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Latest Faculty Scholarship: SSRN Legal Studies Research Paper Series Vol. 17, No. 3

For the latest scholarship from the Iowa Law faculty, see the following articles or book chapters circulated as part of the University of Iowa College of Law Legal Studies Research Paper Series on SSRN:

Laura J. Hines and N. William Hines: Constitutional Constraints on Punitive Damages: Clarity, Consistency, and the Outlier Dilemma   
66 Hastings L. Rev. No. 2, 2015
U Iowa Legal Studies Research Paper No. 15-04

Almost twenty years ago, the Supreme Court in BMW v. Gore invoked the Due Process Clause for the first time to invalidate a punitive damages award as excessive. Since then, the Court has issued a handful of decisions that further refine Gore’s tripartite guidepost framework. In this article, we draw on a ten-year span of reported state and federal punitive damages decisions in an attempt to evaluate how lower courts have understood and implemented this constitutionalization of punitive damages law. Ours is not a normative analysis about whether the Court should or should not have federalized punitive damages. Rather, we examined our sample of cases to assess three of the Court’s punitive damages due process objectives.

First, the guideposts were intended to provide clear and predictable ex ante standards regarding the potential monetary consequences of misconduct. Second, the uniform guidepost standards sought to prevent arbitrary or disparate treatment of punitive damages among the states. Third, the guideposts were designed to curb what the Court perceived as erratically high punitive damages awards. We evaluated and coded each punitive damages case in our collection to test the efficacy of the guidepost analysis in accomplishing each of these goals. Our 507-case sample suggests a high degree of uniformity nationwide in the process by which courts conduct the review of punitive damages awards. Less clear, however, is whether that heightened level of judicial review significantly reduced the inconsistency or unpredictability of punitive damages awards overall.

Joseph Yockey and Nicole Saleem: The Next Chapter in Anti-Corruption Compliance   
Compliance Manager (November 2015)
U Iowa Legal Studies Research Paper No. 15-12

In this brief invited essay, we assess the future of corporate anti-corruption compliance efforts and sketch several ways to improve ethics-building within organizations.

Herbert J. Hovenkamp: The Emergence of Classical American Patent Law   
U Iowa Legal Studies Research Paper No. 15-13

One enduring historical debate concerns whether the American Constitution was intended to be “classical” — referring to a theory of statecraft that maximizes the role of private markets and minimizes the role of government in economic affairs. The most central and powerful proposition of classical constitutionalism is that the government’s role in economic development should be minimal. First, private rights in property and contract exist prior to any community needs for development. Second, if a particular project is worthwhile the market itself will make it occur. Third, when the government attempts to induce development politics inevitably distorts the decision making. The result is excessive state involvement, with benefits typically going to well placed interest groups.

From the Colonial period until the mid-nineteenth century American legislatures and courts conceived of the patent as an active tool of economic growth. States in particular granted patents in anticipation that the grantee would actually develop some work of public improvement. This conception of the patent was distinctly “pre-classical” in the sense that it envisioned considerable state involvement in ensuring that granted patents were put to appropriate use. In addition, state-issued patents, although not federal patents, were issued to “promoters” — that is, to those who did not really claim to have invented anything new, but rather promised to develop technology or infrastructure in a new place.

A few decades later a much more classical conception of the patent emerged, as a property right pure and simple. Questions about whether and how to employ a patent were lodged almost entirely with its owner, who at the high point of patent classicism even had the power to use patents to keep technology off the market — precisely contrary to what the original framers of the provision had in mind.

An essential part of this development was the rise of federal patent exclusivity — a result that was not mandated by the text of the Constitution’s IP Clause, particularly when read against the Tenth Amendment. The sources of increased hostility toward state-issued patents were twofold. First was the view that state-issued patents burdened interstate commerce. For example, the Supreme Court struck down the state-issued steamboat patent under the Commerce Clause, not under the Constitution’s IP Clause. Second, however, only federal exclusivity could effectively limit the power of the states to grant unwarranted exclusive rights to favored grantees. The eventual result was a regime in which Congress acquired the exclusive power to award patents for inventions.

Changes in United States patent law under the 1836 Patent Act and later were driven by classical beliefs that monopoly is bad and generally unnecessary for economic development, with invention as a narrow exception. This entailed, first, that the conditions for obtaining a patent be narrow, limited to actual inventions within the applicant’s possession, and adequately disclosed. Second, patent issuance had to be made a nonpolitical, administrative action. The applicant was entitled to a patent if he could make specific showings concerning prior technology and use. The “prior art” queries that increasingly dominated patentability doctrine focused on what had been available in the past, rather than what economic development might require for the future. Finally, once a patent was issued the government very largely abandoned its interest. The patent entered commerce as personal property, creating individual rights but few social obligations. Together these requirements led both Congress and the courts away from relatively open ended policy concerns, and toward technical specification and boundary clarity. The result was a patent system increasingly detached from questions about economic development.

Todd E. Pettys: Weddings, Whiter Teeth, Judicial-Campaign Speech, and More: Civil Cases in the Supreme Court’s 2014-2015 Term  
51 Court Review 94 (2015)
U Iowa Legal Studies Research Paper No. 15-14

Commissioned by the American Judges Association, this brief article provides an overview of the most significant civil cases decided by the Supreme Court during the 2014-15 Term.

Andy Grewal: Petaluma Takes a Bizarre Turn   
Bloomberg BNA Tax Insights (July 2015)
U Iowa Legal Studies Research Paper No. 15-15

Petaluma FX v. Commissioner, a case involving some complex tax procedure issues, has gone on for nearly a decade and has made three trips to the D.C. Circuit. The strangest twist seemingly occurred in 2012 when, in a case involving similar issues, the Tax Court performed a “reverse benchslap” on the D.C. Circuit, allegedly flouting the court’s first opinion in Petaluma.

However, things have managed to get even stranger. In its most recent opinion, the D.C. Circuit rejected the views of both parties and decided the case through a strange reading of a regulation’s effective-date provision. This short article discusses the problems with the court’s analysis and its potential implications for some broader administrative law questions.

 Jason Rantanen: How Malleability Matters  
U Iowa Legal Studies Research Paper No. 15-16

In The Malleability of Patent Rights, I developed the concept that patent rights are malleable rather than static and fixed, and distinguished malleability from the idea that patent rights are merely uncertain. Malleability refers to the idea that the strength and scope of patent rights can be altered by the actors who interact with a patent well after it has issued. Patent law is full of mechanisms that allow for these post-issuance changes, and yet there seems to be no good theoretical argument that supports malleability. At best, I concluded, the costs of malleability must be weighed against the doctrinal cures, and perhaps those cures themselves would come with greater costs of their own.

This Essay builds upon The Malleability of Patent Rights to explain how viewing patent rights as malleable can dramatically alter conventional narratives of the patent system, both those told by supporters of strong patent rights and those who argue that the patent system must be changed to favor competitors. In doing so, it provides examples of how the malleable nature of patent rights can present real problems for the patent system.

Herbert J. Hovenkamp: Brulotte’s Web   
J. Competition L. & Econ. (Forthcoming)
U Iowa Legal Studies Research Paper No. 15-17

Kimble v. Marvel Entertainment held that stare decisis required the Supreme Court to adhere to the half century old, much criticized rule in Brulotte v. Thys. Justice Douglas’ Brulotte opinion concluded that license agreements requiring royalties measured by use of a patent after its expiration are unenforceable per se. The court need not inquire into market power nor anticompetitive effects, effects on innovation, and it may not accept any defense. Congress can change the rule if it wants to, but has resisted many invitations to do so.

Under Brulotte a hybrid license on patents and trade secrets requires a royalty reduction when the last patent expires. But there is little reason for thinking that a process is worth more to a licensee when it is covered by both a patent and a trade secret than when it is covered by only a single right. What the licensee wants is access to a technology that reduces its costs or improves the quality of its output. Those numbers are determined by market value and product competition, and are not obviously affected by the number and kind of IP rights that they embody. For example, the price I am willing to pay for a patented weed killer for my back yard is not higher because I know that production of the weed killer is protected by a trade secret as well as a patent.

One area where Brulotte/Kimble threatens efficient risk sharing is reach-through royalties. Researchers in some areas often require costly patented research tools, or inputs, that may produce considerable value once a successful product has been developed. The research might succeed in producing a valuable drug but there is also a high chance that it will fail. A rational way to price out such an asset is conditionally, perhaps with little or no royalty during the research period, but a substantial royalty down the road if the project succeeds. Depending on the age of the patent and the timeline for the project, this can contemplate royalties on the pharmaceutical drug long after the patent on the research tool expires.

A lively debate has emerged about the economics of reach-through royalties, with some believing that they contribute to a patent “thicket” that is difficult for researchers to negotiate, and others arguing that they constitute a reasonable form of risk sharing. That issue is a serious one and should never be addressed by any rule as ham-handed as the Brulotte per se rule against post-expiration royalties.

One problematic effect of Kimble is that antitrust tying law is undergoing a process of revision that is coming close to removing per se illegality. That has largely happened for just the reasons that the Court suggested: the underlying economic theory has changed, de-emphasizing harmful leverage and emphasizing efficiencies. By contrast, the patent law of tying arrangements — heavily borrowed from antitrust — remains stuck in a time warp until Congress gets around to changing it.

In defending its rule of stare decisis, the Kimble Court also observed that the challenged practice involved two areas of law, property and contract, where stare decisis has traditionally been regarded as strong because of reliance interests. A legal regime that previously permitted unlimited licensing but then adopted the Brulotte rule could certainly upset many reliance interests. When the legal change is in the other direction, however the weight of reliance interests is less clear. The real impact of overruling would be on those people, who like the parties in Kimble, wrote their agreements in ignorance of Brulotte. In such cases the effect of overruling would be that these parties would get precisely what they bargained for.

The Kimble Court rejected Kimble’s proposed alternative — namely, that post-expiration royalty extensions be addressed under a rule of reason. The Court found this unacceptable, substituting a bright line (although ill conceived) rule for something as complex and indeterminate as antitrust’s rule of reason. But nearly every commercial transaction in the country is subject to antitrust evaluation under Section 1 of the Sherman Act. Agreements requiring post-expiration payments would join the general run of agreements that are nearly always legal.

Robert T. Miller: Norms of Equality Implicit in Capitalism   
Supreme Court Economic Review, Forthcoming
U Iowa Legal Studies Research Paper No. 15-18

In contrast to most discussions about capitalism and equality, which concern how well capitalist societies conform to some notion of equality justified on grounds unrelated to capitalism, this paper inquires into what norms of equality are implicit in capitalism itself, which I take to be a legal system of strong property rights, broad freedom of contract, and minimal economic regulation. I argue that capitalism includes two separate norms of equality. The first is implicit in the legal rules defining capitalism because these rules create enforceable legal rights without regard to the parties’ social status, class, race, and similar factors. Often derided as merely formal, this norm of equality is in fact of tremendous practical importance, a fact that appears clearly when we consider economic systems in which this norm is not observed. The second norm of equality implicit in capitalism is much stronger. To show the existence of this norm, I argue that, beyond its defining legal rules, capitalism implicitly contains a norm of welfare maximization justifying these rules. Interpreting this norm in accordance with the Kaldor-Hicks (KH) concept of efficiency, I argue that, although KH-justifications can favor the rich over the poor and thus embed an obvious form of inequality, nevertheless because of certain special properties of the legal rules defining capitalism, when KH-justifications are limited to such rules, the justifications do not favor any economic group over any other. As a result, capitalism, now considered as a certain set of legal rules along with a KH-justification for such rules, gives equal consideration and respect to all persons and so embeds a strong norm of equality.

Jason Rantanen: Recent Developments in Patent Law - 2015   
U Iowa Legal Studies Research Paper No. 15-19

Patent law has experienced extraordinary upheaval over the past few years, a disruption that touches virtually every aspect of policy and practice. In this essay, I talk about some of the most recent developments in patent law, from broad themes to specific doctrinal moves. Given the limits of this form, and the sheer amount of change, I can only touch on the highlights. But those highlights reveal an area of law that is dynamic — and yet in many respects fundamentally the same.

Andy Grewal: Lurking Challenges to the ACA Tax Credit Regulations   
Bloomberg BNA Tax Insights (2015)
U Iowa Legal Studies Research Paper No.15-20

King v. Burwell focused on whether Treasury regulations properly extended Affordable Care Act premium tax credits to health care policies on federally established exchanges. The Supreme Court’s decision in that case put an end to that particular controversy.

However, Treasury regulations under Section 36B present problems beyond those at issue in King. As this essay shows, the Treasury has extended credits to potentially millions of individuals plainly not covered by the statutory language. Consequently, further rounds of litigation may arise.

Turney P. Berry, Sarah S. Butters, and Thomas P. Gallanis: Powers of Appointment in the Current Planning Environment  
49 U. Miami Heckerling Institute on Estate Planning (2015)
U Iowa Legal Studies Research Paper No. 15-21

The Harvard professor W. Barton Leach described the power of appointment as “the most efficient dispositive device that the ingenuity of Anglo-American lawyers has ever worked out.” This book chapter, co-authored with attorneys Turney P. Berry and Sarah S. Butters and prepared for the 2015 Heckerling Institute on Estate Planning organized by the University of Miami, surveys the governing law and practical use of powers of appointment. The book chapter is divided into four parts. The first part examines basic principles and the tax treatment of powers of appointment. The second part considers some of the common uses of powers of appointment in estate planning. The third part canvasses the state law governing powers of appointment, with special reference to the new Uniform Powers of Appointment Act. The fourth and final part examines recent judicial opinions on the law of powers of appointment.

Maya Steinitz, Orit Shalomson, and Naomi Steinitz-Edelman, Experiential Teaching in Theory and Practice: An Annotated International Business Transactions Syllabus
U Iowa Legal Studies Research Paper No. 15-22

In this short piece we provide an interactive, annotated International Business Transactions (IBT) syllabus. The introduction and annotations seek to connect the current discourse on experiential legal education to andragogy — the study of adult learning.

In 2013 we set out to re-develop a 3-credit IBT course. We applied various experiential pedagogical methodologies — developed initially to train Israeli air force pilots and later adapted to medical training and grounded in theoretical and empirical education research — to serve in a traditional IBT course. The goal was not only to develop legal skills such as negotiation, contract drafting, and client counseling but more importantly to impart knowledge including legal doctrine, legal theory, and policy considerations through the use of a series of structured, in-class experiences.

The piece includes embedded nexus as part of the interactive reading experience. It is therefore best viewed in Adobe.

If you find this short piece useful you may also wish to view a short Youtube video in which Orit and Maya walk through the recently-launched Simulation and Training Center at the Ono Academic College, Israel.

Thomas P. Gallanis: The Evolution of the Common Law
Troy L. Harris, Studies in Canon Law and Common Law in Honor of R.H. Helmholz (Berkeley: Robbins Collection 2015)
U Iowa Legal Studies Research Paper No. 15-23

This book chapter — originally delivered as the Donald W. Sutherland Memorial Lecture in Law and History at the University of Iowa and now published in this festschrift for Professor R.H. Helmholz — explores evolution as a metaphor to deepen our understanding of the development of the common law. The book chapter also uses examples, drawn from different centuries, to examine the role of external factors in the common law’s evolution.