Bifurcating Settlements

In settling a lawsuit, parties agree on their obligations to one another, but they need not separately address each issue, claim, or remedy that a trial court would have confronted. The legal system, however, can bifurcate the settle-ment process, requiring separate resolution of components of a settlement. Bi-furcation can protect third parties, for example, by preventing divorcing parents from trading child custody for money. In addition to identifying a wide range of contexts in which preventing trade-offs may be desirable, this Article shows that bifurcation will generally have only modest (and sometimes beneficial) effects on settlement rates

The Uneasy Case for Patent Races Over Auctions

In advancing his prospect theory of patents, Edmund Kitch dismissed the possibility of distributing rights to particular inventions through auctions, arguing that the patent system avoids the need for governmental officials to define the boundaries of inventions that have not yet been created. Auctions for patent rights to entire inventive fields, however, might accentuate the benefits of a prospect approach, by allowing for earlier and broader patents. Auction designs that award the patent to the bidder that commits the most money to research and development or that agrees to charge the lowest price, meanwhile, can reduce the costs of the prospect approach. Concerns about the government\u27s ability to decide correctly when to hold auctions, however, provide an uneasy case for patent races over patent auctions. More modest uses of auctions might improve welfare, though. For example, an auction to a small number of parties of the right to race in a technological field might reduce wasteful duplication and thus accelerate innovation. Similarly, patentees might be allowed to demand auctions for extended patent scope, with the caveat that a patentee would need to outbid others by a substantial amount to win such an auction

Cryptoinsurance

The sharing economy has begun to make inroads in finance. Peer-to-peer lending is growing substantially in volume and in academic attention, though it remains less than a rounding error in comparison to more traditional sources of loans. Meanwhile, Congress passed the Jumpstart Our Business Startups ( JOBS ) Act, which directed the Securities and Exchange Commission ( SEC ) to create regulations allowing crowdfunding in at least some circumstances. The SEC, as of yet, has published only proposed rules, ignoring a congressional deadline, but state regulators have begun to create their own rules for intrastate crowdfunding. Yet, one area of finance has resisted even these tentative first steps: insurance

En Banc Revisited

Legal commentators have proposed a variety of solutions to the perceived problems of the U.S. courts of appeals, from splitting large circuits to assuring partisan balance in panel decisions. They have always assumed, however, that judges a particular appellate court should have sole responsibility for creating the law of that circuit, except when caseload pressures make it necessary to borrow visiting judges. In this Essay, Professor Abramowicz proposes using visiting judges in a more important role: en banc decision-making. Under this proposal, en banc decisions for one circuit would be made entirely by courts of appeals judges randomly selected from other circuits. In addition to increasing the likelihood that any given decision is more likely to be that which a majority of all courts of appeals judges would make, visiting en banc panels would allow for optimization of the number of judges participating in en banc and for generalist review of specialized courts. After assessing these benefits and some possible costs of the proposal, Professor Abramowicz advances a more general case for majoritarian judicial decisionmaking

Modeling Settlement Bargaining with Algorithmic Game Theory

Past computational models of settlement bargaining have lacked explicit game theoretic foundations. Algorithmic game theory, however, offers techniques that can find perfect Bayesian equilibria even where closed-form mathematical solutions may be intractable. Some recent mathematical models tackle two-sided asymmetric information, including evidentiary signals models, in which the judgment is a sum of both shared and independent private information, and correlated signals models, in which both parties receive noisy signals about the same information. To relax assumptions inherent in these models, this paper employs several progressively more complicated techniques, including iterative elimination of dominated alternatives, no regret learning, and counterfactual regret minimization. Although these algorithms are not guaranteed to produce Nash equilibria in general-sum games like litigation, they nonetheless succeed in producing either exact or close approximate equilibria on discrete versions of the corresponding mathematical models. A single algorithmic game theory model can incorporate a number of features that state-of-the-art mathematical models cannot handle simultaneously, such as two-sided correlated signals of both liability and damages, risk aversion, and options to concede

A Unified Economic Theory of Noninfringement Opinions

In the wake of the Federal Circuit’s ruling in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., this Article seeks to develop an economic theory of the functions that enhanced damages may serve in patent law specifically or litigation more generally as well as to explain the role that noninfringement opinions – opinions of counsel that conclude that activity will be noninfringing – could have within the context of such a theory. I consider the benefits and costs of a patent regime that generally provides enhanced damages but provides a safe harbor for potential infringers who acted only after receiving advice from counsel that their activity likely is noninfringing, and conclude that damages multipliers may help deter infringing activity and reduce the incidence of suit by reducing what otherwise might otherwise be a problem of underdeterrence. Part I of this Article describes three theories of supercompensatory damages, including the theory that supercompensatory damages encourage consensual negotiation instead of nonconsensual takings. Part II introduces a formal simulation model to illustrate the effects of a regime that combines enhanced damages with a safe harbor for infringers who acted under the favorable advice of counsel. The simulation model incorporates genetic algorithms, which allow the players in a simple patent game (the potential infringer and the patentee) to learn optimal behavior given the rules of the legal regime and the simple goal of wealth maximization. Part III incorporates various alterations to the baseline simulation to test how changes in parties\u27 information may affect the basic conclusions

Patent Auctions

In his famous paper advancing a prospect theory of patents, Edmund Kitch found inspiration in, but quickly dismissed, a footnote authored by Yoram Barzel suggesting that rights to inventions might be distributed through an auction mechanism. Kitch maintained that the patent system itself achieves the benefit of an auction by giving control over the inventive process at a relatively early stage. The patent system, moreover, avoids the need for governmental officials in an auction regime to define the boundaries of inventions that have not yet been created. Patent auctions, however, may be more appealing if the auctions are for rights to inventive fields, rather than to specific inventions. Indeed, an auction system may be seen as an extreme version of the prospect theory approach, by allowing patents to be issued at an earlier stage and with broader scope than is feasible in a conventional patent system. Like prospects generally, auctions could help avoid the costs associated with duplicative patent races and with inventing around existing patents. An additional advantage of auctions is that variations in the design of the auction mechanism can help respond to specific concerns about the prospect approach. For example, an auction awarding a patent to the party that agrees to commit the most resources to a particular technological field may alleviate concerns that the prospect approach could stifle rather than stimulate innovation. Similarly, to mitigate concerns about deadweight loss, the government could sponsor an auction in which the field is awarded to the party that, in addition to paying a set amount of cash, agrees to charge the lowest price or hold the patent for the shortest term. The analysis, however, identifies a number of empirical uncertainties that together provide an uneasy case for the status quo. A principal problem is that there exists a fundamental tradeoff in auction design, between approaches that maximize the auction winner\u27s incentive to develop inventions within the scope of the patent grant and approaches that most effectively reduce deadweight loss. There is no guarantee that the government would optimally resolve these tradeoffs ex ante. Although governmental officials ex post could compare bids that offer combinations of commitments to development and concessions on price, this approach too is prone to error. The government also faces a daunting informational task in determining when to hold a patent auction. The danger of governmental errors suggests that if patent auctions are to have any place in our innovation policy, they must avoid governmental discretion in determining when auctions should occur and in identifying the most attractive bidders. An ambitious approach might be to use information markets to make both such determinations, though it may be too early in the history of information markets to assess whether they are up to the task. A more modest approach would allow patentees to demand auctions that would provide additional patent scope, with the caveat that a patentee would need to substantially outbid others to win such an auction, and failing victory would be fined

Predictive Decisionmaking

In this Article, Professor Abramowicz identifies a regulatory strategy that he calls predictive decisionmaking and provides a framework for assessing it. In a predictive decisionmaking regime, public or private decisionmakers make predictions, often of future legal decisions, rather than engage in normative analysis. Several scholars, particularly in recent years, have offered proposals that fit within the predictive decisionmaking paradigm, but have not noted the connection among these proposals. The Article highlights five different mechanisms on which predictive decisionmaking regimes may rely, including predictive standards, enterprise liability, accuracy incentives, partial insurance requirements, and information markets. After identifying several advantages that predictive decisionmaking strategies may have over nonpredictive alternatives, the Article identifies several potential problems with predictive decisionmaking, and develops a simple analytical framework for assessing predictive decisionmaking proposals. The Article concludes by illustrating variants on the mechanisms for accomplishing predictive decisionmaking in conjunction with new predictive decisionmaking proposals

Toward a Jurisprudence of Cost-Benefit Analysis

In his book, The Cost-Benefit State, democratic theorist Cass Sunstein urges regulatory agencies to make decisions based on numerical assessments of regulatory consequences, factoring in variables ranging from effects on consumer prices to lives saved. In this Review, I seek to illustrate Sunstein\u27s conception of cost-benefit analysis and critique this conception by suggesting that cost-benefit analysis could serve a more important role than Sunstein would allow. I also argue for a more active judicial role in scrutinizing agency actions than Sunstein would recommend, though not necessarily a less deferential one. In Part I of this review, I outline Sunstein\u27s defense of the role of cost-benefit analysis and his recommendations for implementing it. Part II considers how Sunstein envisions implementation of cost-benefit analysis, including the ways in which Sunstein seeks to expand the practice and the ways in which he ultimately would limit it. In Part III, I offer a broader vision of cost-benefit analysis, recognizing the limitations of both unconstrained agency decision-making and unconstrained judicial decision-making. I argue that the development of cost-benefit principles through common law processes best avoids these opposing dangers. Finally, also in Part III, I argue that judicial review of cost-benefit analyses should take into account agency reputation and political proclivities as developed over a number of such analyses, as well as the political orientation of the courts in cases reviewing agency action

On the Alienability of Legal Claims

Courts have become increasingly skeptical about rules restricting plaintiffs\u27 ability to sell legal claims, and legal commentators have argued that markets for claims would be efficient, moving claims to those who can prosecute them most efficiently. Claim sales intuitively might appear to present a clash of economic and philosophical arguments, with perceived efficiency benefits coming at the expense of societal commitments to values other than efficiency. In this Article, Professor Abramowicz argues that economic and philosophical arguments do point in opposite directions, but in the reverse directions from what one might expect. A range of philosophical and other noneconomic considerations, such as concerns about commodification, corrective justice, legal ethics, and procedural justice, pose no significant problems for claim sales. There is, however, a significant economic problem. Markets for legal claims face a particularly strong adverse selection effect, because a prospective purchaser must consider not only why the plaintiff wishes to dispose of the claim, but also why the plaintiff cannot obtain a better deal from the defendant. Thus, even a regime permitting alienation might result in very few claim sales, and many of those may be motivated by prospective inefficiencies, such as attempts to manipulate the path of legal doctrine. If, however, in some legal context plaintiffs managed to overcome this adverse selection problem, so that claim sales became the norm, the economic concern would be eliminated. But philosophical concerns would reemerge, as this Article shows by using a hypothetical mandatory alienation regime as a heuristic device