Volume 162, Issue 5 
April 2014
Articles

Ghost in the Network

Derek E. Bambauer

Cyberattacks are inevitable and widespread. Existing scholarship on cyberespionage and cyberwar is undermined by its futile obsession with preventing attacks. This Article draws on research in normal accident theory and complex system design to argue that successful attacks are unavoidable. Cybersecurity must focus on mitigating breaches rather than preventing them. First, this Article analyzes cybersecurity’s market failures and information asymmetries. It argues that these economic and structural factors necessitate greater regulation, particularly given the abject failures of alternative approaches. Second, this Article divides cyberthreats into two categories: known and unknown. To reduce the impact of known threats with identified fixes, the federal government should combine funding and legal mandates to push firms to redesign their computer systems. Redesign should follow two principles: disaggregation—dispersing data across many locations—and heterogeneity—running those disaggregated components on variegated software and hardware. For unknown threats—“zero-day attacks”—regulation should seek to increase the government’s access to markets for these exploits. Regulation cannot exorcise the ghost in the network, but it can contain the damage it causes.


Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?

Aaron Edlin & Rebecca Haw

It has been over a hundred years since George Bernard Shaw wrote that “[a]ll professions are a conspiracy against the laity.” Since then, the number of occupations and the percentage of workers subject to occupational licensing have exploded; nearly one-third of the U.S. workforce is now licensed, up from five percent in the 1950s. Through occupational licensing boards, states endow cosmetologists, veterinary doctors, medical doctors, and florists with the authority to decide who may practice their art. It cannot surprise when licensing boards comprised of competitors regulate in ways designed to raise their profits. The result for consumers is higher prices and less choice, as licensing raises wages by eighteen percent and bars competition from unlicensed workers. For African-style hair braiders, the result is either an illicit business or thousands of hours of irrelevant training imposed by a cosmetology board. For lawyers, the result is less competition from tax accountants, paralegals, and out-of-state lawyers.

The Sherman Act’s great accomplishment has been to make cartels per se illegal and relatively scarce—unless the cartel is managed by a professional licensing board. Most jurisdictions consider such boards, as state creations, exempt from antitrust scrutiny by the state action doctrine, leaving would-be competitors and consumers no recourse against their cartel-like activity.

We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are comprised of private competitors deputized to regulate and to outright exclude their own competition, often with the threat of criminal sanction. At most, state action should immunize licensing boards from the per se rule and require plaintiffs to prove their cases under the rule of reason. We argue that the Fourth Circuit’s recent decision, soon to be reviewed by the Supreme Court, to uphold a Federal Trade Commission (FTC) antitrust suit against a licensing board—denying state action immunity to a licensing board and thereby creating a circuit split—was a step in the right direction but did not go far enough. The Supreme Court should take the split as an opportunity to clarify that when competitors hold the reins to their own competition, they must answer to Senator Sherman.


The Function of Article V

Aziz Z. Huq

What good is Article V? The Constitution’s amendment rule renders the text inflexible, countermajoritarian, and insensitive to important contemporary constituencies. Comparative empirical studies, moreover, show that textual rigidity is not only rare in other countries’ organic documents, but also highly correlated with constitutional failure. To promote our Constitution’s survival and to counteract Article V’s “dead hand” effect, commentators argue, Americans have turned to informal amendment through the courts or “super” statutes. Article V, the conventional wisdom goes, is a dead letter.

Against this pervasive skepticism, I propose instead that Article V may have played an important but hitherto unrecognized function in the early Republic. I hypothesize that Article V may have mitigated a “hold-up” dilemma that could have precluded the Constitution’s ratification and undermined its stability in the early Republic era. By hindering strategic deployment of textual amendment, Article V–induced rigidity fostered a virtuous circle of investment in new institutions, such as political parties and financial infrastructure. Identification of Article V’s potential role in the early Republic leads to a more nuanced view of the Constitution’s amendatory regime. In effect, it raises the possibility that we have a two-speed Constitution—with Article V–induced rigidity at the inception, supplemented gradually over time by informal judicial or statutory amendment protocols.


Comments

Letters of Intent in Corporate Negotiations: Using Hostage Exchanges and Legal Uncertainty to Promote Compliance

J. Andrew Holten

Letters of intent (LOIs) are fundamental building blocks of many corporate transactions. Although their form and terms vary, LOIs are used predominantly to communicate parties’ agreement to the basic structure of a deal and a mutual desire to continue negotiating. They are commonly called “agreements to agree” or, somewhat oxymoronically, “nonbinding agreements.” In almost every respect, these agreements are contracts— except they aren’t supposed to be. They state that the parties agree, while also stating that the parties don’t agree yet. Under a traditional legal analysis, these agreements pose a problem: either there is an enforceable contract or there isn’t one. It’s no wonder that LOIs have been described as the contractual equivalent of being “almost pregnant.”

Nevertheless, business professionals value these almost-binding agreements. When two companies sign an LOI, the parties often view it as a reason to celebrate. An LOI is considered a major milestone in the lifecycle of many transactions.

Lawyers, however, are less enthusiastic. One prominent corporate lawyer went so far as to describe LOIs as “an invention of the devil [that] should be avoided at all costs.” Case law provides numerous examples of the potential legal pitfalls of using LOIs. In Texaco, Inc. v. Pennzoil, Co., one of the most prominent cases involving LOIs, the court held a supposed LOI to be a binding contract, which ultimately cost Texaco $8.5 billion. Although such a large recovery is rare, the legal conclusion is not. Courts frequently find LOIs to be binding contracts, but just as often find similar LOIs to be unenforceable. In the words of the late E. Allan Farnsworth, “It would be difficult to find a less predictable area of contract law.”

If parties cannot predict the legal effect of LOIs, why are they used so frequently? Many explanations have been proposed, yet none adequately addresses the element of legal unpredictability that inheres in LOIs. In fact, the leading explanations do not identify a meaningful relationship between LOIs and contract law. This Comment identifies how legal unpredictability affects the operation of LOIs as a negotiating tool and ultimately concludes that LOIs manipulate legal unpredictability to the parties’ mutual advantage. Specifically, this Comment argues that signing an LOI facilitates an economic hostage exchange that aligns counterparties’ incentives, decreases both parties’ abilities to act strategically, and makes completion of the transaction more likely.


Towards a Unified Theory of "Reverse-Erie"

Omar K. Madhany

A “reverse-Erie” problem arises when a state court is hearing a federal cause of action and confronts a situation in which a state law and a federal law conflict. The term finds its etymological origin in Erie Railroad Co. v. Tompkins, which dealt with the opposite problem of a federal court sitting in diversity confronting a situation where a state law and a federal law conflict.

As Professor Kevin Clermont noted in one of the only in-depth scholarly papers exclusively on reverse-Erie, the topic is “strangely ignored by most scholars” and often “misunderstood, mischaracterized, and misapplied by judges and commentators.”

Although reverse-Erie problems are regularly dealt with at the state court level, they are rarely dealt with at the federal level. Since a reverse-Erie problem, by definition, can arise only in state court, the only federal court that can consider a reverse-Erie problem is the U.S. Supreme Court on a writ of certiorari from a state court of last resort—an infrequent occurrence. Indeed, commentators consider only four reverse-Erie cases to be seminal in the development of the current doctrine.

Given that these four cases were decided decades apart from each other and do not use a consistent methodology, state courts facing reverse-Erie problems are left to resolve the Supreme Court’s ambiguity in this area. The result has been virtual chaos, with state courts approaching reverse-Erie problems with different methodologies that lead to divergent results. This Comment attempts to develop an analytically cogent framework for the treatment of reverse-Erie problems.


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