Volume 167, Issue 1 
December 2018

Class Actions, Statutes of Limitations and Repose, and Federal Common Law

Stephen B. Burbank & Tobias Barrington Wolff

After more than three decades during which it gave the issue scant attention, the Supreme Court has again made the American Pipe doctrine an active part of its docket. American Pipe addresses the tolling of statutes of limitations in federal class action litigation. When plaintiffs file a putative class action in federal court and class certification is denied, absent members of the putative class may wish to pursue their claims in some kind of further proceeding. If the statute of limitations would otherwise have expired while the class certification issue was being resolved, these claimants may need the benefit of a tolling rule. The same need can arise for those who wish to opt out of a certified class action. American Pipe and its progeny provide such a tolling rule in some circumstances, but many unanswered questions remain about when the doctrine is available.

In June 2017, the Court decided CalPERS v. ANZ Securities, holding that American Pipe tolling was foreclosed to a class member who opted out of a certified class in an action brought to enforce a federal statute (the Securities Act of 1933) that contained what the Court labeled a “statute of repose.” In June 2018, the Court decided Resh v. China Agritech, which held that American Pipe tolling is not available when absent members of a putative class file another class action following the denial of certification in the first action rather than pursuing their claims individually in subsequent proceedings.

In this Article we develop a comprehensive theoretical and doctrinal framework for the American Pipe doctrine. Building on earlier work, we demonstrate that American Pipe tolling is a federal common‐law rule that aims to carry into effect the provisions and policies of Federal Rule of Civil Procedure 23, the federal class action device. Contrary to the Court’s assertion in CalPERS, American Pipe is not an “equitable tolling doctrine.” Neither is it the product of a direct mandate in Rule 23, which is the source of authority, not the source of the rule. Having clarified the status of American Pipe tolling as federal common law, we explain the basis on which the doctrine operates across jurisdictions, binding subsequent actions in both federal and state court. We argue that the doctrine applies whether the initial action in federal court was based on a federal or state cause of action—a question that has produced disagreement among the lower federal courts. And we situate American Pipe within the framework of the Court’s Erie jurisprudence, explaining how the doctrine should operate when the putative class action was in federal court based on diversity jurisdiction and the courts of the state in which it was filed would apply a different rule. Finally, we discuss how CalPERS should have been decided if the Court had recognized the true nature of the American Pipe rule and if it had engaged the legislative history of the Securities Act rather than relying on labels.

Stock Market Short‐Termism’s Impact

Mark J. Roe

Stock‐market–driven short‐termism is crippling the American economy, according to legal, judicial, and media analyses. Firms forgo the R&D they need, cut capital spending, and buy back their own stock so feverishly that they starve themselves of cash. The stock market is the primary cause: directors and executives cannot manage for the long term when their shareholders furiously trade their company’s stock, they cannot make long‐term investments when stockholders demand to see profits on this quarter’s financial statements, they cannot even strategize about the long term when shareholder activists demand immediate results, and they cannot keep the cash to invest in their future when stock market pressure drains away that cash in stock buybacks.

This doomsday version of the stock‐market–driven short‐termism argument entails economy‐wide predictions that have not been well‐examined for their severity and accuracy. If the scenario is correct and strong, we should first see sharp increases in stock trading in recent decades and more frequent activist interventions, and these increases should be accompanied by (1) sharply declining investment spending in the United States, where large firms depend on stock markets and where activists are important, as compared to advanced economies that do not depend as much on stock markets, (2) buybacks bleeding cash out from the corporate sector, (3) economy‐wide R&D spending declining from what it should be, and (4) a stock market unwilling to support innovative, long‐term, technological firms. These are the central channels from stock‐market–driven short‐termism to overall economic degradation. They justify corporate law policies that seek to prevent these outcomes.

But these predicted economy‐wide outcomes are either undemonstrated, implausible, or untrue. Corporate R&D is not declining, corporate cash is not bleeding out, and the world’s developed nations with neither American‐style quarterly oriented stock markets nor aggressive activist investors are investing no more intensely in capital equipment than the United States. The five largest American firms by stock market capitalization are tech‐oriented, R&D intensive, longer‐term operations. The economy‐wide picture is more one of capital markets moving capital from larger, older firms to younger ones; of a postindustrial economy doing more R&D than ever; and of an economy whose investment intensity depends on overall economic activity, not stock market trading nor hedge fund activism. True, the economy‐wide data could hide stock market hits that hold back R&D from increasing more and that weaken American capital spending more than is fitting for a post‐industrial economy. But if so, these effects have not been shown and several seem implausible. Hence, the calamitous form of the stock‐market–driven short‐termist argument needs to be reconsidered, recalibrated, and, quite plausibly, rejected.

Then, last, comes the broadest question: why has a view that lacks strong economy‐wide evidentiary support become the rare corporate governance issue that attracts attention from the media, political players, policymakers, and the public—and that is widely accepted as true? I suggest why in this paper’s final part.

Claiming Design

Jeanne C. Fromer & Mark P. McKenna

Design stands out among intellectual property subject matter in terms of the extent of overlapping protection available. Different forms of intellectual property usually protect different aspects of a product. In the design context, however, precisely the same features are often subject to design patent, trademark, and copyright protection—and parties commonly claim more than one of those forms. Yet, as we show, the claiming regimes of these three forms of design protection differ in significant ways: the timing of claims; claim format (particularly whether the claims are visual or verbal); the multiplicity of claims (whether and how one can make multiple claims to the same design); and the level of abstraction at which parties claim rights. These methodological differences have significant effects on the operation of each individual regime. All of the claiming regimes have significant shortcomings, particularly in terms of the quality of notice the claims provide to third parties about their scope. That notice problem is worsened, as we argue, by the frequent cumulation of rights in the same design. Claim ambiguity and parties’ ability to switch back and forth between different design claims—both within and across legal regimes—make it difficult for courts and third parties to evaluate the validity and scope of rights. There is significant irony here because intellectual property claims exist almost entirely to provide notice. Cumulation also enables design rightsholders to assert rights in one or more regimes using the claiming rules that benefit them most at a particular moment, without any risk that those claiming choices will bind them in later rights assertions.

We suggest a number of improvements to each claiming regime that would help restore internal order. We also analyze various approaches to ameliorating the amplified costs of overlapping regimes for claiming design. In particular, we focus on doctrines of election and channeling rules as alternative methods of directing designs to one regime or another. We also introduce the possibility of transsubstantive intellectual property claiming rules as a way to reduce important inconsistencies across these regimes while also allowing protection under multiple regimes. Each of these solutions would alleviate at least some of the concerns we identify, though one’s preference among them will likely depend on one’s level of concern about overlapping rights.


Prosecuting Cryptocurrency Theft with the Defend Trade Secrets Act of 2016

Gregory Bischoping

This Comment intends to advance a novel law for prosecuting the theft of cryptocurrency—the Defend Trade Secrets Act of 2016 (the DTSA or the Act). The DTSA is a powerful legal tool for combatting this difficult‐to‐define crime. Beyond the conceptual applicability of trade secret law, the confidentiality, extraterritoriality, and other uniquely tailored features of the Act make it practically useful. This Comment suggests this nonexclusive tool for prosecuting cryptocurrency theft and will not explore the many other ways that cryptocurrency may be regulated.

After explaining the technology of cryptocurrency, I will describe the growing threat posed by cryptotheft. I will briefly survey the legal tools currently used to deal with the theft of cryptocurrency. I will next propose that the DTSA should be used to prosecute, both civilly and criminally, the theft of blockchain‐based currency. The DTSA includes a host of valuable features that make it particularly attractive and effective for both the government and individuals prosecuting cryptotheft. I will briefly compare the Act to other possible schemes for prosecuting cryptotheft. Finally, I will conclude by noting the challenge of applying American law to foreign actors and the technical difficulty associated with tracking and retrieving digital coins.

Securities Liability and the Role of D&O Insurance in Regulating Initial Coin Offerings

Adrian Parlow

We are in the midst of a revolution in financial markets, as cryptocurrencies based on blockchain technology promise a smart, decentralized, secure, and flexible means of conducting transactions. Since Bitcoin was introduced in 2009, cryptocurrencies have been steadily gaining in prominence and economic significance, shifting from fringe instruments linked to illicit drug marketplaces and money laundering to mainstream financial products used across the globe to store wealth, facilitate marketplaces, and provide platforms that support the development of new technologies. Bitcoin can now be readily converted to cash through a growing network of “Bitcoin ATMs,” can be hedged against using Bitcoin Futures that trade on derivatives markets, and is forcing major banks to adapt through direct investments in blockchain technologies and policies regarding the use of their funds in consumer cryptocurrency investments.

The year 2016 brought major changes to the cryptocurrency market, including the rise to prominence of utility‐focused blockchain applications that offer greater functionality such as the operation of smart contracts. The most prominent of these, Ethereum (and its currency “Ether”), has become the second most widely traded cryptocurrency, with a market capitalization of approximately $53 billion (as compared to Bitcoin’s $117 billion) as of June 2018. Around this time the industry also saw the rise of Initial Coin Offerings (ICOs), funding mechanisms that resemble a hybrid of crowdfunding and venture capital (VC) financing, in which a set number of “coins” or “tokens” in a new crypto venture are offered for sale to the public. Individuals can then buy in using fiat currency or other cryptocurrencies such as Bitcoin and Ether. While in 2015 an exceptionally successful ICO might have raised only a few million dollars, in 2016 ICO raises of $150 million or more began appearing, conducted by what were essentially seed‐stage companies that would have been unlikely to raise more than a few million dollars from venture capital firms or angel investors (the typical fundraising sources for such companies). In 2017, total ICO funding topped $3 billion, exceeding the total amount of VC investment in early stage Internet companies for the year.

However, despite the meteoric rise of ICOs as the funding method of choice for cryptocompanies, ICOs have been afflicted by a number of problems, including regulatory hurdles, fraudulent activity, and negative public perception. While reliable estimates are lacking, informed observers have repeatedly warned that many ICOs are fraudulent; with nothing but “a swanky website and an official‐looking whitepaper,” dozens of ICOs have raised money for what have later turned out to be Ponzi schemes or fake companies whose owners steal the money and disappear. There are a number of factors that have contributed to these concerning circumstances. The decentralized nature of the technology means that large amounts of money can flow through ventures without a central financial institution present to act as a guarantor. The targeting of ordinary people, rather than sophisticated VC firms or wealthy individuals, means that few investors have the expertise or the financial incentive to engage in costly due diligence to ensure the veracity of a firm’s claims. The absence—until very recently—of significant regulatory oversight has meant that the ICO process is largely nonstandardized, giving firms significant latitude to include false or misleading information in their investment solicitation materials or to omit important information. Finally, the frothiness of the cryptomarket has meant that investors have at times been willing to accept significant risk of being defrauded in return for the potential for astronomical returns.

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