Exhausting Patents

A bedrock principle of patent law — patent exhaustion — proclaims that an authorized sale of a patented article exhausts the patentee’s rights with respect to the article sold. Over one hundred and fifty years of case law, however, has produced two conflicting notions of patent exhaustion, one considering exhaustion to be mandatory regardless of whether the patentee subjects the sale to express patent restrictions, and another treating exhaustion as a default rule that applies only in unconditional sales. The uncertainty surrounding the patent exhaustion doctrine casts a significant legal cloud over patent licensing practices in the modern economy and has emerged as a central subject in scholarly debate on the nature and scope of intellectual property rights.This Article takes a normative approach to patent exhaustion and argues that the correct exhaustion rule should be a “default-plus” rule that combines a default-rule component with a patent misuse test that is independent of the exhaustion analysis. The default-rule component would allow patentees to avoid exhaustion through express patent restrictions, while the patent misuse test would ensure that such restrictions do not violate public policy. This Article contends that this default-plus rule is superior to the mandatory rule in terms of theoretical foundation, malleability, and circumvention. Adopting this default-plus rule would minimize legal impediments to socially beneficial patent restrictions while preserving maximum flexibility in accommodating new technologies and licensing practices

The Pitfalls of the (Perfect) Market Benchmark: the Case of Countervailing Duty Law

Markets have long been used as benchmarks for economic value in various areas of law. However, a crucial question has received less than adequate attention: what type of market should be used in the market benchmark? More specifically, given all the imperfections one typically finds in day-to-day markets, how perfect does a market have to be in order to qualify as a benchmark for economic value? This Article discusses this question using countervailing duty law as a case study. Countervailing duty law allows the United States to impose countervailing duties on imported merchandise to offset subsidies conferred by foreign governments upon such merchandise. In identifying and measuring subsidies, countervailing duty law utilizes a market benchmark, i.e., whether the government action under investigation is on terms more favorable than those available in the market. After tracing the evolution of the market benchmark analysis in countervailing duty law, I demonstrate that the market benchmark analysis, as currently formulated in countervailing duty law, envisions a perfect or near-perfect market, i.e., a market that is undistorted by the government action under investigation. I further demonstrate the pitfalls of this perfect-market approach by critiquing the basis on which a market is rejected as distorted, the manner in which alternative benchmarks are selected, and the fundamental disconnect between the perfect-market approach and the purpose of countervailing duty law

Transplanting Antitrust in China: Economic Transition, Market Structure, and State Control

This Article examines the compatibility of Western antitrust models as incorporated in China\u27s first comprehensive antitrust law – the Antimonopoly Law ( AML ) – with China\u27s local conditions. It identifies three forces that shape competition law and policy in China: China\u27s current transitional stage, China\u27s market structures, and pervasive state control in China\u27s economy. This Article discusses how these forces have limited the applicability of Western antitrust models to China in three major areas of antitrust: cartels, abuse of dominant market position, and merger review. Specifically, it details how these forces have prevented China from pursuing a rigorous anti-cartel policy, how they have led to a mismatch between monopoly abuses that are prohibited under the AML and monopoly abuses that are most prevalent in China\u27s economy, and how they have prevented the merger review process under the AML from being meaningfully applied to domestic firms. This Article demonstrates that despite having a Western-style antitrust law, China has not developed and likely will not develop a Western-style antitrust jurisprudence in the near future due to these local conditions. Finally, the Article explains how China developed a consensus on the need for a formal antitrust law despite local conditions that were not entirely compatible with such a law

The Chinese Antitrust Paradox

Antitrust law faces a fundamental paradox between protecting competition and protecting competitors. This paradox is more structurally durable in China than in Western societies thanks to the oversized role of the Chinese state in its economy. This Article examines the changing market conditions in China following the adoption of China’s Antimonopoly Law (AML), and how these changes have led to paradoxical developments in Chinese antitrust. In a number of areas relating to enforcement authorities, transparency, courts, State-Owned Enterprises, cartels, internet platforms, and foreign companies, the tensions between protecting competition and protecting competitors have persisted or even deepened in the post-AML era. How China will resolve its antitrust paradox will be largely determined by how China’s state-capitalism development model will evolve

The Revolving Door

The revolving door between the government and the private sector has long been presumed to lead to the capture of regulators by industry interests. A growing body of empirical literature, however, either finds no conclusive evidence of a capture effect or finds evidence of an opposite effect that the revolving door indeed results in more aggressive, not less aggressive, regulatory actions. To account for these incongruous results, scholars have formulated and tested a new “human-capital” theory positing that revolving-door regulators have incentives to be more aggressive toward the regulated industry as a way of signaling their qualifications to prospective industry employers. But even with the insights offered by the human-capital theory, the prevailing analyses of the revolving door are still incomplete. This Article theorizes on yet another incentive created by the revolving door that deserves being recognized as a structural force inherent in the regulatory process: the incentive for regulators to expand the market demand for services they would be providing when they exit the government. This “market-expansion” incentive may manifest itself differently in different regulatory settings. In the enforcement setting, it may result in more enforcement actions, broadened jurisdictional reach of the enforcement actions, and higher penalties in the enforcement actions. In the rulemaking setting, it may result in agencies\u27 expanded rulemaking authority, the use of flexible standards rather than bright-line rules, and agencies\u27 preference for complex as opposed to simple rules or standards. This market-expansion theory represents a paradigmatic shift in conceptualizing the role of individual regulators in the regulatory process. Contrary to the prevailing analyses, which posit that revolving-door regulators take the industry\u27s needs as given and merely respond to those needs, the market-expansion theory suggests that revolving-door regulators may exert efforts to expand the industry\u27s needs. Recognizing this market-expansion incentive has important implications for a wide range of policy issues, including agency aggrandizement, overenforcement versus underenforcement, regulatory settlements, compliance monitors, private rights of action, and professional responsibility

Untangling the Market and the State

The government plays increasingly active and diversified roles in the modern economy. How to draw the boundary between the market and the state has emerged as a contentious issue in various areas of law, including constitutional law, antitrust, and international trade. This Article surveys and critiques the law’s current approaches to the market-versus-state divide, embodied in four tests based on ownership, control, function, and role, respectively. This Article proposes an alternative market-versus-state test based on the nature of the power being exercised in the challenged action. This power-based test not only better distinguishes between the market and the state, but also illuminates why the market-versus-state distinction needs to be made in the first place. Applying this power-based test would bring much needed logic and clarity to many market-versus-state issues in various legal contexts

Counting Once, Counting Twice: The Precarious State of Subsidy Regulation

Subsidy regulation is in a precarious state. While it has been so ever since the conception of the current subsidy regulation regime, the recent disputes between the United States and China over the “double counting” or “double remedies” of subsidies have threatened the mere functionality of the current regime. This Article argues that the double counting controversy reveals the self-contradictions of the current subsidy regulation regime as to the fundamental question of why subsidies need to be regulated. These self-contradictions make it impossible to devise a coherent solution to the double counting problem within the framework of the current subsidy regulation regime and sharpen the need for fundamental reforms of the current regime. This Article puts forward a reform proposal that will solve the double counting problem and, more importantly, will help restore the intellectual foundation of the current subsidy regulation regime

A Knowledge Theory of Tacit Agreement

A persistent puzzle in antitrust law is whether and when an unlawful agreement could arise from conduct or verbalized communications that fall short of an explicit agreement. While courts have found such tacit agreements to exist in idiosyncratic scenarios, they have failed to articulate a clear and consistent logic for such findings. This Article attempts to fill this gap by proposing a unified theory of tacit agreement. It defines a tacit agreement as an agreement formed by non-explicit communications that enable the alleged coconspirators to have constructive knowledge of one another\u27s conspiratory intent. This approach to tacit agreement is more faithful to the conceptual integrity and the statutory meaning of the agreement requirement under the Sherman Act. More importantly, it provides a flexible yet consistent formula for determining tacit agreements. This formula could be applied to any factual scenarios, including conscious parallelism, parallel conduct preceded by suggestive communications, hub-and-spoke conspiracy, and facilitating practices

The Revolving Door

The revolving door between the government and the private sector has long been presumed to lead to the capture of regulators by industry interests. A growing body of empirical literature, however, either finds no conclusive evidence of a capture effect or finds evidence of an opposite effect that the revolving door indeed results in more aggressive, not less aggressive, regulatory actions. To account for these incongruous results, scholars have formulated and tested a new “human-capital” theory positing that revolving-door regulators have incentives to be more aggressive toward the regulated industry as a way of signaling their qualifications to prospective industry employers. But even with the insights offered by the human-capital theory, the prevailing analyses of the revolving door are still incomplete. This Article theorizes on yet another incentive created by the revolving door that deserves being recognized as a structural force inherent in the regulatory process: the incentive for regulators to expand the market demand for services they would be providing when they exit the government. This “market-expansion” incentive may manifest itself differently in different regulatory settings. In the enforcement setting, it may result in more enforcement actions, broadened jurisdictional reach of the enforcement actions, and higher penalties in the enforcement actions. In the rulemaking setting, it may result in agencies\u27 expanded rulemaking authority, the use of flexible standards rather than bright-line rules, and agencies\u27 preference for complex as opposed to simple rules or standards. This market-expansion theory represents a paradigmatic shift in conceptualizing the role of individual regulators in the regulatory process. Contrary to the prevailing analyses, which posit that revolving-door regulators take the industry\u27s needs as given and merely respond to those needs, the market-expansion theory suggests that revolving-door regulators may exert efforts to expand the industry\u27s needs. Recognizing this market-expansion incentive has important implications for a wide range of policy issues, including agency aggrandizement, overenforcement versus underenforcement, regulatory settlements, compliance monitors, private rights of action, and professional responsibility

Counting Once, Counting Twice: The Precarious State of Subsidy Regulation

Subsidy regulation is in a precarious state. While it has been so ever since the conception of the current subsidy regulation regime, the recent disputes between the United States and China over the “double counting” or “double remedies” of subsidies have threatened the mere functionality of the current regime. This Article argues that the double counting controversy reveals the self-contradictions of the current subsidy regulation regime as to the fundamental question of why subsidies need to be regulated. These self-contradictions make it impossible to devise a coherent solution to the double counting problem within the framework of the current subsidy regulation regime and sharpen the need for fundamental reforms of the current regime. This Article puts forward a reform proposal that will solve the double counting problem and, more importantly, will help restore the intellectual foundation of the current subsidy regulation regime