Worth Another Look: Net-Worth Discovery Standards in Texas

Anthony F. Arguijo

89 Texas L. Rev. 1433

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A defendant’s net worth is discoverable under Texas law for purposes of exemplary damages.  However, as to what constitutes net worth, the law provides little additional guidance.  In this Note, Arguijo addresses the net-worth debate and proposes a solution to some of the problems.

The author first presents the evolution of Texas law in this area, looking at cases such as Lunsford v. Morrisand Sears, Roebuck & Co. v. Ramirez.  Initially, courts allowed broad discovery, but they have begun to limit the amount of discoverable information.  Indeed, many courts have formulated their own tests regarding net worth.  The most common of these relies upon Generally Accepted Accounting Principles (GAAP).

Arguijo next analyzes the GAAP approach to net-worth discovery.  GAAP has a number of advantages, including the clarity and consistency of its rules.  While at first glance the GAAP approach appears to offer the best solution to the inconsistency in this area of the law, Arguijo finds this approach has shortcomings in light of the policy justifications for net-worth discovery in exemplary-damage cases.

Arguijo then examines the policy justifications and concerns regarding net-worth discovery.  It is intrusive, he writes, but concerns about privacy cannot end the discussion.  These privacy concerns must instead be balanced against the policy justification for such damages, which is punishment.

Thus, Arguijo offers a solution for the proper standard for net-worth discovery.  He argues that in exemplary-damages cases, courts should allow the discovery necessary to give an accurate representation of the defendant’s current net worth.  This standard addresses concerns over both timing and materials.  Arguijo notes that this is not the only solution to the problem, and the Texas Supreme Court has a number of options to choose from.  The important thing, writes Arguijo, is that clarity exists.

Something Like the Sun: Why Even “Isolated and Purified” Genes Are Still Products of Nature

Jonah D. Jackson

89 Texas L. Rev. 1453

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In this Note, Mr. Jackson argues that the “product of nature” and “isolation and purification” doctrines of patent law require the exclusion of gene patents encompassing functional genetic information.  Under the product of nature doctrine, there can be no patents for laws of nature, physical phenomena, and abstract ideas.  But under the isolation and purification doctrine, genetic material, despite being a naturally occurring substance, is patentable when separate from its naturally occurring environment.  According to a 2005 estimate, 20% of the human genome was already subject to issued patents.

Jackson first introduces the basic science of genes and argues that they are best conceived of as carriers of information with unique properties significant to the question of patentability.  He then explains both the product of nature and isolation and purification doctrines and identifies the rationales behind them.  These doctrines currently permit the patenting of genes.  Jackson argues that gene patents encompassing functional genetic information should be excluded from patentability under the product of nature doctrine.  This doctrine is concerned with excluding subject matter with a broad scope and of a fundamentally essential nature both because of economic consequences of patenting such subject matter and the broader implications to a democratic society.

Next, Jackson breaks down the economic and moral arguments against gene patents before tying them to both the characteristics of genetic information and the doctrines previously described.  Lastly, he discusses the prospects for exclusion of genetic information from patentable subject matter and takes up some objections.  For example, some defenders of gene patents argue that thirty years of jurisprudence should not be overturned when the research on the negative consequences of gene patents is still equivocal.  Jackson writes that this assumes gene patents were justified in the first place, but he thinks the evidence demonstrates this protection was never truly necessary.

Jackson concludes that opponents of gene patents face an uphill battle.  He hopes that this Note can help combat the inertia of current law and lead to an understanding that, like the heat of the sun, genes are unpatentable products of nature.

Patentable Subject Matter and Institutional Choice

John M. Golden

89 Texas L. Rev. 1041

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In this Article, Professor Golden argues that Congress should expand the USPTO’s rulemaking authority so that it encompasses substantive questions of subject-matter eligibility.  This proposal would explicitly split “interpretive authority over substantive patent law between the USPTO and the federal judiciary,” which would “further hybridize patent law’s legal regime and break from a common paradigm under which primary interpretive authority of the substance of a statutory regime lies either wholly with the courts or wholly with an administrative agency.”

Golden first describes the already hybrid nature of U.S. patent law’s legal regime.  Next, he presents the case for giving the USPTO binding interpretive authority over subject-matter eligibility as a means toward patent law’s commonly accepted utilitarian ends.  He does this by describing the nature of subject-matter inquiries and developing mathematical models that help justify their continued use as patentability filters.

Golden then argues that the generally categorical nature of questions of subject-matter eligibility suggests that they are especially appropriate for agency rulemaking, an argument which is bolstered by an analysis of comparative institutional competence.  Golden finds a lack of judicial facility for resolving such problems.  Moreover, Congress lacks the sustained interest, time, and knowledge to resolve subject-matter eligibility’s bounds.  The USPTO thus appears to be the best potential institutional candidate, having both the expertise and the incentive to deal with the issue.

However, as an administrative agency the USPTO is also vulnerable to concerns of capture and bias.  But Golden argues that such concerns are not as great as is often contended and they can be further diluted through additional institutional reforms.  Indeed, Golden points out that the USPTO already has an established record of developing nonbinding but influential interpretive rules on matters of substance.  Granting the USPTO primary interpretive authority over subject-matter eligibility issues might allow it to clear doctrinal tangles generated by the courts.  The recent U.S. Supreme Court decision in Bilski v. Kappos, writes Golden,does not indicate otherwise.

Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay

Jesse M. Fried

89 Texas L. Rev. 1113

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Executives of public companies receive most of their pay in equity compensation, which is intended to better align their interests with those of the firm’s shareholders.  However, most equity compensation is tied to the short-term stock price, which may shift the executives’ focus from long-term value.  Professor Fried identifies a different problem, which arises when the executive is free to sell stock in the short-term or must hold it for the long-term. Tying payoffs to the stock price, argues Fried, fails to align executives’ interests with the maximization of aggregate shareholder value, which is the amount of value flowing to all the firm’s shareholders over time.  Fried shows that tying payoffs to the future stock price can even encourage executives to take steps to destroy aggregate shareholder value.

Two distortions result from tying executives’ payoffs to the future stock price.  When the current price is below its actual value, executives whose pay is tied to the future stock price are rewarded for funding bargain-price share repurchases rather than making productive investments in the firm.  When the stock price is higher than its actual value, these executives are rewarded for issuing new shares even if the firm cannot productively use the consideration received in exchange. Fried calls these “costly contractions” and “costly expansions.”

These distortions arise because the executives’ interests are aligned only with investors who do not buy or sell shares until the executive cashes out her equity.  Executive interests are not aligned with those shareholders that either sell or purchase shares before the executive cashes out.

Fried proposes a mechanism that would perfectly tie executive pay to aggregate shareholder value, which he calls the “constant-share” approach.  Accordingly, executives must adjust their equity holdings in the firm whenever it purchases or sells its own shares to keep them constant through the transaction, selling shares whenever the firms repurchases its own stock and buying whenever it issues new equity.

Fried acknowledges that problems with this approach exist.  It will make it more difficult for executives to personally benefit, so they can be expected to resist its adoption.  Also, it may lead to a lower stock price, which could in turn increase the likelihood of a takeover attempt or proxy fight.  So, directors may also be against adopting it.

But I Thought the Earth Belonged to the Living

Mark L. Ascher

89 Texas L. Rev. 1149

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As a result of intense lobbying, problematic legislative trends have developed over the last several decades in the law of the dead (as Professor Ascher refers to the law of wills and trusts). Here Professor Ascher reviews Dead Hands: A Social History of Wills, Trusts, and Inheritance Law by Lawrence M. Friedman, which explores the reach and longevity of the Dead Hand.

Ascher outlines and discusses four important changes in the law of the dead included in Friedman’s book.  These involve changes in family structure, record keeping, demographics and culture, and societal attitudes toward wealth and the wealthy.  One important change in family structure, for example, is a shift from focusing on the bloodline family to the family of affection and dependence.  Another example is that the surviving spouse once only received limited inheritance, while today the surviving spouse is usually the primary if not exclusive taker. Although Friedman thinks this reflects a change in the family structure, Ascher argues that it is “attributable to and emblematic of the ever-increasing stature of women in American society.”

Ascher also examines the development of dynastic trusts and how such trusts concern societal attitudes toward wealth, in particular of the dynastic kind.  Friedman thinks that in the beginning, Americans were initially skeptical of such wealth, but the end of the nineteenth century saw much more acceptance for it.  Ascher, however, argues that the Progressive Movement was yet to come, which embodied a continued skepticism of dynastic wealth.  Ascher then discusses other aspects of trusts and the changes thereto, some of which are troubling.  But Friedman’s book, according to Ascher, lacks a sense of outrage over these developments, even though Friedman is critical of other issues, which is Ascher’s biggest criticism.

Ascher then looks at Friedman’s treatment of charitable gifts and foundations, and later, “death” taxes.  He also returns to Friedman’s argument that our collective attitude toward wealth has changed, which Ascher does not believe to be the case. Ascher notes that we have strayed far from Thomas Jefferson’s warnings against establishing an aristocracy. Both the estate tax and the rule against perpetuities have been the primary means of preventing the accumulation and propagation of dynastic wealth.  It is troubling then that both have recently been curtailed.  Yet, Ascher concludes, it would not be difficult to get back on the right path, with a few sensible changes to the rules.

A Proposed Wealth Redistribution System Based on the Underlying Premise of Revenue Sharing in American Pro Sports

F. Gibbons Addison

89 Texas L. Rev. 1179

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In this Note, the author addresses the U.S. system of wealth redistribution.  According to Addison, the present wealth inequality between the rich and the poor is due to unequal opportunity, meaning an individual’s ability to pursue her objectives without interference from arbitrary obstacles.

Addison finds a solution to this problem in the revenue sharing system of professional sports leagues.  Sports leagues employ such a system to increase the competitive balance of the league, which increases profits in the long run, even for high-revenue teams that contribute a portion of their revenues for distribution to low-revenue teams.  Similarly, Addison argues that the U.S. should address wealth inequality by substituting the goals of equality and fairness for competition.

Addison begins with an overview of wealth redistribution in the U.S., starting in the colonial period with the influence of Adam Smith and continuing through the New Deal and the civil rights movement until arriving at the present system.  Addison turns to an overview of revenue sharing in American professional sports, discussing the importance of cooperation in order to increase competition, ticket-sale sharing, and the potential problem of teams’ ability to exploit sources of local revenue.

Next, the author analyzes wealth redistribution in sports leagues.  Addison notes some possible imperfections to the systems but argues that the leagues need low-revenue teams to be successful.  The goal of revenue sharing, writes Addison, is not perfect competition but competitive balance.

Third-Party Assistance in Determining Obviousness

Gregory R. Baden

89 Texas L. Rev. 1203

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This Note proposes a third-party obviousness specialist in patent litigation in response to the challenge of practically determining this requirement in a technically and legally consistent manner.

Making consistent determinations of obviousness is a challenge at all levels of the patent system, from patent examiners to the U.S. Supreme Court.  An erroneous determination can be costly, due to the cost of the disputes.  The root of the challenge of determining obviousness is its doctrinal positioning as a mixed question of fact and law, according to Baden.  One problem with this positioning is whether a judge, jury, or some combination of the two should be responsible for making the determination.

In response to the challenges of the obviousness determination, Baden proposes a third-party obviousness specialist, and situates the role of this specialist within the concepts of patent law.  Rather than supplanting the judge or jury, the “obviousness master” would assist the court in establishing the boundaries of the obviousness factual inquiries.  Baden notes that there is support for such a master in both academic commentary and existing legal doctrine, which he discusses.

He then addresses the options for practical implementation of the obviousness master.  He provides two possible forms.  First, the obviousness master could be implemented in a manner similar to that employed for a traditionally titled special master in claim construction or interpretation hearings.  Second, the role could be developed via a specialized incarnation of an expert witness, which would include the use of a double-blind selection method for choosing the individual.  Baden addresses each form in detail.

Lastly, Baden presents the benefits and challenges of, and arguments for and against, implementing an obviousness specialist.  Baden concludes that an obviousness specialist would allow the parties, the court, and, importantly, the jury to focus on the primary task of navigating the defined waters of the invention without venturing into the unmapped sea of innovation.

The Effect of the Parliamentary Voting System Act on the British Constitution

Joshua H. Packman

89 Texas L. Rev. 1229

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In this note, Packman discusses the pending Parliamentary Voting Systems and Constituencies Bill (PVS Bill), which is aimed at British electoral reform in response to the 2010 hung parliamentary election.  The PVS Bill provides for a referendum on switching from the first-past-the-post electoral system to the alternative vote and would also reduce the size of Parliament to 600 members.

Packman first examines the effect of the PVS Bill on the British Constitution by virtue of the referendum.  One important part of the British Constitution, according to Packman, is the doctrine of the sovereignty of Parliament.  Packman discusses different aspects of this doctrine, and notes that he is taking a simplistic view for the purposes of the Note that Parliament is the supreme legislative authority and its sovereignty is the core principle of the British Constitution.

Packman then introduces Bruce Ackerman’s thoughts on an alternative source of constitutional legitimacy: the referendum.  This would potentially vitiate parliamentary sovereignty, but Packman argues that this outcome is not preordained.  Packman finds that the PVS Bill as a referendum only partly diminishes the sovereignty of Parliament.

Packman then analyzes the constitutional effects of switching the electoral system to the alternative vote, which he argues represents a major reform of the British Constitution and a threat to parliamentary sovereignty.  He first provides an overview of the system and theory of government that exists under the current British Constitution.  He then looks at how the PVS Bill would change this system.  As such, Packman writes that the PVS Bill, by substantially reducing the number of seats won by the majority party, would effectively transform Parliament from a government of “front benchers” into a government of “backbenchers” by increasing the relative power of each member of the majority party vis-à-vis the Prime Minister and the Cabinet.

This is not the first time that Parliament has attempted to change the voting system, concludes Packman. And if it fails, it will surely not be the last.  Such alterations reflect underlying changes in the values embodied in the British Constitution, and the alternative votes represent a change from government based on parliamentary sovereignty to government based on popular sovereignty.

I’m a Laycockian! (For the Most Part)

Jay Wexler

89 Texas L. Rev. 935

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In this lighthearted piece, Wexler reviews the first volume of Douglas Laycock’s collected works, which contains roughly forty pieces that he wrote between 1985 and 2009.

On nearly every issue presented in the volume, Wexler finds himself on common ground with Laycock.  For example, they both believe that religious believers should have robust exemption rights from general laws under the Free Exercise Clause.  Moreover, Wexler notes that neither of them believes in God but also that what one believes about God should have no effect on how one interprets the First Amendment.

Wexler does have some reservations about a number of Laycock’s most important points.  One of Laycock’s most important contributions to the field has to do with the concept of “neutrality.”  Laycock pointed out that there are two main types of neutrality.  “Formal neutrality” means government cannot utilize religion as a standard for action or inaction.  “Substantive neutrality” means that the Religion Clauses require government to minimize the extent to which it either encourages or discourages religious views and practices.  Wexler remains unconvinced that neutrality should be used at all when talking about the Religion Clauses.  In his view, Laycock’s concept of substantive neutrality may not seem enough like what we generally think of as the core meaning of neutrality in order to justify calling it neutrality.

In light of this and other considerations, Wexler suggests reformulating substantive neutrality to mean that government must minimize the effects of its actions on private religious choices, unless it has a compelling interest and unless it is taking positions on contested issues that will have potentially significant effects on some religions.  Although this would not be as simple a formulation as “substantive neutrality,” Wexler argues that it would help eliminate the confusion surrounding the concept.

Wexler wonders, however, whether it might have been better to put together a shorter, fully original book setting out Laycock’s views on religious liberty and the First Amendment for the general public.  Whether or not such a book is in the future, Wexler finds the current volume to be a great accomplishment.

Reviews of a Lifetime

Douglas Laycock

89 Texas L. Rev. 949

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In this piece, Laycock responds to reviews of his work by Thomas Berg, Steven Smith, and Jay Wexler.  Professor Smith argues that Laycock has let his views on religion drive his views on religious liberty, a form of the Puritan mistake.  Laycock notes that he is a secular agnostic who respects believers and thinks that both “sides” should win on some issues and lose on others.  He writes that it is only to the extent we distinguish our views on religious liberty from our views on religion that religious liberty can contribute towards solving the underlying problem.

Laycock has also recasted religious reasons for adopting a regime of religious liberty in secular terms, and Professors Berg and Smith criticize Laycock for attempting to justify religious liberty in exclusively secular terms.  So, Laycock clarifies his position: he does not mean to exclude religious arguments from the public debate or foreclose public officials from relying on religious motivations.  Rather, he means that government cannot announce its commitment to a disputed religious proposition.  Laycock emphasizes that he is not concerned whether government officials have religious motivations, but that the laws and actions of government remain neutral towards religion.

Professor Berg also raises a different objection, which is that the case for religious liberty is weakened when we omit religious reasons.  Laycock notes that he himself emphasizes religious reasons for religious audiences, but he argues that such reasons are useless for secular audiences.  And to justify religious liberty in a religiously diverse society, the reasons given must not require acceptance or rejection of any propositions of religious faith.

Professor Smith criticizes Laycock for counting the alienation of nonbelievers as a reason to keep the government from endorsing religious belief but not counting the parallel alienation of believers who expect government to endorse their beliefs.  Laycock notes that this is only one reason among others for why he thinks government should refrain from taking positions on religious questions.  He writes that it is incoherent to the concept of religious liberty to allow one religious group, such as conservative Christians, to have the right to use the instruments of government to exercise their religion.

Professor Smith also questions Laycock’s resistance to generic endorsement like the national motto.  Laycock notes that, in practice, there will always be a de minimis exception.  Often such generic endorsements are not really that controversial, but Laycock writes that this is less and less true as the nonbelieving population continues to grow.

After addressing several other considerations and objections, Laycock concludes that the criticisms in these reviews will help inform his future work, for which he is indebted.