Archive for the ‘Consumer Protection Law’ Category

House Financial Committee Busy

posted by Lawrence Cunningham

The Staff of the House Financial Services Committee is extremely busy and doing a very good job of keeping its role in the legislative process transparent. A reasonable run down of current activity in financial regulation reform appears here. (You can even sign up to get email alerts.) 

These bills are elaborate, complex and defy tidy characterization.  All are likely to change, some significantly, as the legislative process grinds along. The Senate Banking Committee is unlikely to produce anything equivalent until well into November.

In general, however, together the House FSC’s work would make for sweeping change.  The bills would:

(1) create three new federal agencies: a Federal Oversight Council, a Consumer Financial Protection Agency and an Office of Federal Insurance;

(2) considerably expand powers of the Securities Exchange Commission, including by subjecting rating agencies to considerable regulation and oversight by the SEC plus eliminate an exemption to the Investment Company Act of 1940 for private financial advisors.; and

(3) expand the mandate and powers of the Commodity Futures Trading Commission concerning regulation of derivative securities.

These pending Committee steps, of course, are in addition to bills the House passed earlier this year, including the summer’s Corporate and Financial Institution Compensation Fairness Act of 2009, embracing shareholder say on executive compensation to a certain extent.

At this link, you can access pending bills totaling just about 1,000 pages.   Following is an additional breakdown: Read the rest of this post »

  October 28, 2009 at 2:22 pm   Posted in: Consumer Protection Law, Corporate Finance, Current Events, Securities, Securities Regulation   Print This Post   One Comment

FTC and Blogger Disclosure Rules

posted by Deven Desai

As I argue in my essay Individual Branding the web presents important and amazing new possibilities for individuals to earn money and much of that potential will flow from one’s online reputation. In short, as one blogs or shares information in another form, one becomes a trusted source and can start extract money from those activities. I argue that those acts have the seeds of the possible destruction of Benkler’s world of sharing. Today the FTC has targeted a practice that arguably could increase the reliability of social network endorsements but will also upset many people.

As CNET reports, “Independent bloggers who fail to disclose paid reviews or freebies can face up to $11,000 in fines from the Federal Trade Commission, according to revisions to the agency’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising” published Monday.” The FTC has not updated the Guidelines since 1980. The press release is here. The full text of the Guides are here (pdf). It is 81 pages, and I have not read it as yet but one thing people should know is that the effective date is December 1, 2009.

From the release it appears that the guides take am expansive view of what presents a moment to disclose “The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.” CNET suggests that celebrities and “mommy bloggers” could be in trouble under the new rules. (Here is my prediction on the riposte to come but that I don’t think is accurate: “The FTC hates moms. In a down economy and with more and more people needing new ways to earn, the FTC actions are a direct attack on the importance of moms.” Now back to our regularly scheduled blogging.)

There are a ton of oddly connected things here. First, I just blogged about CITP and its FedThread project. That project would allow one to track this sort of moment rather quickly. Second, I was just at the Works In Progress Intellectual Property Conference at Seton Hall (which was yet again an excellent conference and for which everyone at Seton Hall deserves many thanks) where Zahr Stauffer presented a fascinating paper called Novels for Hire: Branded Entertainment, Copyright and the Law that I think will have something to say about these changes. As one blog notes, the practice of giving journalists freebies is common. Zahr’s paper shows how advertising and novels have had a rather curious interaction over the years. I think the paper will help understand the way writing and advertising have co-existed in either good or bad ways at different times with the shift to blogging fitting in as part of that history. The paper should be available soon so keep an eye out for it.

Electronics and other big ticket items seem to be where the concerns are. I look forward to finding out whether book, film, and music reviewers have to tell readers whether they received a review copy of the book. In general if one only says nice things about a review subject, one might receive more books etc. I think that non-professional blogs and other online information sources such as rating systems and FaceBook will allow people to find out whether they should buy a product (i.e., one might use a personal network to ask whether a product is good). That practice could undercut the quiet payment model.

Here is a possible way to understand this turn of events. 1) Secret endorsements die out and full disclosure of what has been given is the norm. 2) Small bloggers and big agencies are no longer able to seem credible as reviewers. 3) If people want independent reviews, they must pay magazines or other pay sources who can afford to buy the review items and avoid the taint of being given free stuff. 4) The public does not want to pay and instead reads the blog reviews with the disclosures and augments the research with social networks and user ratings which are more difficult to fake and possibly more reliable. 5) Yet again paid, professional independent news and reviews seems to be squeezed out.

  October 5, 2009 at 1:44 pm  Tags: Blogging, FTC, guides  Posted in: Blogging, Consumer Protection Law, Cyberlaw, First Amendment, Media Law, Web 2.0   Print This Post   7 Comments

Antitrust in Obamaland

posted by Spencer Waller

Antitrust enforcement was one area where most observers expected significant changes from the Bush years, particularly at the Antitrust Division of the Justice Department. For the past eight years, the Antitrust Division had vigorously prosecuted cartels, but had not been active in monopolization or merger enforcement. In addition to bringing relatively few cases in these areas, the Division had filed a number of amicus briefs in support of defendants, opposed a petition for certiorari sought by its sister agency the Federal Trade Commission, and issued a number of reports and policy recommendations that restricted the reach of the antitrust laws or imposed significant burdens on private plaintiffs. During this same period, the FTC proved to be more active in the competition area, particularly in the health care and intellectual property fields which suggests that the FTC will have a greater continuity in the competition area despite key changes at the Commissioner and staff levels.

The key officials in the Obama administration came into the antitrust agencies promising change. Christine Varney, the new head of the Antitrust Division, gave a speech in her early days promising more vigorous enforcement and hearkening back to the days of Thurman Arnold during the latter half of the New Deal. At the same time, she repudiated a highly restrictive report on monopoly power issued during the waning days of the prior administration issued by the Justice Department alone because a majority of the FTC had refused to endorse. In addition, the Division has reversed policy and filed an amicus brief in support of plaintiffs in a key Supreme Court case involving the pharmaceutical industry. Most recently, the Justice Department and the FTC jointly announced a new initiative to revisit the Merger Guidelines of the 1990s used by both agencies to decide which mergers and acquisitions to challenge on competition grounds. Read the rest of this post »

  October 1, 2009 at 12:57 pm  Tags: Antitrust, DOJ, FTC, Live Nation, Obama administration, Ticket Master  Posted in: Antitrust, Consumer Protection Law, Uncategorized   Print This Post   No Comments

American Law Institute approves the Principles of the Law of Software Contracts

posted by Bob Hillman

Thanks to Dave Hoffman, who just completed a very successful visit at Cornell Law School, for inviting me to be a guest blogger for the month. Maureen O’Rourke, the Associate Reporter on the Principles of the Law of Software Contracts, and I are posting the following to acquaint readers with the Principles and also to respond to some criticism of one section of the Principles that creates, under certain circumstances, an implied warranty of no known material hidden defects in the software.

On May 19, the membership of the American Law Institute unanimously approved the final draft of the Principles of the Law of Software Contracts. As the Introduction to the project states, the Principles “seek to clarify and unify the law of software transactions.” The Principles address issues including contract formation, the relationship between federal intellectual property law and private contracts governed by state law, the enforcement of contract terms governing quality and remedies, the meaning of breach, indemnification against infringement, automated disablement, and contract interpretation.

The Introduction to the Principles explains further that “[b]ecause of its burgeoning importance, perhaps no other commercial subject matter is in greater need of harmonization and clarification. . . . [T]he law governing the transfer of hard goods is inadequate to govern software transactions because, unlike hard goods, software is characterized by novel speed, copying, and storage capabilities, and new inspection, monitoring, and quality challenges.” Many of the rules of Article 2 of the UCC therefore apply poorly to software transactions or not at all, and the Principles are intended to fill the void.

The Principles are not “law,” of course, unless a court adopts a provision. Courts can also apply the Principles as a “gloss” on the common law, UCC Article 2, or other statutes. Nor do the Principles attempt to set forth the law for all aspects of a transaction, but instead rely on sources external to the Principles in many areas.

The Principles apply to agreements for the transfer of software or access to software for a consideration, i.e., software contracts. These include licenses, sales, leases, and access agreements. The project does not apply to the exchange of digital media or digital databases. It applies a predominant purpose test to determine applicability to transactions involving embedded software or software combined in one transfer with digital media, digital databases, and/or services.

We are the Reporter and Associate Reporter of the software principles. We have been greatly aided by our advisors, consultative group members, ALI Council members, liaisons from the National Commissioners on Uniform State Law, Business Software Alliance, and the American Bar Association, and many additional lawyers from industry and other groups who, over the last five and one-half years, have met with us, talked with us on the phone, and exchanged e-mails with us. We believe the project moved along smoothly largely because of the efforts of all of these groups and individuals.

Nevertheless, in the two weeks leading up to approval in May, we received communications from a few software providers evidencing concern largely with one section of the Principles. Section 3.05(b) creates a non-excludable implied warranty that the software “contains no material hidden defects of which the transferor was aware at the time of the transfer.” The section only applies if the transferor receives “money or a right to payment of a monetary obligation in exchange for the software.” Because the section may be the most controversial provision, we devote the rest of this post to the issue.

Read the rest of this post »

  June 2, 2009 at 8:12 am  Tags: American Law Institute, software contracts  Posted in: Consumer Protection Law, Contract Law & Beyond, Cyberlaw, Intellectual Property, Law Talk, Technology, Uncategorized   Print This Post   4 Comments

IP Law and the Presidential Sneakers…

posted by Jacqueline Lipton

President Obama is likely the first true “celebrity president”, at least the first in our time, in the sense that people see opportunities for making money from his persona and likeness.  Early on in the presidency, his office made some remarks to the extent that they were working on a policy asking people to be respectful of the president and his family in restraining some of these commercial impulses.  Of course, all of this raises the fine line between free speech and personality rights – a topic much debated on the cyberprof listserve in the early days of this presidency.

In this vein, I couldn’t resist posting an ad I came across last night that squarely raises these legal issues.  A company that appears to be in Michigan (although they do not give their postal address, but do require Michigan residents to pay sales tax on purchases from their website) has set up an “Obama shoes” website.  On this website, you can purchase Obama sneakers, backpacks, and basketballs.

The website uses video clips from one of Obama’s speeches and refers to itself as selling merchandise that is inspirational to young folks and that is intended to commemorate Obama’s inauguration. Thus, it obviously intends to juxtapose free speech interests in the inauguration against the commercial use of Obama’s name and likeness.

There are some other interesting little sidenotes about this business venture that suggest the people who set it up sought at least some legal advice before doing so.

1. They used the domain name “obamashoes.tv” presumably either because they couldn’t get a “better” domain name or because they wanted to avoid claims under the Uniform Domain Name Dispute Resolution Policy. They could argue that even if Obama’s name operates as a TM, they have not used his actual name in the domain name, but have added “shoes” to the end of it so no one will think it’s an authorized Obama website.

2. They include a disclaimer on their webpage to the effect that: “Obamashoes.tv is a private entity and makes no claim of affiliation or endorsement by President Barack Obama or his campaign for office.”

3. Interestingly, there is also a disclaimer on their FAQ page about the design of the sneakers themselves. “Q. Why does [sic] the shoes look like Nike Air Force Ones (AF1) and the Jordan Brand?
A. These design is [sic] been proven to be commonly preferred by most Adults & Children (black or white).” Now, I personally don’t know anything about sneaker designs, but I assume this is intended as a preemptive strike to ward of claims in trademark, trade dress, and/or design patent with respect to the actual design of the shoes.

So, interesting business model…
Legitimate free speech? Or intellectual property law infringement as far as they eye can see?

  May 19, 2009 at 9:16 am   Posted in: Advertising, Consumer Protection Law, Culture, Cyberlaw, First Amendment, Intellectual Property, Politics, Technology, Uncategorized   Print This Post   No Comments

Open Source Initiative on Google Book Search Settlement

posted by Danielle Citron

As Frank and others have highlighted at CoOp, Google has been digitizing millions of books, including many covered by copyright, from the collections of major research libraries.  Robert Darnton describes Google’s book scanning project as nothing short of  an attempt to control access to the “single most comprehensive collection of books since the Library of Alexandria.”  Authors and publishers brought a class action suit against Google, alleging breach of copyright.  Judge Denny Chin is currently considering the class certification motion and the parties’ settlement proposal.  In response to wide-spread criticism of the proposed settlement, Judge Chin recently granted a four-month delay to allow more time for discussion and analysis of the proposal.

Superb guest blogger James Grimmelmann has offered thoughtful commentary on the proposed settlement and now is spearheading an open source initiative to garner public input on the controversial proposed settlement.  Later this month, Grimmlemann will introduce “The Public Index,” a website that will feature discussion forums, a comprehensive archive of settlement documents and related commentary, and a tool for users to insert their analysis and commentary on individual paragraphs of the proposed settlement.  Although the website responds to a lawsuit, it ultimately can provide Congress and agencies insight into the issue should the court reject the settlement.

The proposed settlement raises issues of great importance, from the contours of the fair use principle and Google’s potential monopoly over the largest digital library (remniscent of Frank’s testimony concerning the failed Google-Yahoo deal) to the  absence of due process protections of orphan works (i.e., works for which it is impossible to locate the appropriate rights holders to seek permission to digitize) whose rights would be adjudicated if the class is certified and settled.  This description merely touches the surface of the issues at stake.  Pamela Samuelson has important commentary on the issue as do many others.  Suffice it to say that the Public Index Initiative will no doubt be an important resource for the court (and possibly the legislature) in addressing this perplexing issue.

  May 6, 2009 at 3:57 pm   Posted in: Civil Procedure, Consumer Protection Law, Google & Search Engines, Intellectual Property, Technology   Print This Post   No Comments

The Bard of the Financial Crisis

posted by Nate Oman

Over the weekend, I re-read A Merchant of Venice, and I was struck by the fact that Shakespeare manages to include in the play virtually every element of the current financial crisis. Scene one begins with a discussion of risk assessment, and Antonio’s belief that he has managed to tame the vagaries of commercial fate through diversification. Asked by Salarino if he “Is sad to think upon his merchandise” (I.i.40), Antonio responds:

Believe me, no. I thank my fortune for it

My ventures are not in one bottom trusted,

Nor to one place; nor is my whole estate

Upon the fortune of this present year.

Therefore my merchandise makes me not sad. (I.i.41-45)

Having ignored the problem of fat tails and black swans, Antonio decides to engage in a bit of dodgy finance. He borrows in the wholesale market from Shylock under terms that appear favorable, but have a huge downside in the unlikely event of his default. Antonio, of course, is unconcerned. From his point of view he is getting cheap money by taking on what seems like an extremely remote risk. He then takes these borrowed funds and uses them to make what can only be described as a no doc, subprime loan. Bassiano wants money for a speculative venture — the wooing “In Belmont [of] a lady richly left” (I.i.161) — and Antonio agrees, in effect renting out his credit rating:

Try what my credit in Venice can do;

That shall be racked even to the uttermost

To furnish thee to Belmont to fair Portia.

Go presently inquire, and so will I,

Where money is; and I no question make

To have it of my trust or for my sake. (I.i.180-185)

Shylock, for his part, does not approve of the loose monetary policy in Venice, which he rightly blames on wild lending practices, such as Antonio’s loans:

How like a fawning publican he looks.

I hate him for he is a Christian;

But more, for what is low simplicity,

He lends out money gratis and brings down

The rate of usance here with us in Venice. (I.iii.38-42)

Read the rest of this post »

  March 24, 2009 at 11:33 am   Posted in: Articles and Books, Bankruptcy, Behavioral Law and Economics, Consumer Protection Law, Contract Law & Beyond, Current Events, History of Law, Humor, Law and Humanities   Print This Post   11 Comments

Healing the Damage: Truth & Repudiation in the Agencies

posted by Frank Pasquale

I have tried to keep track of executive failures over the past eight years in financial, health, and safety regulation. But I have been overwhelmed. As James Galbraith argues in The Predator State, the past administration appointed the most extreme anti-regulatory voices it could find, across the board. Now the Center for Public Integrity has released a report on the results: the “eight-year tenure of the Bush administration was marked by more than 125 systematic failures across the breadth of the federal government.” As they note,

[T}he failures are rooted in recurring themes: agency appointees selected primarily for ideology and loyalty, rather than competence; agency heads who overruled staff experts and suppressed reports that did not coincide with administration philosophy; agency-industry collusion; a bedrock belief in the wisdom of deregulation; extensive private outsourcing of public functions; a general failure to exercise government’s oversight responsibilities; and severely slashed budgets at understaffed agencies that often left them unable to execute basic administrative functions.

The question now is, what to do about it? Responding to the administration’s torture policies and other human rights violations, Jack Balkin and Bruce Ackerman have suggested two approaches. Both of them are worth looking into with respect to some Bush-era holdovers who will be on independent agency boards for years to come.

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  January 15, 2009 at 10:09 am   Posted in: Administrative Law, Consumer Protection Law, Economic Analysis of Law, Law and Inequality   Print This Post   4 Comments

Payday Lenders’ Creative Electoral Tactics

posted by Frank Pasquale

Who’d guess that my worries about the political power of the financial sector and Jaya’s concerns about misleading ballot initiative wording would converge? Easha Anard reports on the trend:

Payday lenders are spending millions of dollars to back ballot initiatives that challenge state restrictions on their cash-advance practices. . . . [In Arizona], Yes on 200 is financed by the local affiliate of the Community Financial Services Association, a national payday-lending group. . . . . [T]he wording of the ballot initiative suggests it would impose further regulation on payday lenders; in fact, it would roll back much tougher rules. Yes on 200 is promoting the initiative with a counterintuitive strategy: spending money on ads that depict payday lenders as unscrupulous. One ad says, “Arizonans agree: Payday lenders who rip off hard-working Americans need to be stopped,” and asks voters to support the ballot initiative.

Now those are people you can trust! No regulation needed for them.

I wonder if Bryan Caplan would consider those who want to regulate payday lending financial illiterates–and approve this “noble lie” as a way of promoting better policy?

  October 28, 2008 at 11:35 pm   Posted in: Administrative Law, Consumer Protection Law, Economic Analysis of Law, Law and Inequality   Print This Post   3 Comments

Invasion of the Credit Cards

posted by Nate Oman

It is pretty easy to find dire statistics about credit cards in America. Frankly, the financial puritan in me likes it when I see another news story denouncing over-leveraged American consumers and the sad erosion of thrift and delayed gratification. Bring on the jeremiads! On the other hand, I realize that there is an important sense in which these statistics are misleading.

This week in my Article 9 class we went over the rules governing security interests in consumer purchases. The interesting thing about this material is that the standard hypothetical — I buy a refrigerator on credit from the department store — is an anachronism. Today, if I am going to finance the purchase of a big-ticket consumer good, I don’t get a loan from the J.C.Penny finance department. I charge it. Indeed, even if Target or Home Depot wants to finance my purchase I don’t go to the lending office at the back of the store. I get a Target credit card. Of course, some of these charge cards — I am told — claim a security interest in the goods purchased with them. On the other hand, I suspect that the Walker-Thomas days of a retailer who repos the cross-collateralized big stereo sets are as obsolete as, well, big stereo sets. In other words, we now have more credit card debt in part because credit cards have replaced virtually all other forms of consumer finance.

This, of course, makes economic sense as well. The biggest benefit of secured credit does not come from the reduction of risk. Miller and Modigliani long ago taught us to be skeptical of this story. The unsecured creditors ought adjust their interest rates to accommodate the risk created by secured creditors and the over all effect on the cost of capital will be a wash. Of course, this is far from entirely true — there are non-adjusting creditors like tort victims and trade creditors. On the other hand, I’m skeptical that secured credit exists mainly as a vehicle for lowering financing costs through increases in risky behavior.

Read the rest of this post »

  September 11, 2008 at 11:08 am   Posted in: Consumer Protection Law, Contract Law & Beyond, Economic Analysis of Law   Print This Post   No Comments

Soothsayer Law

posted by Nate Oman

According to the WashPo, St. Johnsbury, Vermont has decided to make the plunge and legalize soothsaying. It turns out that a number of jurisdictions still have anti-fortunetelling statutes on the books. Contemporary Pennsylvania law, for example states:

A person is guilty of a misdemeanor of the third degree if he pretends for gain or lucre, to tell fortunes or predict future events, by cards, tokens, the inspection of the head or hands of any person, or by the age of anyone, or by consulting the movements of the heavenly bodies, or in any other manner, or for gain or lucre, pretends to effect any purpose by spells, charms, necromancy, or incantation, or advises the taking or administering of what are commonly called love powders or potions, or prepares the same to be taken or administered, or publishes by card, circular, sign, newspaper or other means that he can predict future events, or for gain or lucre, pretends to enable anyone to get or to recover stolen property, or to tell where lost property is, or to stop bad luck, or to give good luck, or to put bad luck on a person or animal, or to stop or injure the business or health of a person or shorten his life, or to give success in business, enterprise, speculation, and games of chance, or to win the affection of a person, or to make one person marry another, or to induce a person to make or alter a will, or to tell where money or other property is hidden, or to tell where to dig for treasure, or to make a person to dispose of property in favor of another. (18 Pa.C.S.A. § 7104 )

The law apparently dates back to an 1861 state statute. A quick Westlaw search reveals reported cases dealing with anti-fortunetelling statues in California, Illinois, Maryland, New York, Washington, and other states.

Witchcraft and cursing, of course, were crimes at common law on the straight-forward theory that they were a method of harming others that ought to be suppressed. One may dispute the metaphysics behind this crime, but as a normative matter it seems simple enough. One might even object to love potions as a kind of officious intermeddling. The suppression of fortunetelling — along with other forms of beneficent magic like peering in stones to find lost treasure — however, rests on a more subtle calculation, some of it less than pretty.

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  September 7, 2008 at 5:42 pm   Posted in: Consumer Protection Law, Contract Law & Beyond, Criminal Law, Culture, History of Law   Print This Post   4 Comments

Debtor Friendly Legislation and Unintended Consequences

posted by Nate Oman

The rate of home foreclosures in the current mortgage crisis has not been evenly distributed. Some states — such as Nevada, California, and Florida — have seen many more foreclosures than others, and not simply because some of them are big states. Take California, where in some localities the foreclosure rate has been as high as 25 percent. What gives here? Are California home buyers and mortgage brokers just much more irresponsible than the rest of the nation? Is there some California specific economic shock that accounts for this? I don’t pretend to know the ultimate answers to these questions, but I think that at least part of the blame for California’s high foreclosure rates needs to be laid at the feet of California’s debtor friendly home mortgage law.

According to California Civil Code section 580b:

No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser.

What this means is that virtually all purchase-money home mortgages in California are non-recourse. In other words, in the event of default the bank can foreclose on the house but cannot come after the debtor personally for repayment of any debts left unsatisfied by the foreclosure sale. The result is that if buyers are left underwater on a loan, owing more than the house is worth, they can walk away from the house without any debt.

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  September 4, 2008 at 10:48 am   Posted in: Bankruptcy, Consumer Protection Law, Contract Law & Beyond   Print This Post   10 Comments

Are You Disposed Toward Corruption?

posted by Dave Hoffman

A reader passes along an interesting white collar crime story. In the latest development of an (apparently) long-running federal investigation,

Scott Salyer, president and chief executive officer of SK Foods, Monterey, Calif., a food processor and the parent company of Salyer American Fresh Foods Inc., is accused of allegedly encouraging New Jersey-based broker Randall Rahal to offer bribes to its customers’ buyers over a four-year period.

Federal Bureau of Investigation special agent Paul Artley filed an affidavit Aug. 14 in U.S. District Court in Sacramento, Calif., supporting the government’s April 16 seizure of nearly $600,000 held in the name of Rahal’s company, Intramark USA Inc., from two of his accounts in the Vineland, N.J. branch of Sun National Bank. The document alleges he used the accounts to bribe buyers from a number of food companies.

I tracked down that affidavit. A highlight, from my perspective, comes in paragraph 23:

“Witness #1 stated RAHAL told Witness #1 and others that he identifies the customers that he can get to take bribes by dropping a $100 bill and picking it up and saying, ‘You must have dropped this, is it yours?; If the individual says ‘yes,’ RAHAL knows that they are open to a ‘business offer.’ Witness #1 understood ‘business offer’ to mean bribe.”

There are other juicy bits, as this storynotes, including this one:

In one phone conversation between Salyer and Rahal, the broker tells the SK chief a buyer is “gonna need a retirement program. So, it’s a perfect fit for me.”

Salyer asks, “How fast are you going to reel in that fish?”

Rahal, referring to a dinner meeting he has set up with the buyer, says, “Probably by the time the coffee comes.”

An enthusiastic Salyer replies, “I want that sucker on speed reel.”

Apart from the local color, the story is interesting because it goes to the heart of the situationalist v. dispositionalist explanation of criminality so often discussed over at The Situationalist. Were the folks who accepted Rahal’s bribes disposed toward corruption, or did his temptation make them act in ways they never otherwise would have? It’s a question that bears on our attributional assumptions and the ways we punish. For what it’s worth, I suspect that Rahal’s test is one that many, many of us would fail.

(Image Source: Wikicommons)

  August 23, 2008 at 6:11 pm   Posted in: Behavioral Law and Economics, Consumer Protection Law, Corporate Law, Criminal Law, Securities   Print This Post   One Comment

Eric Muller on the Lies of Hirabayashi

posted by Daniel Solove

Professor Eric Muller (U. North Carolina School of Law) has posted a new paper, Hirabyashi: The Biggest Lie of the Greatest Generation on SSRN. From the abstract:

This Article presents newly discovered archival evidence demonstrating that government lawyers told a crucial lie to the United States Supreme Court in the case of Hirabayashi v. United States, 320 U.S. 81 (1943), which upheld the constitutionality of a racial curfew imposed on Japanese Americans in World War II. While the government’s submissions in Hirabayashi maintained that the curfew was a constitutional response to the serious threat of a Japanese invasion of the West Coast, new archival findings make clear that military officials foresaw no Japanese invasion and were planning for no such thing at the time they ordered mass action against Japanese Americans. Even more disturbingly, the archival record demonstrates that at the time that Justice Department lawyers filed their brief in Hirabayashi emphasizing a threatened invasion, they knew this emphasis was false.

The Article seeks to understand what might have led otherwise ethical Justice Department lawyers to present such a big and consequential lie, suggesting that the then-prevalent racial schema of the “Oriental” as an invading horde may have overpowered the lawyers’ evaluation of the facts. And perhaps more importantly, the Article demonstrates that the Hirabayashi decision – which has never been repudiated in the way that the more famous Korematsu decision has been, and which remains a potent precedent for race-conscious national security measures – deserves to be installed in the Supreme Court’s Hall of Shame, alongside Korematsu, Dred Scott, and the Court’s other biggest mistakes.

According to Eric’s blog post about his article: “My article documents all of this from primary archival sources, and then goes on to speculate about what might have led Justice Department lawyers to such a large and consequential deception.”

  August 19, 2008 at 10:10 pm   Posted in: Articles and Books, Consumer Protection Law, History of Law   Print This Post   No Comments

Banning the Big Mac and More

posted by Deven Desai

Los Angeles, California, is famed for odd approaches to the world that then catch on. According to the Wall Street Journal, L.A. is now trying to ban fast-food in a specific portion of the city where obesity rates are at 30%, nine points above the rest of the city and about four and half points above the national average. In this case L.A. is not the leader in banning fast food but it may be a leader in invoking health issues for such a ban. The usual nanny state criticisms are in play, and the head of the California Restaurant Association points out that sedentary lifestyle and poor nutrition education are part of the problem. Of course the article points out that ordinances requiring to restaurants to post nutrition information (dare we say nutrition education information) are being challenged by, guess who?, yes! the restaurant industry as forced speech (required delivery of a government message).

The article also notes that many in the area affected think it may be a good idea because alternatives are few and maybe other restaurants will enter the market. That may be, but the proposed ban does not seem to address local establishments that may be offering wonderfully fat and/or salt filled but in that sense worse food. (Yes I will happily indulge in an occasional foray to a local restaurant (or food shack as it may be) for the bad-for-me but oh so blasted good tasting food). In addition, WSJ does a great job reporting that bans on transfat that affect all restaurants changes all behaviors and seems to have fueled shifts in menus like salads and fruit appearing even at fast food venues.

Given the rising cost of food, fast food restaurants could become the best way to deliver healthy food at lower cost. Changing the desires for or increasing the knowledge of why the bad stuff is bad then is a vital piece of that puzzle.

So the efforts to address obesity through building parks and better education are great. This ban seems to be onto something too. But the ban as reported seems to attack a lever (of course folks go to the place that is known and advertised as the comforting, inexpensive food we love (the Big Mac attack) that is part of the problem while leaving gaps for others to offer similar food. If the restaurant industry wants to play ball fairly, they give up the fight on the nutrition data posting issue, SPEND more on educating folks, and then sell the better food from their restaurants. The fast food chains have the scale so that they can be leaders in that space rather than fighting the trend to hold onto an ill-advised approach to their business at least from a public health view.

  July 24, 2008 at 3:28 pm   Posted in: Consumer Protection Law   Print This Post   8 Comments

Postrel on Positionality: “Just a Phase”

posted by Frank Pasquale

I was intrigued by Virginia Postrel’s latest article on conspicuous consumption. In her book The Substance of Style, Postrel seemed eager to discredit Veblen-inspired thought by claiming that it failed to “credit [luxury] goods’ intrinsic sensory appeal.” Now her position is more nuanced:

An African American family with the same income, family size, and other demographics as a white family will spend about 25 percent more of its income on jewelry, cars, personal care, and apparel. . . .African Americans spend much less on education, health care, entertainment, and home furnishings. (The same is true of Latinos.)

[E]conomists [have] compared the spending patterns of people of the same race in different states—say, blacks in Alabama versus blacks in Massachusetts, or whites in South Carolina versus whites in California. [A]ll else being equal . . . an individual spent more of his income on visible goods as his racial group’s income went down. African Americans don’t necessarily have different tastes from whites. They’re just poorer, on average. In places where blacks in general have more money, individual black people feel less pressure to prove their wealth.

The same is true for whites. Controlling for differences in housing costs, an increase of $10,000 in the mean income for white households—about like going from South Carolina to California—leads to a 13 percent decrease in spending on visible goods. “Take a $100,000-a-year person in Alabama and a $100,000 person in Boston,” says Hurst. “The $100,000 person in Alabama does more visible consumption than the $100,000 person in Massachusetts.” That’s why a diamond-crusted Rolex screams “nouveau riche.” It signals that the owner came from a poor group and has something to prove. . . . Rich people in poor places want to show off their wealth. And their less affluent counterparts feel pressure to fake it, at least in public. Nobody wants the stigma of being thought poor. [emphasis added]

Nevertheless, Postrel is at pains to convey that positional pressures are but a temporary problem. . . .

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  June 18, 2008 at 6:45 pm   Posted in: Consumer Protection Law, Economic Analysis of Law, Intellectual Property   Print This Post   No Comments

Making Americans Less European

posted by Frank Pasquale

How do we explain the divergence between the US and so many other developed countries when it comes to social welfare issues? I looked at the issue last year, noting Spencer Overton’s conclusion that “Less than one percent of the U.S. population makes financial contributions over $200 to federal candidates, and . . . [o]f those who contribute over $200, approximately 85 percent have household incomes of $100,000 or more. . . .” Now Scott Ganz and Kevin Hassett propose that youth sports may actually be driving the difference:

A recent scholarly paper by economists Alberto Alesina and Edward Glaeser of Harvard University and Bruce Sacerdote of Dartmouth College found that countries tend to build large welfare states when citizens believe that success in life is largely determined by luck. . . . Americans are remarkably different from Europeans in this regard. If you ask Americans whether the economically disadvantaged are poor because they are lazy or unlucky, 60 percent say lazy. If you ask Europeans, only 26 percent finger laziness. Alesina and his colleagues argue that these attitudes shape society by shaping governmental and social institutions.

But why do these attitudes exist? A big part of the answer may be found in sports. A 1999 study by developmental psychologists Françoise D. Alsaker and August Flammer found American children spend more time participating in athletics than Europeans. In certain cases—America compared with France, for instance—the gap is quite substantial. A 1996 study by Michigan State University sports psychologist Martha E. Ewing and Vern D. Seefeldt, former director of the Institute for the Study of Youth Sports, found that 45 percent of all eligible American youths play in an agency-sponsored league, like Little League baseball or Pop Warner football. That is 22 million children each year who get an infusion of the American work ethos.

I am so glad that US children are spending more time on sports and less on trivialities like physics, foreign languages, or math. Otherwise they might subscribe to such troublingly European ideals as the difference principle, global warming, or the four freedoms.

Admittedly, I have to attribute my own distrust of cultural explanations to time spent at Oxford, where the dons cautioned against resorting to culture as an explanatory variable until you understood the politics, economics, and institutions it’s surrounded by. To begin thinking about why the US is such an outlier in social welfare policy, we might want to look at the work of international scholars (like Kieke Okma) who’ve done much to enhance our understanding of comparative health systems. We might also want to revisit the scorched earth politics of the 1990s.

  June 17, 2008 at 8:41 am   Posted in: Behavioral Law and Economics, Consumer Protection Law, Economic Analysis of Law   Print This Post   5 Comments

How Inequality Drove the Subprime Mess

posted by Frank Pasquale

A few months ago I worried that many subprime borrowers were concerned parents terrified of losing a bidding war for places in good school districts. Today Robert H. Frank, with his usual perspicuity, explains that dynamic in a concise and convincing op-ed:

In a well-intentioned but ultimately misguided move to help more families enter the housing market, borrowing restrictions were relaxed during the [decades leading up to the subprime meltdown]. Down payment requirements fell steadily, and in recent years, many houses were bought with no money down. Adjustable-rate mortgages and balloon payments further boosted families’ ability to bid for housing.

The result was a painful dilemma for any family determined not to borrow beyond its means. No one would fault a middle-income family for aspiring to send its children to schools of at least average quality. (How could a family aspire to less?) But if a family stood by while others exploited more liberal credit terms, it would consign its children to below-average schools. Even financially conservative families might have reluctantly concluded that their best option was to borrow up.

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  April 27, 2008 at 8:06 pm   Posted in: Consumer Protection Law   Print This Post   3 Comments

Financial Products Safety Commission

posted by Frank Pasquale

As we deal with the consequences of housing and consumption arms races, Elizabeth Warren’s article on “Making Financial Products Safer” is a must-read. Warren notes:

It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance your home with a mortgage that has the same one-in-five chance of putting your family out on the street—and the mortgage won’t even carry a disclosure of that fact. Similarly, it’s impossible for the seller to change the price on a toaster once you have purchased it. But long after the credit-card slip has been signed, your credit-card company can triple the price of the credit you used to finance your purchase, even if you meet all the credit terms. Why are consumers safe when they purchase tangible products with cash, but left at the mercy of their creditors when they sign up for routine financial products like mortgages and credit cards?

Warren proposes that a new federal agency start regulating credit from a consumer safety perspective:

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  April 24, 2008 at 2:42 pm   Posted in: Consumer Protection Law, Current Events, Securities   Print This Post   3 Comments

Does the Roomates.com Case Affect CDA § 230 Immunity for JuicyCampus?

posted by Daniel Solove

The U.S. Court of Appeals for the Ninth Circuit (en banc) has just issued a very interesting opinion interpreting a federal law providing immunity from liability for online speech — the Communications Decency Act (CDA), 47 U.S.C. § 230. The case is Fair Housing Council v. Roommates.com, LLC, 2008 WL 879293 (9th Cir. April 3, 2008) (en banc).

The CDA § 230 states: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Most courts have interpreted § 230 to immunize the operators of websites or blogs against distributor liability for comments posted by others.

I have been critical about the way that this statute has been interpreted:

Unfortunately, courts are interpreting Section 230 so broadly as to provide too much immunity, eliminating the incentive to foster a balance between speech and privacy. The way courts are using Section 230 exalts free speech to the detriment of privacy and reputation. As a result, a host of websites have arisen that encourage others to post gossip and rumors as well as to engage in online shaming. These websites thrive under Section 230’s broad immunity.

Websites such as JuicyCampus, which encourage and facilitate gossip and rumors about college students, exploit § 230 immunity.

The Roommates.com case suggests a limit to § 230 immunity that some might believe creates a way to hold sites like JuicyCamus.com responsible for the gossip and rumors they solicit. In the end, I don’t believe that Roommates.com will save the day and penetrate § 230’s armor for sites like JuicyCampus.

Roommates.com allows users to post listings for roommates. When a user creates a listing, Roomates.com requests particular information from users, requesting preferences for gender, sexual orientation, and kids. Much of this information is solicited via drop down menus which list the various choices. Users can also put additional comments in a section that allows for an open-ended narrative. Two Fair Housing Councils in California sued Roommates contending that the site violated the Fair Housing Act (FHA), 42 U.S.C. § 3601 and state housing discrimination statutes. The FHA prohibits any “statement . . . with respect to the sale or rental of a dwelling that indicates . . . an intention to make [a] preferenc,e limitation, or discrimination” based on certain categories (such as gender or sexual orientation). California law has a related restriction.

Roommates.com contended that it was immune under the CDA § 230. It claimed that it just provided options for its users and is not the “information content provider.” But the Ninth Circuit concluded that § 230 immunity didn’t apply. According to the statute, an “information content provider” is one who is “responsible, in whole or in part, for the creation or development of” the content. Writing for the court, Chief Judge Kozinski noted:

The FHA makes it unlawful to ask certain discriminatory questions for a very good reason: Unlawful questions solicit (a.k.a. “develop”) unlawful answers. Not only does Roommate ask these questions, Roommate makes answering the discriminatory questions a condition of doing business. This is no different from a real estate broker in real life saying, “Tell me whether you’re Jewish or you can find yourself another broker.” When a business enterprise extracts such information from potential customers as a condition of accepting them as clients, it is no stretch to say that the enterprise is responsible, at least in part, for developing that information.

The court also held that Roommates.com was not immune for its search system, which allowed users to search according to discriminatory criteria:

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  April 5, 2008 at 10:55 am   Posted in: Consumer Protection Law, Privacy, Privacy (Gossip & Shaming), Tort Law, Web 2.0   Print This Post   9 Comments

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