we describe the legal architecture of safe assets. Existing theories do not explain where safe assets get their safety. Understanding this is an essential first step to designing a regulatory response to the risks they entail. Second, we offer a unified analytical framework that links the safe asset debate with post-crisis legal critiques of money, banking, structured finance and bankruptcy. Third, we highlight sources of instability and distortion in the legal architecture, and the political commitments embedded in it. Fourth, we offer preliminary prescriptions to correct some of these failings.
Precisely because there are no risk-free contracts, state intervention supplies the essential infrastructure to let people act as if some contracts were risk-free. The law constructs and maintains safe asset fictions, and it places them at the foundation of institutions and markets. This project is unavoidably distributive and fraught with distortions.
David Min, Corporate Political Activity and Non-Shareholder Agency Costs, 33 Yale J. on Reg. 423 (2016). [PDF]
The Supreme Court’s controversial decision in Citizens United, much like its previous decision in Bellotti, was based in part on the notion that dissenting shareholders are sufficiently protected by state corporate law and the priority it accords to shareholder interests. There has been much debate in recent years over whether the Court’s reasoning was sound. Absent from this conversation is any discussion of the interests of non-shareholders, such as employees and creditors, even as their importance to the corporation has become increasingly recognized in recent years.
The courts have never considered the problem of dissenting non-shareholders in assessing regulatory restrictions on corporate political activity. This Article argues that they should. It is the first to explore the potential agency costs that corporate political activity creates for non-shareholders, and in so doing, it lays out two main arguments. First, these agency costs may be significant, as I illustrate through several case studies. Second, neither corporate law nor private ordering provides solutions to this agency problem. Indeed, because the theoretical arguments for shareholder primacy in corporate law are largely inapplicable for corporate political activity, corporate law may actually serve to exacerbate the agency problems that such activity creates for non-shareholders. Private ordering, which could take the form of contractual covenants restricting corporate political activity, also seems unlikely to solve this problem, due to the large economic frictions facing such covenants.
These findings have potentially significant ramifications for the Court’s corporate political speech jurisprudence, particularly as laid out in Bellotti and Citizens United. One logical conclusion is that these decisions, regardless of their constitutional merit, make for very bad public policy, insofar as they preempt much-needed regulatory solutions for reducing non-shareholder agency costs, and thus may have the effect of inhibiting efficient corporate ordering and capital formation. Another outgrowth of this analysis is that non-shareholder agency costs may provide an important rationale for government regulation of corporate political activity.
Jennifer M. Pacella, Conflicted Counselors: Retaliation Protections for Attorney-Whistleblowers in an Inconsistent Regulatory Regime, 33 Yale J. on Reg. 491 (2016). [PDF]
Attorneys, especially in-house counsel, are subject to retaliation by employers in much the same way as traditional whistleblowers, often experiencing retaliation and loss of livelihood for reporting instances of wrongdoing involving their clients. Although attorney-whistleblowing undoubtedly invokes ethical concerns, attorneys who “appear and practice” before the Securities and Exchange Commission (SEC) are required by federal law to act as internal whistleblowers under the Sarbanes-Oxley Act (SOX) and report evidence of material violations of the law within the organizations that they represent. An attorney’s failure to comply with these obligations will result in SEC-imposed civil penalties and disciplinary action. Current federal case law, however, is divided as to whether whistleblowers who report violations internally within their organizations, rather than to the SEC, are eligible for the robust retaliation protections available under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Given that external reporting by attorneys would run contrary to professional ethical rules in a number of states, lawyers risk getting caught in a catch-22 while attempting to comply with the conflicting regulatory regimes to which they are held. This Article highlights the importance of the compliance role of attorney-whistleblowers and addresses the catch-22 problem by analyzing whether the SOX attorney-reporting rules preempt conflicting state law. This Article proposes amendments to the SOX rules to clarify when external reporting is appropriate. It also considers a state-based solution to this conflict through the adoption of a modified version of Model Rule 1.13, the ethical rule governing the behavior of attorneys when they represent organizations and are called to act as whistleblowers.
Rory Van Loo, Corporation as Courthouse, 33 Yale J. on Reg. 547 (2016). [PDF]
Despite the considerable attention paid to mandatory arbitration, few consumer disputes ever reach arbitration. By contrast, institutions such as Apple’s customer service department handle hundreds of millions of disputes annually. This Article argues that understanding businesses’ internal dispute processes is crucial to diagnosing consumers’ procedural needs. Moreover, businesses’ internal processes interact with a larger system of private actors. These actors include ratings websites that mete out reputational sanctions. The system also includes other corporations linked to the transaction, such as when American Express adjudicates a contested sale between a shopper and Home Depot. This vast private order offers promise to advance societal dispute resolution goals by providing large-scale redress and preserving relationships in ways that more formal institutions cannot. At the same time, businesses closely guard their internal processes as trade secrets. Out of public view, they are pushing the bounds of dispute resolution by, for example, considering factors such as a customer’s social network in deciding how to handle a complaint. If public intervention is needed, courts are at best only part of the solution. Instead, the frontier of consumer dispute resolution lies beyond arbitration and class actions in agency supervision of collaborative negotiations between consumers and corporations.
David Berke, Note, Products Liability in the Sharing Economy, 33 Yale J. on Reg. 603 (2016). [PDF]
The Note analyzes an unexplored question in tort law: what role, if any, does products liability have in the sharing economy? The Note first evaluates the potential for products liability claims related to web applications and the shared physical product that make up the sharing economy. Additionally the Note considers the possible defendants in a products liability suit. Finally, the Note provides a normative argument for the ideal products liability regime in the sharing economy. The Note argues for a broad application of products liability, where litigants could sue the sharing economy platform itself.
John S. Ehrett, Comment, Fair Use and an Attribution-Oriented Approach to Music Sampling, 33 Yale J. on Reg. 655 (2016). [PDF]
The explosive growth of the Internet and the widespread availability of professional-grade editing tools have democratized and decentralized the music production landscape. Economic transformations have preceded shifts in intellectual property (IP) law, leaving courts and policymakers playing catch-up and creating a climate of professional uncertainty. Within this uncertainty, certain questions are proving to be persistently problematic. For example, even as questions regarding its scope become more and more critical, “fair use” remains one of the most underdeveloped concepts in IP law. The lack of commonsense interpretive principles to guide this doctrine has created a patchwork of conflicting precedents across circuits that risks chilling innovation in the music industry and in similar creative professions.
One crucial issue in music law revolves around the appropriate legal approach to music sampling—“repurposing a snippet of another artist’s music”—in creative projects. Since sampling always involves the reuse of another individual’s intellectual property in one’s own production, the practice necessarily triggers questions of copyright, transformation, and ownership. So far, however, no distinct statutory regime exists that specifically addresses the sampling question. Moreover, the issue fits uneasily within the bounds of current case law, which is divided across circuits, resulting in persistent uncertainty about the applicability of the various doctrines involved. Accordingly, in the following analysis, I offer a novel proposal for moving the legal framework for music sampling closer to the appropriate-use standards that exist in other professions. My argument proceeds by first emphasizing the significance of this issue in the music-production context (particularly given current industry trends), and subsequently sketching corrective suggestions in the realms of both commercial norms and legislative reform.