Tuesday, April 28, 2009

Chairman Ben S. Bernanke on Financial Innovation and Consumer Protection!

Since I've been busy for a few weeks with exams and all, there is much to catch up on. Chairman Bernanke spoke on April 17, 2009 at the Federal Reserve System's Sixth Biennial Community Affairs Research Conference, Washington, D.C. Bernanke commented "financial innovation, it seems, has fallen on hard times" in that it is often now seen as the problem (for a transcript, see the Federal Reserve website). Bernanke made some important points about the potential link between complexity of financial products and the potential for "unfair and deceptive" practices. That is, even a diligent consumer may not be fully aware of the whole host of potential fees associated with each credit card they have. The complexity of financial products can reduce transparency either because the terms are hard to deduce or perhaps to understand.
When turning to the problems faced by the Federal Reserve in drafting regulations to enhance consumer education, Bernanke placed great emphasis on the benefits of consumer testing. The caution to testing, though, is that disclosure does not always lead to consumer understanding. Therefore, sometimes the Federal Reserve must prohibit certain practices, such as double-cycle billing. I couldn't agree more with some of these observations. Transparency cannot solve all ills in the financial industry. It is not enough to say that consumers should find another provider if all providers use the same practices or consumers do not fully understand the practices. In the end, the Federal Reserve must address both complexity and transparency.


Monday, April 27, 2009

Seton Hall Call for Papers

Seton Hall Law Review Symposium

October 30, 2009
Seton Hall Law School
Newark, NJ

Securities Regulation and the Global Economic Crisis: What Does the Future Hold?


The Seton Hall Law Review will be hosting a Symposium on October 30, 2009, at Seton Hall Law School in Newark, NJ, to address the role of securities regulation in the current global financial crisis. Specifically, this event will examine the origins and genesis of the crisis, address the future of securities regulation domestically and internationally, and attempt to anticipate the role of government agencies, self-regulatory organizations, and private market participants in shaping and effectuating regulation. This Symposium will bring together experts from both public and private sectors, as well as from the legal and academic communities, to explain, debate, and assess the challenges and opportunities presented by the current and prospective landscape of global securities regulation.

Persons interested in participating as a speaker and/or in publishing a piece in the special Symposium issue of the Seton Hall Law Review should submit a CV and a 200-word abstract of their presentation to Laura Fant, Symposium Editor, by May 15, 2009. Laura Fant may be reached at (617) 480-7428 / Laura.Fant@student.shu.edu. Prospective speakers or panelists should indicate whether they would be interested in submitting a paper based on their presentation for publication. Contributions are welcome from scholars and practitioners in all disciplines.

Saturday, April 25, 2009

Bankruptcy Commercials

Lawyer advertising has always received a bad rap. Its hard enough to tell whether lawyers are capitalizing on people's misfortunes when charging clients to sort out their problems (I don't have a problem with charging clients, but I do recognize the perception outside of business circles that lawyers make money on the heels of tragedy). That being said, I don't know how you produce a "classy" commercial. If you use empathy, it just looks shallow -- i.e. the single mom at a table with a stack of bills at 2:00 in the morning and the voice over of someone that sounds like a televangelist talking about no hope, and "there's a way out." If you try a business approach, you just look like a non-caring SOB that is going to get paid -- i.e. two attorneys posing, usually in front of bookshelves, sitting 3/4's on a desk, or some other office setting, and telling you "you have rights," (by the way that we will convert into dollars in our pocket). I point this out because I am not really sure what to do with this one. Is it anger, comedy, both or neither?

Here is another.

Marc (MLR)

Thursday, April 23, 2009

iPhones, Kindles, and Digital Rights Management -- When the Sale of Things are not the only things that matter

So I have been thinking of how to talk about (shamelessly plug) my recent work on Apple's iPhone warranty. The article argues that Apple might be better off not litigating its intellectual property rights against consumers and instead using their warranties as a bait to convince consumers to act with good behavior to the iPhone (i.e. not hack it and therefore avoid the service arrangement Apple receives comensation through with AT&T). Last week I wrote a column for the Los Angeles Daily Review in which I said that gateway sales were possibly more important to certain vendors of high end consumer products than the thing itself:
In the high-tech consumer arena, device sales often are the gateway to other profits beyond the sale. Apple receives monthly compensation from AT&T for every iPhone that reaches the AT&T network. X-Box, Sony, and Nintendo reap profits from pay-to-play online gamer services like X-Box Live, Nintendo DSi, and Playstation Network, in addition to the stand alone games they sell in stores. Sony Blueray sells DVD Players -- but is far more interested in selling consumers DVD's from the Sony library. And the recent Amazon Kindle is poised to make a significant dent in the book seller market. Post-sale profits have become such a large factor that some manufacturers value those profits more than those made on the device itself. If those post-sale profits don't materialize, the potential loss for companies like Apple is enourmous -- conservatively between $3 million and $18 million per month for iPhones that never reach the AT&T network.

So how do you entice consumers to act better with their products. One means of doing so has been to "brick" the device so that the cnsumer has no more functional use (or desired use from the product). Hackers use the term brick because to them, the device obtains the value of a brick. Microsoft has been successful in "bricking" users from their x-Box Live accounts for invalid use, by banning user accounts for 7992 years (or until 12/31/9999). And Amazon, most recently terminated a user account for "frequent returns" effectively blocking the user from using his Kindle. Amazon ultimately relented, but the warning was served.

The problem with "bricking" is that it is only a temporary solution until consumers (or another third party) catch up technologically to offer a better use. In fact, the reality is that there are consumers that actually do buy the product to have the product. Consumers that have been bricked will eventually grow weary of paying for new accounts, buying new devices or whatever means the manufacturer has used to keep the user out. Then, those bricks will eventually form cities/ communities of disgruntled dwellers that have the technological knowledge and incentive to find alternative uses for their product, particularly in ways that do not benefit the manufacturer.

The solution I have offered, in both the Duke Law and Technology piece and the L.A. Daily Review, is that manufacturers should reevaluate how they approach these consumers. Indeed, Manufacturers may find better profits by approaching consumers on a negotiated terms basis utilizing things like warranties as enticements. By enticing the consumer to be better stewards of the product, they can probably avoid most hackers (except for those that do so for the pure sport of it).

Over the next few weeks I will say more about the longer piece including the Behavioral Economics Aspect of the article and some other commercial solutions for a not entirely commercial problem.

Marc (MLR)

Monday, April 20, 2009

2009 AALS Workshop on Transactional Law

Workshop on Transactional Law
Why Attend

"Transactional law" refers to the various substantive legal rules that influence
or constrain planning, negotiating, and document drafting in connection with business transactions, as well as the "law of the deal" (i.e., the negotiated contracts)produced by the parties to those transactions. Traditionally, the law school curriculum has emphasized litigation over transactional law. However, many modern lawyers serve corporate clients, and a significant percentage of lawyers engage in some form of transactional practice. Hence, law schools must place greater emphasis on training law students to be transactional lawyers, and should support law faculty engaged in scholarship focused on transactional law. To this end, in 1994, the AALS held a workshop on the transactional approach to law, which sparked experimentation and innovation in teaching and scholarship related to transactional law. Since that time, there have been significant developments in transactional law. This Workshop not only will take stock of those developments, but also will enable participants to gain some in-depth perspective regarding the relative benefits and drawbacks of those developments.

Law schools have attempted to respond to the demand for increased transactional training in a variety of ways, from integrating transactional law into traditional law school courses to developing stand alone "Deals" or "Business Planning" courses. A number of law schools have developed innovative programs in transactional law. This Workshop will enable participants to discuss specific methods of teaching transactional skills with an eye towards ferreting out best practices. Should professors interested in teaching transactional law focus on substantive law, "transactional skills," (i.e., planning, negotiating, and drafting), economic or other theories of business transactions, or all of the above? Should transactional skills be taught in separate courses or integrated into substantive courses? If taught in separate courses, should such courses be part of the first-year curriculum, integrated throughout the three years, or focused on the upper-level curriculum? How do you modify or supplement the traditional case method to teach students useful transactional skills?

The Workshop also will explore the challenges and benefits that arise for those who write or would like to write transactional scholarship. An as initial matter, the Workshop will address how best to define "transactional scholarship" in a way that accurately captures the potential breadth and depth of transactional law, and how transactional scholarship differs from traditional legal scholarship. The Workshop also will explore best practices for writing scholarship in this area, including methodologies for researching the legal, financial and practical effects of various corporate transactions.The Workshop will feature concurrent works-in-progress sessions, enabling participants to exchange ideas and insights regarding new scholarship related to transactional law.

One important goal of the Workshop is to bring together faculty from different doctrinal areas of law, including faculty who teach in the clinical setting. Transactional law touches many substantive areas of law, and it is closely identified with bankruptcy, business associations, contracts, commercial law, intellectual property, labor and employment law, securities regulation, and taxation. The Workshop will provide a unique opportunity for faculty members to make connections between their primary fields and transactional law, and thus should appeal to a broad spectrum of scholars and teachers.

Early Bird Deadline: Wednesday, May 20

Monday, April 13, 2009

Children as Payment Devices??!!

Photo by M.ADA.
The depths to which overwhelming debt will push some people are vividly illustrated by a story covered by CNN this weekend.The headline zeroed in on the public-interest and human-rights angle, decrying a Saudi judge's ruling refusing to annul an arranged marriage of an 8-year-old girl to a 47-year-old man. The part most interesting to me was a passing comment on the reason why this girl's father had arranged the marriage of his young daughter: to settle his debts with the 47-year-old man, "a close friend" of his. Whatever one might think about arranged marriages, child marriages, or marriage in general, using this institution as a means of settling debts doesn't strike me as consonant with the ideas behind the institution in any religious tradition. Using children as payment devices can't be consistent with what either G*d or the Prophet had in mind . . .

Tuesday, April 7, 2009

Teaching Real Estate Wearing Commercial Law Glasses

When I was a new professor, eager to meet any and all institutional needs, I agreed to teach Real Estate Transactions, a common law class in a civil law state. It really is a property course properly within the property curriculum, but inadequate staffing there (apparently few property profs want to teach real property these days, the rage being IP) pushed it my direction as the junior person. And that is how I became a real estate teacher. I run hot and cold on the course, but teaching it this semester has been wildly fun with the economic/mortgage crisis. When I am left to the traditional commercial law curriculum, the time is rare when the subject for the day is all over the papers and television, nearly every day. Now I know how my Con Law colleagues feel, talking about this new development or that new case.

Interestingly, I have found that the class, and the task of mastering real estate law, have broadened significantly my perspective on general commercial law. First, you realize what a truly grand and amazing achievement the UCC in fact is. Property law is scattered all over the place--radical disuniformity at the common law, disparate state perspectives and approaches, periodic interventions of federalization, but there is nothing, no statutory supplement or code, that you can pick up and wave with any sort of authority and state "this is the law you must know." The students love this, as you might imagine. Nearly every NCCUSL foray into real property areas has crashed and burned, which makes me less uptight--and almost pragmatic--about the impending failure of the Revised Article 2 project. I have spent the last couple of weeks on state statutory redemption and anti-deficiency laws, and the chaos in that area of mortgage law elevates Grant Gilmore from "Great" to "Bodhisattva who walked among us once" in my pantheon of Commercial Law idols. Mucking through the mess that is real property secured transactions law, you can truly appreciate the amazing accomplishment that is Article 9.

Another interesting thing about a tour of duty in Real Estate is that you see how the doctrine of good faith purchase permeates all of commercial law. You see it with transfers of deeds, foreclosure sales, recording acts. No property casebook does this doctrine to my satisfaction, and I always end up rephrasing things to put them into my Article 3/4 framework. I now see holder in due course less as an Article 3 anachronism to be viewed in isolation, but rather as simply the UCC's play on a comprehensive commercial law doctrine that extends throughout all of transactional law.

In semesters such as these where I am doing a Code class and Real Estate the same day, there is an exciting juxtaposition. In the mornings there is the precision and clarity of the UCC for my Article 2 class, followed up by the chaos and indeterminacy of mortgage law. I would like to say that each legal approach makes me appreciate the other more, but I have to admit that each foray into the regulation of real estate makes me admire and understand the whole enterprise that is the UCC just a bit more.

Sunday, April 5, 2009

Geithner on Face the Nation

Today, Treasury Secretary Timothy Geithner appeared on CBS' Face the Nation in an interview with Bob Schieffer. Schieffer had plenty of questions for Geithner, including whether the government was trying to force General Motors into a managed bankruptcy. Interestingly, Geithner did not deny it, but focused on the place that a strong General Motors will hold when it is stronger. When asked about whether the government was giving the banking executives a pass, while being harder on the auto industry execs (as we've suggested here, see Wagoner Steps Down) Geithner responded that the government has changed leadership in some companies such as AIG. Geithner said that banks needing "exceptional" assistance might also find themselves with changes in leadership as well.

Geithner was pretty coy about what "exceptional" assistance might be, perhaps for good reason. Certainly, removal of GM's Wagoner is unprecedented, but these are unusual times. Yet, removal of company management is a drastic step with ramifications in the markets. Geithner was wise to not suggest that the government will in fact affect management, even if that ultimately happens. It certainly seems advisable to leave the door open on this issue as the stress testing of banks is just beginning. In the event that banks (perhaps CitiGroup and Bank of America) still require exceptional assistance, management changes might follow. Traditional lenders and creditors do affect management and management decisions. The government, in this case, is operating less like the government as regulator and more as the government as lender and stabilizer. Will we see more management changes?

Thursday, April 2, 2009

EC Decides Not to Challenge MasterCard's Cross-Border Fees, For Now, and Then Issues a Statement of Objections to Visa

Update: Within days of its tentative deal withMasterCard, the EC issued a statement of objections to Visa, stating the Commission's tentative conclusion that Visa's unilaterally set multi-lateral interchange fees restrain competition without providing technological or economic benefits to consumers.

EU Competition Commissioner Neelie Kroes announced that the EC will not pursue MasterCard for failing to comply with a 2007 Commission decision that the card network's cross-border multilateral interchange fees constituted a restrictive business practice.

After repealing its cross border fees in June 2008, MasterCard increased other fees in October of that year, raising the Commission's concerns. Recently, however, MasterCard has agreed to implement a new fee methodology that is expected to substantially reduce average weighted cross-border interchange fee levels compared with those that the EC previously found to be in breach of EU antitrust rules.

Although Commissioner Kroes hailed the new methodology, arguing that "[t]his will mean lower charges for retailers accepting payment cards, which should in turn be passed on to consumers," some merchant representatives characterized the compromise as "appauling."

MasterCard's agreement was conditioned on the EC's decision not to pursue fines against it for failure to comply with the Commission's earlier decision. MasterCard also maintained that these lower fees are actually too low to support sustainable competition, and thus should be viewed as temporary while it continues to pursue its appeal of the Commission's 2007 decision in the European Court of First Instance.

For its part, the Commission cautioned that the EC will continue to monitor the implementation of the new methodology to ensure that it has the anticipated fee reducing effect. Commissioner Kroes also emphasized that the Commission would continue to investigate Visa, which currently has fees that are twice the level of MasterCard's new fees. "I have no intention," Kroes explained, of "allow[ing] Visa to benefit at the expense of MasterCard."

Interestingly, the Commission seems to be more interested in fee levels than it does with ensuring that fees are set competitively. Despite lowering their fees recently, MasterCard and Visa have maintained the long standing percentage based fee structure. EuroCommerce lobbiest Xavier Durieu contends that a truly competitive interchange fee could be less than a fixed €0.05 per transaction, substantially less than even MasterCard's new fees for all but the smallest transactions.

It will be interesting to see how, if at all, the EC's approach is cited in the on-going multi-district interchange fee litigation in the U.S.

Wednesday, April 1, 2009

Revised Article 2 Finally Adopted!

Today's news included an announcement that all states have finally agreed to adopt the Revised Article 2, which many thought to be pretty much a dead letter at this point. As you might expect, consumer groups are thrilled and the Business Roundtable is irked commenting:

"While the Roundtable supports uniform drafting efforts, clearly this is
the result of mischief. This will put market opportunities and innovation
on hold. The benefits will not outweigh the cost."
The Obama administration announced, though, that "we cannot afford half measures" and suggested that the drafters instead return to the bargaining table to get the thing done for real.

For those of us who just finished writing Professor Doug Whaley's co-authored competition, we are thrilled! The problem involved rewriting the section of Doug Whaley's Sales text on statute of limitations presuming that revised Article 2 was in force. Of course, under today's announcement, the new statute of limitations goes into effect immediately. Revised Article 2 retained the basic 4 year limitations period but has some gems in the accrual rules meant to tackle some of the more troubling portions of prior Article 2. Particularly important to the Revised 2-725's exceptions on accruals is a rule whereby sellers cannot reduce the limitations period on consumer contracts.

Happily, I will now go through my home looking for broken items that failed way before they should have.