Institutionalization, Investment Adviser Regulation, and the Hedge Fund Problem
Anita K. Krug
Volume 63, Issue 1, 1-52
This Article contends that more effective regulation of investment advisers could be achieved by recognizing that the growth of hedge funds, private equity funds, and other private funds in recent decades is a manifestation of institutionalization in the investment advisory context. That is, investment advisers today commonly advise these “institutions,” which have supplanted other, smaller investors as advisory clients. However, the federal securities statute governing investment advisers, the Investment Advisers Act of 1940, does not address the role of private funds as institutions that now intermediate those smaller investors’ relationships to investment advisers.
Consistent with that failure, investment adviser regulation regards a private fund, rather than the fund’s investors, as both the “client” of the fund’s adviser and the “thing” to which the adviser owes its obligations. The regulatory stance that the fund is the client, which recent financial regulatory reform did not change, renders the Advisers Act incoherent in its application to investment advisers managing private funds and, more importantly, thwarts the objective behind the Advisers Act: investor protection. This Article contends that policymakers’ focus should be trained primarily on the intermediated investors—those who place their capital in private funds—rather than on the funds themselves and proposes a new approach to investment adviser regulation. In particular, investment advisers to private funds should owe their regulatory obligations not only to the funds they manage but also to the investors in those funds.
Patent-Eligible Inventions After Bilski: History and Theory
Joshua D. Sarnoff
Volume 63, Issue 1, 53-126
The U.S. Supreme Court has continued to require that patentable subject-matter eligibility determinations be made by reference to three historic, categorical exclusions (scientific principles, natural phenomena, and abstract ideas), which must be treated as if already known even when newly discovered by the applicant. Various thoughtful scholars have alternatively urged that these exclusions should be viewed restrictively or that such eligibility decisions should be avoided. But these scholars underappreciate the systemic and social benefits of categorical exclusions, and particularly of treating these categories as if they were already known prior art. In any event, the Federal Circuit, the U.S. Patent and Trademark Office, and the public must now draw lines between eligible inventions and ineligible applications of excluded discoveries.
This Article supplies a history and theory of subject-matter eligibility to guide such line drawing, based on the recognition that (for both eligibility and patentability) the Patent Act has always required, and still requires, creative, human invention in the application of such categorically excluded discoveries. So long as these basic discoveries continue to be treated as if already known, relying on threshold eligibility determinations will improve efficiency and reduce patent-system errors. Supplying clearer criteria for the additional creativity required for eligibility will further reduce overall patent-system burdens and will better direct investment, effort, invention, and disclosure towards more creative, patentable applications.These categorical eligibility exclusions were justified historically on both deontological and utilitarian moral grounds. Prudence counsels retaining them, given the high social stakes involved, the lack of theoretical or empirical demonstration that competing innovation approaches are better, and the moral concerns that would be raised by their elimination. The Article thus concludes with an exhortation to celebrate rather than to reluctantly embrace categorical exclusions of patentable subject matter, their prior-art status, and the line drawing that eligibility determinations require, to better protect the public domain of science, nature, and ideas while simultaneously improving the patent system.
The Psychology of Procedural Justice in the Federal Courts
Volume 63, Issue 1, 127-178
This interdisciplinary Article examines our federal court system from the perspective of the psychology of procedural justice—that is, subjective perceptions about the fairness of process. The Article considers some of the central features of civil litigation from the standpoint of the psychology of procedural justice, highlighting some of the aspects of the system that are likely to increase perceptions of fair process, and exploring, conversely, rules and practices that may decrease those perceptions. The Article focuses on procedural justice in two contexts: basic rules and practices of civil procedure and more complex federal court doctrines that involve the allocation of judicial business between the states and the federal government. In both cases, procedural justice is considered from the perspective of litigants involved in civil disputes; in the latter case, the analysis broadens to encompass the procedural justice experiences of other important actors in civil litigation, including judges, legislators, and state executives. This Article argues that, while legal academics have typically analyzed the fairness of federal procedure and rules through an analysis of procedural due process, the psychology of procedural justice provides an important and potentially wider perspective from which to consider the procedural fairness of our legal system. Because perceptions about fair process are critical to assessments of legitimacy and deference to legal authority, scholars in both law and psychology should devote greater attention—both empirical and theoretical—to the potential procedural justice effects of specific legal rules and doctrine.
Crime Mapping and the Fourth Amendment: Redrawing “High-Crime Areas”
Andrew Guthrie Ferguson
Volume 63, Issue 1, 179-232
Crime-mapping technology has the potential to reshape Fourth Amendment protections in designated “high-crime areas.” In Illinois v. Wardlow the Supreme Court held that presence in a high-crime area is one of only two factors necessary for creating reasonable suspicion to stop an individual. Since Wardlow, thousands of federal and state cases have used the term “high-crime area,” yet only a handful of courts have considered how to define it. New crime-mapping technologies can now address that definitional problem. Crime-mapping technologies can collect and analyze crime statistics so that police districts can produce almost perfect information about the level, rate, and geographic location of crimes in any given area. The result: police can define official “high-crime areas” for Fourth Amendment purposes.Crime-mapping technology raises significant Fourth Amendment questions. Does crime-mapping technology alter the existing Fourth Amendment reasonable suspicion analysis? Will this technology create an implicit high-crime area exception to the Fourth Amendment? How will this technology effect police-citizen encounters and liberty interests in officially designated high-crime areas? This Article addresses these questions in an effort to reevaluate and rethink the concept of the high-crime area as understood by the courts. Tracing the history and practice of crime-mapping technology and its effect on Fourth Amendment doctrine, this Article proposes a new framework and redefinition of the term that is both informed by existing crime-mapping technologies and consistent with Fourth Amendment principles.
Is There a Constitutional Right to Select the Genes of One’s Offspring?
Andrew B. Coan
Volume 63, Issue 1, 233-296
The Supreme Court has long recognized a due process right to make deeply personal decisions such as whether to bear or beget a child. Might this right extend to selecting the genes of one’s offspring? Perhaps more important, should courts interpret it to do so? Thus far, discussion of these questions has focused almost exclusively on the normative goals that a constitutional commitment to procreative liberty should be taken to embrace. That is undoubtedly an important issue, but it cannot tell us whether courts are the institution best suited to carry any particular goal into effect. This is a basic but frequently overlooked point in constitutional analysis and one that has received next to no attention in the context of assisted reproductive technologies. This Article begins to remedy the oversight. In so doing, it has two overlapping goals: to enrich the constitutional analysis of emerging issues in reproductive liberty and to use those issues as a vehicle for exploring the complexities of institutional analysis more generally.
Note – Fashioning a New Look in Intellectual Property: Sui Generis Protection for the Innovative Designer
Linna T. Loangkote
Volume 63, Issue 1, 297-322
Fashion design is weaving its way through the fabric of American society by transforming how people think about fashion apparel. The $350 billion fashion industry not only puts the clothes on our backs, but gives individuals an outlet for individual expression as well. More and more, the fashion design process is recognized as a creative process where vision, raw materials, and skill meet to produce fashion apparel that should be worthy of sui generis protection.Current intellectual property regimes fail to adequately equip designers with legal remedies to guard against design piracy, and this affects both innovation and competition. Moreover, even though the U.S is a signatory to the Berne Convention, the U.S.’s lack of a protection scheme for fashion design is out of step with other signatory members, namely the European Union, and this mismatch could invite unintended reciprocity problems for American designers abroad. Something needs to be done. Congress has attempted twice now to provide a solution to the design piracy problem. However, the proposed bills do not wholly consider and understand the competing interests involved in this sui generis protection debate. This Note proposes a unique licensing solution that is fitting for a unique intellectual property problem—showing that protection for fashion design does not have to be a zero-sum game between designers and nondesigning retail firms.
Denying Secured Creditors the Right to Credit Bid in Chapter 11 Cases and the Risk of Undervaluation
Alan N. Resnick
Volume 63, Issue 2, 323-360
The Bankruptcy Code has reached a delicate balance between protecting the rights of secured creditors and providing financially troubled companies with flexibility in reorganizing their businesses. One protection that has been available to secured creditors is the right to “credit bid” at any sale of collateral free of liens, which allows the creditor to buy the property by offsetting its claim against the purchase price instead of paying cash. This right is designed to assure that property is not sold free of security interests at a price that is below the collateral’s true value. An inadequate sales price deprives the creditor of the full benefit of its security interest. The importance of credit bidding has grown as asset sales have become more common in chapter 11 cases.
Despite the universal view during the past three decades that the right to credit bid was essentially guaranteed when property is sold under a chapter 11 plan, two recent controversial decisions—the Fifth Circuit’s decision in In re Pacific Lumber Co. and the Third Circuit’s decision in In re Philadelphia Newspapers, LLC—curtailed this protection by holding that a secured lender may be denied the right to credit bid when its collateral is sold under a chapter 11 plan if the bankruptcy court makes a judicial finding that the creditor will realize the “indubitable equivalent” of its secured claim without credit bidding.
Tax Deductions for Charitable Contributions: Domestic Activities, Foreign Activities, or None of the Above
Eric M. Zolt
Volume 63, Issue 2, 361-410
Warren Buffett, Bill Gates, and sixty-seven other billionaires have pledged to give a majority of their wealth for charitable purposes. The total dollar amount of potential funding for charitable activities is staggering. So is the potential loss of tax revenue. Because of past, current, and future tax benefits, U.S. taxpayers have funded and will fund a substantial portion of these charitable activities without any input in how the money is spent. These billionaires are not just being generous with their own money, but with the money of the American people.
Should we allow tax benefits to subsidize charitable activities and allow donors to dictate how funds are spent? This Article seeks to contribute to the debate on the desirability of charitable tax deductions by focusing on a smaller part of the charitable tax world: charitable deductions for foreign assistance. Tax benefits for foreign assistance raise several of the same issues that arise in the purely domestic context, as well as issues that may be less important or absent in the subsidizing of domestic charitable activities.
Recent scholarship has argued for continuing to allow tax benefits to foreign charitable activities, and for extending charitable tax benefits to foreign charities and to for-profit entities engaged in charitable activities. These arguments rest partly on the notion that there is no meaningful way to distinguish these activities or entities from domestic charities engaged in domestic charitable activities. These scholars may be right in arguing for consistent tax treatment for domestic and foreign charitable activity, but they may be wrong in their conclusions. The best approach may be to consider changes to the current charitable-deduction regime for both domestic and foreign charitable activities and to consider other alternatives for the government to provide financial support and other incentives for charitable activities.
Guilty by Proxy: Expanding the Boundaries of Responsibility in the Face of Corporate Crime
Amy J. Sepinwall
Volume 63, Issue 2, 411-454
The BP oil spill and financial crisis share in common more than just profound tragedy and massive clean-up costs. In both cases, governmental commissions have revealed widespread wrongdoing by individuals and the entities for which they work. The public has demanded justice, yet the law enforcement response in both cases has been underwhelming. In particular, no criminal indictments have been sought for any of the corporations responsible for the Macondo oil-rig explosion or for the Wall Street banks involved in the financial meltdown.
This governmental restraint reflects a deep-seated ambivalence about corporate criminal liability. Though scholars have been debating the justifiability of prosecuting and punishing corporations since the doctrine’s inception just over 100 years ago, virtually no progress has been made by either side. Thus, we have devastating instances of corporate crime and no good justification for prosecuting and punishing corporations.
The Article seeks to diagnose the reason for the widespread consternation about the doctrine of corporate criminal liability. It then advances a new theoretical foundation for the doctrine.
More specifically, the Article seeks to justify corporate criminal liability by arguing not that the corporation deserves to be punished for its wrongdoing but instead that its members do. Thus the Article conceives of corporate criminal liability as a way of targeting the corporation’s officials, who are blameworthy just in virtue of their role within the corporation. The Article ends by identifying a series of corporate sanctions that reflect the rationale for corporate criminal liability advanced here.
Advising Terrorism: Material Support, Safe Harbors, and Freedom of Speech
Volume 63, Issue 2, 455-520
Ever since Brandenburg v. Ohio, departures from content neutrality under the First Amendment have received strict scrutiny. However, in Holder v. Humanitarian Law Project (“HLP”), the Supreme Court decided that the perils of content regulation were less pressing than was the need to curb the human capital of groups, such as Hamas, designated as foreign terrorist organizations (“DFTOs”). As a result, the Court upheld a statute that bars “material support” of terrorist organizations, ruling that the statute bars speech coordinated with DFTOs, including training in negotiation or the use of international law. Some commentators have labeled HLP as heralding a new McCarthyism. This Article argues that critics who condemn HLPas the reincarnation of Cold War content regulation overlook the tailored quality of the decision’s hybrid scrutiny model, its roots in the Framers’ concerns about foreign influence, and its surprising parallels with constitutional justifications for professional regulation.
HLP is not the marked departure that critics claim. Just as professional regulation limits lawyers’ use of pretrial publicity, HLP reduced the impact of asymmetries in information that terrorist groups exploit. To constrain government, HLP’s framework of hybrid scrutiny also provides a safe harbor for the independent expression of ideas, and for scholars, journalists, human rights monitors, and attorneys.
Nevertheless, HLP’s critics are right that the Court’s decision is flawed. Chief Justice Roberts’s opinion invited confusion about the First Amendment status of lending “legitimacy” to violence, which could quickly drain the safe harbor that the Court created for independent advocacy. The opinion also made a studied show of deference to official sources, disdaining independent accounts of terrorist groups’ penchant for defection. Only the next case will tell if these flaws were minor missteps in a balanced decision or signs of a more severe conflict with First Amendment values.
Protected by Association? The Supreme Court’s Incomplete Approach to Defining the Scope of the Third-Party Retaliation Doctrine
Jessica K. Fink
Volume 63, Issue 2, 521-566
For decades, courts have struggled with how to treat claims of “third-party retaliation”—situations where one employee engages in some protected activity for purposes of Title VII but where the employer retaliates not against that employee, but rather against one of her coworkers—her spouse, or sibling, or mere workplace acquaintance. With its January 2011 decision in Thompson v. North American Stainless, LP, the U.S. Supreme Court finally has weighed in on this issue, deeming employees protected against third-party retaliation under Title VII.
This Article stands as one of the first in-depth examinations of Thompson and its potential impact on both employers and employees. While this Article approves of the Supreme Court’s decision to deem third-party retaliation claims viable under Title VII, this Article proposes a different framework for analyzing these claims than that applied by the Supreme Court in Thompson. Specifically, this Article argues that courts should apply jurisprudence from negligent infliction of emotional distress cases to conduct a more structured analysis of third-party retaliation claims. In addition, this Article argues that courts should define the class of plaintiffs who can assert third-party retaliation claims by requiring that only individuals who have engaged in some protected activity can sue. Other employees affected by employer retaliation—those who receive adverse treatment from their employer, but who did not themselves engage in any protected activity—should not be permitted to bring third-party retaliation claims. In articulating this framework, this Article seeks to strike a balance between deterring employers from engaging in retaliatory behavior and avoiding the negative consequences that could result from failing to place reasonable limits on the third-party retaliation doctrine.
Note – Playing Hot Potato in the Market: The Ninth Circuit’s Better Approach to Calculating Loss for Securities Fraud Sentencing
Volume 63, Issue 2, 567-594
In United States v. Berger, the Court of Appeals for the Ninth Circuit departed from the Second and Fifth Circuits regarding the standard required to determine loss for securities fraud under the Federal Sentencing Guidelines. Unlike its sister circuits, the Ninth Circuit held that the Supreme Court’s reasoning in Dura Pharmaceuticals, Inc. v. Broudo for loss causation in civil securities fraud actions did not apply to the criminal sentencing context. Instead, the Ninth Circuit endorsed price inflation, which was rejected in Dura Pharmaceuticals, as a method of determining loss under the Guidelines. This Note examines the circuits’ decisions in light of the crime and punishment of securities fraud and concludes that the Ninth Circuit’s reasoning better accords with the culpability of securities fraud offenders.