A Status Quo Bias: Behavioral Economics and the Federal Preliminary Injunction Standard

James Powers

92 Texas L. Rev. 1027

PDF Document

In the patchwork quilt of differing standards and policy justifications for granting a preliminary injunction, many federal courts have noted that a preliminary injunction should be granted to preserve the status quo existing between the parties.  Certain courts have gone so far as to require higher burdens from plaintiffs requesting injunctions that would alter the status quo.  Judge Michael McConnell of the Tenth Circuit tried to justify these much criticized legal standards through behavioral economics studies.  Judge McConnell defended the higher burdens for preliminary injunctions interfering with the status quo by arguing that a party will be more affected by the loss of a benefit already possessed than one that the party only hopes to attain.

Using the rich experimental literature of behavioral law and economics (BLE), Mr. Powers demonstrates how BLE cannot justify Judge McConnell’s view for invoking the status quo in deciding whether to issue a preliminary injunction.  In Part II, Mr. Powers presents a brief summary of the standards governing federal courts’ adjudication of motions for preliminary injunction; paying special attention to how the status quo affects these standards.  Part III introduces the field of behavioral law and economics and summarizes the relevant phenomena: loss aversion, the endowment effect, status quo bias, and omission bias.  In Part IV, Mr. Powers argues that while some of these BLE-based phenomena can explain courts’ invocation of the status quo in preliminary injunction decision making, none can justify it. Mr. Powers goes on to endorse the position held by many that the status quo has no place in this area of the law.

Purging Patent Law of “Private Law” Remedies

Ted Sichelman

92 Texas L. Rev. 517

PDF Document

In this Article, Professor Sichelman rejects the fundamental “private law” premise of patent law remedies that courts should always attempt to make the patentee “whole” in the event of infringement because the overarching aim of patent law is to promote innovation, not to remedy private wrongs.  Specifically, make-whole damages may thwart optimal innovation incentives when they concern small components of complex products involving high-switching costs, generate large consumer deadweight losses, result in substantial duplicated costs during the pre-invention R&D process, or create transaction costs far in excess of the value of the invention.  In other situations, a patentee should be made more than whole.  For example, inducing socially valuable innovations that do not command large profits in the private market—such as drugs for rare diseases and technologies for the disabled—may require more than make-whole compensation.

More generally, Professor Sichelman argues that the statutory remedies provisions of the Patent Act rest on a flawed foundation.  Instead of correcting for private wrongs inflicted on private parties, patent law remedies should be tailored simply to promote the types and levels of innovation that most benefit society, taking into account administrative and error costs.  As such, Professor Sichelman proposes that the patent system and its associated remedies should be viewed as part of a public regulatory regime designed to further societal goals rather than a private law system that protects individual interests.

Understanding Behavioral Antitrust

Avishalom Tor

92 Texas L. Rev. 573

PDF Document

Behavioral antitrust—the application to antitrust analysis of empirical evidence of robust behavioral deviations from strict rationality—is increasingly popular and hotly debated by legal scholars and the enforcement agencies alike.  In this Article, Professor Tor shows, however, that both proponents and opponents of behavioral antitrust frequently and fundamentally misconstrue its methodology, treating concrete empirical phenomena as if they were broad hypothetical assumptions.  Because of this fundamental methodological error, scholars often make three classes of mistakes in behavioral antitrust analyses: first, they fail to appreciate the variability and heterogeneity of behavioral phenomena; second, they disregard the concrete ways in which markets, firms, and other institutions both facilitate and inhibit rational behavior by antitrust actors; and, third, they erroneously equate all deviations from standard rationality with harm to competition.  After establishing the central role of rationality assumptions in present-day antitrust and reviewing illustrative behavioral analyses across the field—from horizontal and vertical restraints, through monopolization, to merger enforcement practices—Professor Tor examines the three classes of mistakes, their manifestation, and their consequences in antitrust scholarship.  Besides providing guidance to future behavioral antitrust scholarship, Professor Tor’s Article concludes by discussing two sets of essential lessons that the behavioral approach already can offer to advance antitrust law and policy: one concerning the value of case-specific evidence in antitrust adjudication and enforcement, the other showing how antitrust law can and should account for systematic and predictable boundedly rational behavior that is neither constant nor uniform.

From Interraciality to Racial Realism

L. Song Richardson & Phillip Atiba Goff

92 Texas L. Rev. 669

PDF Document

Richardson and Goff review Angela Onwuachi-Willig’s According to Our Hearts: Rhinelander v. Rhinelander and the Law of the Multiracial Family.

Constitutionalism and War Making

Peter M. Shane

92 Texas L. Rev. 689

PDF Document

Shane reviews Mariah Zeisberg’s War Powers: The Politics of Constitutional Authority and Stephen M. Griffin’s Long Wars and the Constitution.

Buyers Without Remorse: Ending the Discriminatory Enforcement of Prostitution Laws

Elizabeth M. Johnson

92 Texas L. Rev. 717

PDF Document

During the Progressive Era, America seemed to wake up to the real threat of the “Social Evil.”  Prostitutes, who had hitherto been cast as unfortunate and naïve women who allowed themselves to be seduced and ruined, were now seen as dangerous carriers of frightening and incurable disease.  The Federal Government reacted by passing the Mann Act in 1910.  Within 15 years prostitution had been criminalized in every state.

Criminalization, however, only ever really affected the sellers of sex.  The demand side of commercial sex—comprised of men who were given the common, judgment-free, and anonymous-sounding appellation “john”—continued to buy sex with near impunity.  Over the course of the twentieth century, police departments perfected methods of finding and arresting prostitutes, including the use of street sweeps and male decoys.  Few women who were charged with prostitution challenged these methods.  The few who did came to court armed with statistics showing pervasive discriminatory enforcement of prostitution laws against prostitutes and even police testimony admitting the same.  However, these women overwhelmingly saw their defenses thrown out.  While a small and modestly growing number of enlightened judges have dismissed cases against women charged with prostitution on the grounds of discriminatory enforcement, the problem remains.  According to recent FBI statistics, roughly two women are arrested for prostitution for every one man.

Mind the GAAP: Moving Beyond the Accountant–Attorney Treaty

Jamie L. Yarbrough

92 Texas L. Rev. 749

PDF Document

The current system of litigation contingency reporting does not adequately protect investors—particularly individual and unsophisticated investors—from large, unexpected settlements and judgments.  If regulators are to fulfill their mission of providing ample, high-quality information so that investors can make informed decisions, the disclosure of contingent liabilities in the litigation context must be strengthened.  Mr. Yarbrough develops the viability of a system of disclosure based on settlement value and its potential to satisfy warring factions of attorneys and accountants.  The proposed disclosure system would require dollar amounts offered by disclosing companies in settlement negotiations to form the baseline for quantifying losses that may not otherwise trigger current disclosure requirements because the potential losses cannot be reasonably estimated.

Mr. Yarbrough’s Note begins by examining the existing reporting system for litigation contingencies and noting its shortcomings.  He then outlines a proposed reform that focuses on disclosure of the value of settlements offered by the reporting company.  Finally, Mr. Yarbrough examines the practical obstacles and objections the proposal would have to overcome.  Ultimately, Mr. Yarbrough contends that his proposal does not alleviate the problem completely, but it walks the fine line between greater protection of investors and protecting the reporting companies’ interests in ongoing and future litigation.  Though a number of practical obstacles and concerns must be overcome in order for disclosure of settlement offers to function as a viable proxy for subjective valuations by a reporting company, the interests of investors and transparency in the financial system call for a workable compromise on the issue.  Disclosure of settlement offer values can be that compromise.

Bargaining over Loyalty

Daniel A. Crane

92 Texas L. Rev. 253

PDF Document

Contracts between suppliers and customers frequently contain provisions rewarding the customer for exhibiting loyalty to the seller.  For example, suppliers may offer customers preferential pricing for buying a specified percentage of their requirements from the supplier or buying minimum numbers of products across multiple product lines.  Such loyalty-inducing contracts have come under attack on antitrust grounds because of their potential to foreclose competitors or soften competition by enabling tacit collusion among suppliers.  In this Article, Professor Crane defends loyalty inducement as a commercial practice.  Although it can be anticompetitive under some circumstances, rewarding loyal customers is usually procompetitive and price-reducing.  The two most severe attacks on loyalty discounting—that loyalty discounts are often disguised disloyalty penalties and that loyalty clauses soften competition—are unlikely to hold as a general matter.  Nor are arguments that customers only accede to loyalty inducements because of collective action problems generally true.  Dominant buyers who face few collective action problems frequently use loyalty commitments to leverage their buying power and obtain lower prices.

Beyond the Patents–Prizes Debate

Daniel J. Hemel & Lisa Larrimore Ouellette

92 Texas L. Rev. 303

PDF Document

Intellectual property scholars have vigorously debated the merits of patents versus prizes for encouraging innovation, with occasional consideration of government grants.  But these are not the only options.  Perhaps most significantly, the patents-versus-prizes (or patents-versus-prizes-versus-grants) debate has largely neglected the role of tax incentives in innovation policy, despite the tens of billions of dollars spent globally on tax breaks for R&D activities each year.  How should R&D-related tax incentives figure into this debate, and what criteria are relevant for policymakers selecting among the various tools?

In this Article, Mr. Hemel and Ms. Ouellette develop a new taxonomy of innovation policies that allows direct comparisons among patents, prizes, grants, and tax incentives.  This taxonomy highlights the overlooked efficiency benefits of tax credits: like patents, they elicit privately held information about the expected value of R&D projects; like grants, they reduce the social-welfare costs of frictions in imperfect capital markets.  Mr. Hemel and Ms. Ouellette’s taxonomy also sheds new light on non-efficiency dimensions of R&D policy.  Grants, tax credits, and prizes generally require all taxpayers to subsidize R&D regardless of whether they use the resulting products, whereas the patent system imposes R&D costs primarily upon the consumers who purchase patented products.  In some contexts (e.g., life-saving drugs), the user-pays aspect of the patent system is difficult to defend on distributive justice grounds.  In other contexts (e.g., luxury goods), the user-pays aspect of the patent system may make patents normatively preferable in comparison to alternative incentive mechanisms.

Ultimately, optimal innovation policy will depend on a range of factors that are likely to vary across contexts.  For example, grants may be optimal where the government has a comparative advantage in evaluating potential projects, while tax credits may be optimal where potential innovators have private information about project prospects and limited access to outside capital.  Mr. Hemel and Ms. Ouellette argue for a pluralistic approach to innovation policy that incorporates each of the four main incentive mechanisms, and they provide examples of this pluralistic approach in practice.

Did Formalism Never Exist?

Alfred L. Brophy

92 Texas L. Rev. 383

PDF Document

Brophy reviews Brian Z. Tamanaha’s Beyond the Formalist-Realist Divide: The Role of Politics in Judging.