Do the Merits Matter? Empirical Evidence on Shareholder Suits from Options Backdating Litigation
This Article examines a basic question in corporate law: Do the legal merits matter in stockholder litigation? A connection between engaging in wrongful behavior and liability in a shareholder lawsuit is essential if lawsuits are to play a role in deterring wrongful behavior. Yet skeptics of shareholder litigation have raised doubts about the degree to which such suits track actual malfeasance. The challenge is that managerial wrongdoing is almost never observable. While researchers can identify claims and—to some degree—evaluate their merits, such studies are limited to examining instances of wrongdoing that are actually litigated. We develop a novel approach to overcome this limitation in the context of one of the most notable corporate scandals of the twenty‐first century: stock options backdating. Options backdating involves falsifying incentive option grant dates in order to increase the value of the options to executives. The manipulation of grant dates leaves a measurable statistical fingerprint, which we used to estimate the likelihood of backdating among not only companies sued for the practice, but across a sample of thousands of firms that used option compensation. We compare the likelihood that firms backdated with the incidence and disposition of shareholder derivative and securities class action lawsuits. We find that many firms that likely engaged in backdating were never sued and that even firms publicly named as backdaters in the press were not universally sued. Instead, plaintiffs' attorneys were selective in targeting firms with more egregious patterns of backdating. We also examine the motion to dismiss, settlements, and the use of special litigation committees, and we find that the probability of backdating is important for the latter two. These results are an important contribution to the shareholder litigation literature and are particularly timely and important for the unfolding debate over fee‐shifting bylaws.
Discriminatory Discretion: PTO Procedures and Viewpoint Discrimination under Section 2(a) of the Lanham Act
The current standards for denying and cancelling trademarks under section 2(a) of the Lanham Act are insufficiently clear to prevent trademark examiners and administrative judges from employing viewpoint‐based discrimination against owners of marks that are perceived to be immoral, scandalous, or disparaging. Since trademark protection is a grant of speech rights to mark owners, the U.S. Patent and Trademark Office's (PTO) discretionary decisions to deny or cancel the registration of marks that represent particular viewpoints under section 2(a) are at odds with the First Amendment protections afforded to both commercial and expressive speech. This Comment proposes that to protect the First Amendment rights of mark owners, the PTO should employ a policy that all allegedly immoral, scandalous, or disparaging marks are presumptively valid and can be denied registration or cancelled only upon a showing that the proposed marks are within the specific categories of speech deemed to be outside the realm of First Amendment protection. Stricter standards for denying and cancelling trademarks under section 2(a) will allow the commercial marketplace and the marketplace of ideas to determine the fate of these so‐called “undesirable” trademarks.
Part I introduces Lanham Act section 2(a), the statute authorizing the denial of registration for trademarks that are immoral, scandalous, or disparaging. I discuss the PTO's procedures for granting and denying trademarks, and compare the PTO's purported procedures with how the office actually makes decisions. I then argue that this process is infused with discretionary decisionmaking that allows examiners to incorporate their own opinions on the propriety of marks into the section 2(a) analysis. In Part II, I analyze the PTO's rates of granting and denying registration to allegedly scandalous and disparaging trademarks under section 2(a) and the evidence used to support such decisions. In Part III, I assess the effects of trademark denial and cancellation on mark owners. In Part IV, I discuss the First Amendment doctrine of viewpoint discrimination, its interaction with the doctrines of commercial speech and administrative discretion, and how it applies to trademark registration and the PTO. I conclude that section 2(a) is a restriction on viewpoint in violation of the First Amendment. In Part V, I analyze how the discretionary procedures in the PTO lead to viewpoint discrimination. Finally, in Part VI, I propose changes to the section 2(a) regime to limit discrimination on the basis of viewpoint. I argue that the PTO should adopt the presumption that potentially scandalous and disparaging trademarks are valid absent section 2(a) challenges from third parties in opposition or cancellation proceedings. I also propose that section 2(a) denials should be limited to traditionally unprotected categories of speech, allowing the marketplaces of commerce and ideas to limit the propagation of trademarks that are seen as scandalous or disparaging.
Depicting Minority Petitioners' Lives in Appellate Opinions
Mellouli v. Lynch, decided in June 2015, evaluated whether a state conviction for possession of drug paraphernalia used to conceal unknown pills could trigger an immigrant's deportation under federal law. Justice Thomas's dissent chastised the majority opinion, authored by Justice Ginsburg, for “12 references to the sock that Mellouli used to conceal the pills.” In the dissent's view, this specific fact was “entirely beside the point”—irrelevant to the statutory interpretation. The dissent did not remark, though, on the majority's extensive discussion of Mr. Mellouli's life prior to the deportation proceedings. In the 2014–2015 Term, both Mellouli and the more prominent Obergefell v. Hodges discussed the lives of petitioners—members of minority groups seeking relief against state exercises of power—in remarkable depth. This Essay seeks to highlight the similarities between the characterizations of the petitioners in the two opinions, to explore the function of such depictions, and to suggest that such descriptions require careful thought because they may, counterintuitively, subvert counter‐majoritarian goals.
Writing About Nonpersons
Professor Garrett's article on the constitutional standing of corporations employs the heuristic of “effective” litigation to unpack the lack of symmetry between organizations and individuals when personal rights are concerned. Hobby Lobby marks an apotheosis of the recent doctrinal push for corporate persons to become simply persons. The corporate structure has now become a vehicle for associations to actualize their broader instrumental ambitions. Justice Alito, writing for the majority, suggests 501(c)(3) organizations might choose to incorporate so as to make political statements. His opinion recognizes an identity of spiritual orientation between the plaintiff company's management cadre and its 13,000 member workforce. Gone is the Kierkegaardian archetype of the existential pilgrim, or the Joycean expression of the epiphany. The deeply interior feeling of religious expression has given way to a judicial calculus crafted in aggregate impersonal language, of a tendency to a mean statistic. So long as an association can articulate an injury that is “germane to the organization's purpose” (an asymptotic test) then it may stand in court. But should this analytic extend to corporations? In Hobby Lobby, the winning brief reduces the “independent” choices of less evangelical employees to outlier data points. This writing away of company employees should not have legs. However, animals often do have legs—so a related question, who should stand in court for animals? Themselves?
Garrett correctly derides this group–individual equation for personal constitutional rights as bad logic and bad policy. I also agree with Professor Garrett's instinct to divorce the magic language of personhood from standing, and to instead employ a consequentialist inquiry where standing flows from the constitutional right, rather than the legal status of the concerned party. However, I have two responses to Professor Garrett. What does “effective litigation” mean? And, are there prudential concerns that should quiet his call for constitutional rules of recognition to be “drawn broadly and evenhandedly” to build doctrinal coherence? I argue in this Response that the legal writing analytic of core theory provides a proxy for this heuristic of effective litigation, but that recognition of the analogue debate of “animals as 14th Amendment persons” might destroy the already fractured architecture of standing doctrine.
Susan B. Anthony List v. Driehaus and the (Bleak) Future of Statutes that Ban False Statements in Political Campaigns
Political campaigns can get ugly. Today's political candidates must be prepared for mudslinging targeted not just at their professional lives, but also at their private lives, appearance, genealogy, religion, and countless other minutiae. The media has intensified its coverage of negative political advertising in recent years, and this trend has prompted calls for more regulation to deter false statements in political advertising.
Some states have responded. Currently, at least eighteen states have statutes on the books that punish false political statements with civil or criminal penalties. But recent litigation has cast doubt on the statutes' validity: Washington's statute was held unconstitutional by an intermediate Washington court in 2005, and Susan B. Anthony List v. Driehaus (handed down by the Supreme Court in 2014) paved the way for invalidation of Minnesota's and Ohio's statutes.
With the 2016 presidential election on the horizon, will other states' statutes fall in the wake of Susan B. Anthony List? Given the Supreme Court's other recent speech jurisprudence, the answer is probably yes.