The University of Chicago Law School Faculty Blog

Can You Put Cars Under the Tarp?

If the car czar bill is dead for now, the question then becomes whether Treasury can fund the car industry under the TARP. Bloomberg is reporting a Treasury e-mail this morning stating the Treasury is prepared to act while Congress is out of session. The natural question becomes whether General Motors and the other car companies can be squeezed into the definitions set forth in the Emergency Economic Stabilization Act of 2008.

The critical definition is for “financial institution.” We might think that the car companies are clearly not financial institutions—put to one side their separate finance arms like GMAC—and therefore aren’t eligible for funds under the EESA. But the actual definition of financial institution is stunningly broad:

(5) FINANCIAL INSTITUTION.-The term ‘‘financial institution’’ means any institution, including, but not limited to, any bank,savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

The operative term is “institution” which is otherwise undefined. Perhaps we should head to the dictionary, as the Supreme Court does frequently, so try the online version of Merriam-Webster:

2 a: a significant practice, relationship, or organization in a society or culture <the institution of marriage> ; also : something or someone firmly associated with a place or thing <she has become an institution in the theater> b: an established organization or corporation (as a bank or university) especially of a public character

That would suggest that universities are eligible under the TARP—that is good news to hear given the recent performance of university endowments—but I’m not sure what that means for the car companies. That would seem to make a great deal turn on the public character notion.

What should we make of the identified list of entities in the EESA definition? It is certainly true that all of the entities listed in the including-but-not-limited-to clause are what we would traditionally think of as financial institutions. One could easily imagine that a court looking for some limiting principle to the otherwise open and ill-defined “institution” would latch on that list to limit the scope of eligibility and thereby exclude the car companies.

But that said, I think that all of this suggests that there is a fair amount of open territory here and that it would not be surprising, especially in these times, for Treasury to rush in. And then the question kicks in what level of deference which Treasury be entitled to in interpreting the language of the EESA? That is a Chevron question—not about oil, but about how courts interact with agencies—and that is a question for the administrative law folks.

The Car Bailout Bill: Dead on Arrival?

There is a draft of the automobile bailout bill floating around. It is relatively brief—31 pages double-spaced (though remember that the original draft of the big bailout law was only three pages)—and has started to receive blogging attention already (by David Zaring and by Eugene Volokh). I want to focus on one particular provision, namely the proposed seniority of the debt to be issued. (Others can address airplane divestiture (it’s bye, bye jets).) This provision either doesn’t work or is part of an elaborate game of chicken.

Section 11(d) on taxpayer protection provides that “in the case of an eligible automobile manufacturer which received a loan under this Act, any other obligation of such eligible automobile manufacturer shall be subordinate to such loan, and such loan shall be senior and prior to all obligations, liabilities, and debts of the eligible automobile manufacture.” The government wants to take a senior position for its debt (along with warrants, see 11(a)).

As Ford emphasized in the plan it filed in Congress on December 2, 2008, the car companies come to this situation with a deeply embedded pre-existing capital structure. Ford noted that it had roughly $17.5 billion in senior secured debt and another $17.1 billion in public senior unsecured debt. Although I have not seen the covenants, I would be stunned to learn that an effort to issue senior debt would not violate those covenants. (Ford talks through some of this in note 16 to the financial statements attached to its 2007 annual report.) Plus, of course, the way we do secured transactions means that the debtor almost always lacks a mechanism to grant a senior interest to a pre-existing position. That is the precise point of having a senior security interest.

More Google and Evil

The video from the Google debate is now up on YouTube. You can get my segment here; the rest of the segments, 13 in all, are available on the right hand side of that window.

Randy Picker on Google's "Don't Be Evil" Motto

Earlier this week, Paul H. and Theo Leffmann Professor of Commercial Law Randy Picker participated in a an Intelligence Squared U.S. event that addressed the statement "Google violates its 'don't be evil' motto." Randy began the debate:

The question isn’t whether Google is a great company. I think it is... The question isn’t whether Google does more good than evil. I think it does... The question’s whether we can identify certain things which they do which we think are important to how Google operates, that are inconsistent with that motto.

Want to find out what those "certain things" are? A full transcript of the debate is available here; audio and video will be available shortly are now available.

From the press release:

Intelligence Squared U.S., the Oxford style debate series sponsored by The Rosenkranz Foundation, announced the results of its fourth debate of the Fall 2008 season, "Google violates its 'don't be evil' motto."  A sold out audience at Rockefeller University's Caspary Auditorium, New York City voted 47% for the motion and 47% against at the conclusion of the debate. 6% were undecided, resulting in a tie, but with more of the undecided voters being swayed to the side arguing for the motion.

Speaking for the motion were Harry Lewis, former Dean of Harvard College and Gordon McKay Professor of Computer Science at Harvard, Randal C. Picker, the Paul H. and Theo Leffmann Professor of Commercial Law at the University of Chicago Law School, and Siva Vaidhyanathan a cultural historian and media scholar, and an associate professor of media studies and law at the University of Virginia. Esther Dyson author of "Release 2.0: A Design for Living in the Digital Age," Jim Harper, director of information policy studies at the Cato Institute and Jeff Jarvis author of the upcoming book, "What Would Google Do?" spoke against the motion. John Donvan, a correspondent for ABC News "Nightline," moderated.

 

           

IP Colloquium: Lively CLE?

Not possible you say? Our former colleague Doug Lichtman, now of UCLA Law, has organized a new audio venture, IP Colloquium. The promise is stimulating IP conversation and CLE credit at the same time. Doug has his first audio up now, with the always lively Fred von Lohmann of the Electronic Frontier Foundation.

In re Bilski: The Fed Circuit Tells Inventors to Stuff It

This morning, the United States Court of Appeals for the Federal Circuit released its eagerly-awaited decision in Bilski. In a 9-3 decision, with five opinions spanning 132 pages, the Federal Circuit sharply cut back on the availability of patents for processes. In so doing, the court substantially stepped back from its prior decision in State Street Bank, the decision that brought us the business-method patents controversy. That said, as emphasized in the three dissenting opinions, there is much that is uncertain in today’s majority opinion and even the precise status of State Street Bank is left open. And the opinions betray substantial differences about the role of patent policy in fostering innovation, especially about the stuff of yesteryear and the bits and bytes of the modern economy.

To set the stage quickly, in 1998, the Federal Circuit issued its landmark ruling in State Street Bank. That decision considered the patentability of a system for computerized mutual funds pooling. That required a consideration of section 101 of the Patent Act which provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”

Financial Crisis Double Feature

Like most everyone else, the Law School faculty are talking about the current financial crisis and governments' attempts to resolve it. So we've combined last week's scheduled Faculty Podcast with this week's scheduled Open Minds podcast to bring you two recent faculty panels about the bailout plan. The first, recorded on October 9th and sponsored by the Federalist Society, featured Douglas Baird, Anupam Chander, Rosalind Dixon, and M. Todd Henderson. The second, recorded on October 15th, was sponsored by the Law School Democrats and Law School Republicans and included  Randy Picker, Douglas Baird, M. Todd Henderson, and the GSB's John Cochrane (you can also read a summary of the panel here).

Student Blogger - Bailout Panel: Picker, Cochrane, Baird, and Henderson

Update: You can now listen to a podcast of this panel.

The current financial period is--according to Professor Randy Picker--an "interesting time." On Wednesday, October 15, the Law School Republicans and Democrats co-hosted a panel on the bailout featuring Professors Doug Baird, Todd Henderson, and Picker from the Law School and Professor John Cochrane from the Graduate School of Business across the Midway. The panel demonstrated just how interesting these times are with a lively discussion.

What academics try to do is understand, and Picker laid out a plan for doing so with respect to the bailout. He will teach a seminar winter quarter on bailouts with the help of Baird and Henderson, and the Law School will host a conference in the spring on the current crisis and response. The desire for an immediate response prompted this panel. If the seminar and conference are the final 451-page bailout package, this panel is like Paulson's 3-page proposal--only more successful.

Bailouts and Phantom Bankruptcies

I have found it hard to read the newspapers each morning without throwing up. Everyone is lining up to dump off their bad investments on Uncle Sam, meaning, of course, you and me. The University of Texas Medical Branch in Galveston wants $609 million, because they only bought $100 million in hurricane insurance, and the rest of Galveston wants $1.5 billion more. (We should only give them money if they promise to spend it somewhere other than Galveston; this should be about exit, not replacement.) And that seems like seat-cushion change compared to the $700 billion figure in the Sunday version of the Paulsen bailout legislation.

To the greatest extent possible, any bailout should decouple—separate—bailing out the credit system from bailing out individual participants in that system. We need to separate out controlling systemic externalities from insulating individuals from the consequences of their actions. That is abstract, so try this.

Where Have You Gone Bill Patry? A Copyright Nation Turns Its Lonely Eyes to You

Yesterday, Bill Patry announced that he was closing The Patry Copyright Blog. For those of us who follow copyright, this is a major loss; I feel less informed already.

You should read Bill’s post. He has two reasons for leaving, first the inability of some readers to separate the blog from Google—Bill went to work for Google long after starting the blog—and second depression over the current state of copyright law. To quote from the post:

 

“Copyright law has abandoned its reason for being: to encourage learning and the creation of new works. Instead, its principal functions now are to preserve existing failed business models, to suppress new business models and technologies, and to obtain, if possible, enormous windfall profits from activity that not only causes no harm, but which is beneficial to copyright owners. Like Humpty-Dumpty, the copyright law we used to know can never be put back together again: multilateral and trade agreements have ensured that, and quite deliberately.”

 

I don’t agree with much of that, but I do agree that copyright law faces real challenges. For most of its recent history, copyright law has regulated professionals, not amateurs. Amateurs lacked the means to create and copy at any level of real scale, but professionals could do so. Copyright controlled that, but note that that control wasn’t self-executing. That is, the control didn’t just happen. Instead, copyright created causes of action and then lawsuits for infringement. That is an expensive system to run, but one that can be tolerated when the number of violations is relatively small. Mass democratization of copying technology means that amateurs pose real risks to professionals. Not just perfectly legit we-can-author-and-distribute-too risks, but pure copying risks. An enforcement technology that isn’t self-executing doesn’t work, hence the mixed attempts with digital rights management technology.

In doing this post, I wanted to make sure that I had the lyrics right. I ran “lyrics mrs. robinson” on Google. The top result was available at an ad-supported lyrics site. (Interestingly, that site didn’t even make the first page at Cuil.) The lyrics are used without permission, I assume, but we are told that “all lyrics provided for educational purposes only,” so I guess everything is copyright-kosher. Of course the site itself bears a copyright notice in favor of the site owner.

I also assume that if they were using the lyrics with permission, they would probably get them right. So the S&G reference to Joe DiMaggio is said to be to “Jotting Joe.” Apparently he must have taken notes all the time; who knew?