Private Law Consortium, Day 1

Post by Janet Freilich

 

On July 6-7, McGill University’s Faculty of Law and Center for Intellectual Property Policy hosted the Third Annual Private Law Consortium, organized by David Lametti. Participants at the Consortium came from Bar-Ilan University, Harvard University, McGill University, the University of Oslo, the University of Pennsylvania, and the University of Trento. The Consortium spanned a wide variety of private law topics, including property, torts, contracts, and intellectual property.

Abraham Bell & Gideon Parchomovsky¸ “Aggregative Use Rights”

To kick off the conference, Abraham Bell and Gideon Parchomovsky talked about aggregative use rights. These are use rights that become valuable only when they are aggregated. A classic example is the “right to roam,” which allows the public the right to cross many types of land, and is traditional in the United Kingdom, Scandinavia, and other parts of Europe.

Bell and Parchomovsky suggest that aggregative use rights are appropriate where there is a use that has high utility when it is conducted over a large number of property assets but creates only a small burden on asset owners. If the law can grant aggregative use rights, it can prevent holdup problems and lower transaction costs.

Bell and Parchomovsky highlighted over-flights as a example where an aggregative use rights analysis would have been appropriate, but was not used. Traditionally, property rights extend to the heavens. Obtaining the right to fly over any one plot of land is practically worthless. Obtaining the right to fly over all plots of land between two airports is practically impossible. The burden caused by airplanes flying over a property is minimal (except for property located close to an airport). Thus, the conditions for an aggregative use rights analysis are met.

Bell and Parchomovsky concluded with a call to make aggregate use rights easier to implement, and specifically proposed three mechanisms:

• Mandatory granting of default licenses (for example, Google Books searches across large numbers of books)
• Private Takings (for example, allowing cable companies to put small cable boxes on the outside of buildings)
• Collective Purchases

 

Geir Stenseth, “Compensation and Gain Sharing in Public and Private Takings: Lessons to be Learned from Experimental Economics”

What is “just” about “just compensation” in takings? Geir Stenseth approached this question by asking whether insights from behavioral economics about valuation and pricing could improve our approach to ensuring that compensation for takings is “just.”

He began with an analysis of different approaches to “just compensation” in different jurisdictions over different historical periods. Today, Canada and the US use a fair market value approach and European countries ask whether compensation is “reasonably related to the full market value.” However, this has not always been the case. Historically, courts would award the “value to an unwilling seller” in order to provide a bonus to the seller on top of the market value.

Stenseth argues that some of the surplus obtained from the project that prompted the taking should be given to the seller. The difficult question, of course, is ‘how much’? Stenseth draws on three types of experiments: the Ultimatum Game, the Dictator Game, and the Endowment Effect, to suggest answers to this question.

The “Ultimatum Game” requires one player to divide some amount of money between herself and another player in a take-it or leave-it offer. If the responder accepts the offer, the money is divided, but if the responder rejects the offer, both parties get nothing. Meta-analyses of the Ultimatum Game find that offers of between 40 and 50 percent of the pool of money are rarely rejected, whereas offers below 20 percent are usually rejected.

A variant on the “Ultimatum Game”, the “Dictator Game,” requires one player to divide some amount of money, but does not allow the other player to reject the money. Meta-analyses of the Dictator Game find that the ‘dictator’ usually offers 20 percent of the money to the other player.

Stenseth suggests that these games are relevant because they provide insight into social preferences and understandings of fairness. He draws on these games to argue that surplus from a project involving a taking could fairly be split 80/20 between the developer and the (former) property owner(s).

An alternative way to use game theory to inform compensation is to focus on the loss experienced by the property owner, rather than the surplus gained by the developer. Economists and psychologists have long known that there the mere fact of owning property increases one’s valuation of the property, as long as one owns the good for personal use and not for commercial purposes. This is called the “Endowment Effect.” Games testing the Endowment Effect find that the average owner is willing to sell if the price is 185 percent of fair market value. Thus, this literature suggests that certain types of property (that which is not being held for the purpose of exchange) should be compensated above market value.

 

Adi Ayal, “The (Failing) Firm Defense”

Adi Ayal presented an innovative approach to addressing concerns that mergers will be anticompetitive. Regulatory bodies review mergers ex ante, and generally focus exclusively on the benefits and costs that will be passed through to consumers.   This analysis excludes potential harms to other stakeholders, such as the local community. This is a particular problem in the context of failing firms. Here, a firm will fail unless there it is bought by or merged with another company. The company willing to offer the highest price will be a direct competitor to the failing firm, because this buyer will be willing to pay a premium to obtain a monopoly over the market. Regulatory bodies are very concerned about a company being purchased by a direct competitor, because the merger is likely to cause prices to rise.   However, if the merger does not go through, the company will fail, employees will be unemployed, creditors and suppliers may not be paid, and the community will suffer. Regulatory bodies do not take the harm to employees and the community into consideration.

How can we balance preventing rising prices to consumers with preventing harm to other stakeholders such as employees and the local community? Ayal proposes allowing a merger to go through if the overall benefit will exceed the overall harm, but compensating for competitive harm by giving the harmed parties an equity stake in the merged firm.   Because the public will be protected by the equity stake, they will not need to be protected by banning the merger (which is the current practice). This approach has many benefits, in particular:

• The interests of stakeholders other than the consumer are taken into account.
• There can be ex post assessment of harm, avoiding the need to predict how much harm will arise from a merger (a difficult prediction to do accurately).
• Managers and owners will have an incentive to avoid competitive harm, since they often have an equity stake in their company.

Yonathan Arbel, “Asset Shielding and the Theory of Credit”

NPL Blog’s own Yonathan Arbel gave an excellent presentation on the problem of asset shielding. In general, legal liability, be it contract, tort, or property, is enforced through the seizure of assets. However, debtors can reduce the ability to enforce claims against them by shielding assets in variety of ways, which turn out to be relatively effective. Our legal system relies on adequate enforcement of judgments, so the possibility of evading judgment is concerning and an important problem for legal scholars.

Arbel argues that in situations where asset shielding occurs in response to judgments of liability, asset shielding will be more common among poor debtors than rich debtors, because rich debtors will often find shielding irrational even if it can be done effectively. This implies that legal policies that seek to curb opportunistic shielding should focus on the poor rather than the rich or the general public.

Why are rich debtors less likely to shield? Because the debt normally does not attach to a specific asset, a debtor will not benefit by shielding just the amount she owes while leaving the rest of her assets exposed. If she does that, the creditor will simply collect from exposed assets instead. To avoid any part of the debt, the debtor will have to shield all of her assets, which is more work for a rich debtor.

To address this problem, Arbel maps the main categories for asset shielding: strategic consumption, concealment of assets, legal asset protection (e.g., bankruptcy exemptions, ERISA accounts), and the obstruction of enforcement (by, for example, placing assets in offshore trust accounts). This allows for more nuanced policy responses, which can target separate means of shielding.

Ole-Andreas Rognstad, “The Thingness of Intellectual Property Revisited”

Ole-Andreas Rognstad tackled the question of whether intellectual property is a “thing” and whether it is useful to make a distinction between tangible and intangible property.   He began with historical background on whether property rights (intellectual or real) relate to a thing (are rights in rem) or relate to obligations (are rights in personam). Rognstad argues that if property is “a composite of legal relations that holds between persons, there would be no significant structural differences between property in tangibles and intellectual property.” However, if “holding on to the notion that the in rem aspect of property implies a relation between persons and a thing…the structural differences between property in tangibles and intellectual property become more visible.”

Rognstad provided some history on the debate, which has proceeded differently in different countries. German scholar Josef Kohler developed the immaterialgütertheorie (a wonderful term!) which asserts that intellectual property protects intangible goods. Scandinavian legal scholarship strongly rejected Kohler’s theory and build a theory that intellectual property protection is about relational concepts, the content of which necessarily varies with context. Thus, intellectual property rights do not have an “object” comparable to a tangible object, but rather are solely between persons.

Rognstad then argues that conceiving of intellectual property as relating to a thing or object has certain advantages, which have been missed in the Scandinavian discussion. In particular, he argues that if intellectual property relates to a thing, it reduces information costs. Thus, “the function of a thing or an object” should be considered in intellectual property law, while at the same time recognizing that “this object does not have a fixed and predetermined content, but is relational in the sense that its content depends on the relation to which it applies.”

 

Abraham Bell & Gideon Parchomovsky¸ “Copyright Trust”

Abraham Bell and Gideon Parchomovsky returned to the podium to present another exciting project on a very different topic: how to resolve problems of multiple authorship in copyright law. Bell and Parchomovsky explained that while the archetype of the author dominates our perception of the creative process, it is not accurate: a substantial portion of copyright assets are made by multiple (even thousands) of authors. Unfortunately, copyright law does not do a good job of allocating rights among multiple contributors.

Bell and Parchomovsky began with a summary of why current copyright law cannot cope with projects created by multiple authors. There are a multitude of doctrines, none of which fully resolve the problem. We heard about the ‘work made for hire’ doctrine, the ‘joint authorship’ doctrine, and the ‘collective work doctrine’, judicial authorship and implied license doctrines, as well as the problems with each.

After framing the problem, Bell and Parchomovsky propose an intriguing solution: the copyright trust. As the name suggests, the copyright trust would “concentrate[] the power of management in a single individual, while diffusing the benefits of ownership among many contributors,” dividing beneficial and trustee ownership and imposing standard fiduciary duties on the owner-trustee. It could be adopted by the parties by contract, or by courts after the fact. It would be added to the current men of options, rather than replacing any current doctrine. Bell and Parchomovsky note that their proposal would balance the competing goals of incentivizing the creation of collaborative works, efficiently managing collaborative works, and reducing disputes among contributors to collaborative works. The proposal was inspired by property law’s division of equitable and legal ownership and by corporate law’s division of ownership and control.

 

Federica Giovanella, “Tort Law Failure? Civil Liability Rules and Distributed Architectures”                                

Frederica Giovanella’s presentation identified and described a major hole in tort law and asked how (and whether) we should fill it. Distributed architectures and networks are becoming increasingly common in the digital age. These are networks where users are peers, there are no client/server structures, the users rely on anonymity, and which are based on openness and sharing. An example is wireless community networks. When someone within a network behaves tortiously towards someone outside the network (writing something defamatory, for example), should the law respond, and how can the law respond without destroying the principles that make the network possible and successful?

The legal problem in the scenario above is determining who can be held accountable if damage is caused from within the network. Because these networks are spontaneous aggregations of people, the networks lack legal personality. A foundational principle of these networks is anonymity.

The aim of Giovanella’s research is to find a solution for the current enforcement failure without frustrating the survival of networks such as wireless community networks. Giovanella and other participants discussed the advantages and disadvantages of a regime where liability would be imposed on the network (that would necessitate formalizing the network, and therefore undermining the nature of the network) or creating a user identification system (which would frustrate the anonymity that is a foundational aspect of the network). Giovanella concluded by asking whether state intervention is appropriate or desirable in these situations.

 

Shauna van Praagh, “’The most natural thing in the world’: Feminist Pedagogy and Private Law”

Shauna van Praagh finished the first day of presentations with a very different sort of discussion. She focused on the important issue of pedagogy in law classrooms, and in particular how feminist pedagogy can be incorporated into the teaching of private law. She asked the participants to reflect on how they might incorporate feminist pedagogy into their private law classes and also asked for reflection on what students might mean if they asked for more feminist pedagogy. She also gave examples from her own teaching and shared requests from and discussions with her own students about these issues.