It has been a fine month for George Mason University. The Final Four appearance has attracted a good deal of media attention and general buzz. This week, I received a record number of phone calls from friends about Mason (”No, I dont have any extra Final Four tickets.”). As great as this news is for the university community as a whole, GMU Law had an eventful March in its own right. For what it is worth, we moved up a few (4) spots in the US News Rankings to 37 (Brian Leiter thinks we are still underrated). But I want to write about what I found to be a very interesting series of events following reports that a GMU Law faculty member would be nominated to the Federal Circuit Court of Appeals.

A week ago, the San Francisco Daily Journal reported that my friend, colleague, and prolific patent scholar Kimberly Moore would receive the nomination to the Federal Circuit Court of Appeals. The headline of the article, available here (HT: How Appealing), “Judge Whyte Passed Over for Circuit,” did not convey much enthusiasm for Moore’s rumored nomination (the article does contain favorable reactions from IP scholar Mark Lemley and practitioner James Pooley). The WSJ Law Blog also picked up the DJ story, which was essentially that while “Moore seems well-credentialed,” “the news comes as a disappointment to intellectual property lawyers.”

The blogosphere reaction to the initially lukewarm reports has been enthusiastic, approving, and very interesting to watch. Since the initial rumor broke, here is a survey of reactions from law bloggers:

Christine Hurt, of The Glom:

I only met Prof. Moore for the first time this Fall, so I’m glad I’ll be able to say “I knew her when.” Lattman, who does not seem to have had the pleasure, seems conservative in extolling her virtues, so we will do so here at the Glom. Congratulations on your well-deserved nomination!

Dennis Crouch, of Patently-O:

I commented yesterday to a reporter my belief that Professor Moore is an obvious choice and would make an excellent judge.

Crouch also notes that John Duffy, whose name had also been mentioned for the Federal Circuit position described Moore as “outstanding nominee,â€? who “has spent a large portion of her career carefully studying the judicial process of patent litigation, and she has become a leading authority in the field. She would bring extraordinary knowledge and insight to the bench. Her nomination would, I think, command broad support from the academy and the practicing bar.â€? I do not know where the Duffy comment appears.

Finally, Mike Madison of Madisonian.net notes in response to the Law Blog story:

It doesn’t report that a lot of IP faculty are (or should be) pleased. Nothing against Judge Whyte, who is an experienced federal and state court judge. But Professor Moore is an especially accomplished, thoughtful, and constructive critic of the patent system. Congrats!

Perhaps this is another example of what Larry Ribstein has described as the “decentralized knowledge” function of blogging, where specialized expert knowledge can quickly be disseminated to the public at low cost in order to fill gaps in the information disseminated by mainstream media sources?

I might as well finish off with a Final Four note. As expected, the MSM’s reaction to Mason’s other big news has also been lukewarm. I have only been able to find one expert predicting a Mason victory over Florida in tomorrow night’s action (though I am sure there are others): Andy Glockner, an editor for ESPN.com, is picking the Patriots over the Gators. I wonder what Billy Packer thinks? Of course, Vegas has also spoken, and Florida is favored by 6 at the moment. Lucky for these Patriots, the “W’s” only get handed out after the game is played.

As a merger between Lucent and Alcatel inches closer to completion, Lucent’s retirees worry about what may happen to their benefits. Billed as a “merger of equals,� concerns about Lucent’s retirement accounts have been a speed bump. While Lucent has nearly a $2.7 billion surplus in its three of its pension plans, it faces a shortfall roughly twice as large in its healthcare plan.

Lucent has been able to use some the surplus to inflate its bottom line in the past few years, however, it also has been paying under funded health care liabilities out of its operating expenses. Last year, Lucent paid $255 million out of its operating expenses to meet its health care obligations. That number is expected to almost double by 2008. According to this MarketWatch article:

Lucent is covering its annual payments toward that deficit out of its operating expenses, because while current law allows the firm to cover some of it with its pension surplus, doing so would have the effect of either raising the company’s future costs or limiting its ability to cut expenses.

To address that issue, Lucent and its union members are asking Congress to make it easier and less expensive to use the pension surplus to help cover the growing deficit for retiree health-care.

Although the law as now written allows companies to shift any surplus above 125% of its expected pension liabilities to cover health care costs, Lucent is asking for changes that would relax those rules.

In an attempt to make up some of the retirement shortfall, Lucent has implemented an aggressive investment strategy which has 61% of the retirement assets invested in stocks and 8% invested in riskier “private equities.� As compared, Alcatel only has only 27% of its investments in stocks and no private equity investment.

Naturally, fear of having to cover the pension obligations has made Alcatel cautious. Perhaps that explains why the deal is billed as a “merger of equals” so that Alcatel can acquire Lucent without paying a premium.

Update:  Paul Secunda at Workplace Prof Blog has the ERISA angle here.

Taking advantage of the securities offering reforms that have been in effect since December 1, 2005, yesterday Google filed an automatic shelf registration statement on Form S-3 for the sale of an additional 5.3 million shares of its Class A Common Stock (click here). As the name implies, the registration statement went effective automatically upon filing (i.e., no SEC review). Automatic shelves are available only to “well-known seasoned issuers� (WKSIs). To qualify as a WKSI, a company must be current and timely (with limited exceptions) in its ’34 Act filings for the previous 12 months and have either (1) a worldwide public common equity float of at least $700 million or (2) registered and issued for cash as least $1 billion in debt or non-convertible securities within the previous three years.

Because the registration statement is already effective, the new shares could hit the market at anytime. Although the prospectus supplement filed as part of the registration statement is designated as a preliminary prospectus, it has “March , 2006� listed as the date. Does this mean the shares will hit the market either today or tomorrow? Note that as announced last week, Google will be added to the S&P 500 index effective after the close of trading tomorrow, and one of the reasons Google gives for the offering is to meet the demand of index funds that will need to add Google to their portfolios.

The DOJ will not challenge Whirlpool’s (much-blogged-about) proposed acquisition of Maytag (HT: WSJ Law Blog). This Reuters blurb suggests that antitrust experts believe the decision “is a key test of the Justice Department’s new antitrust chief and could provide a glimpse of how tough he will be in reviewing mergers” (HT: Antitrust Review). I’m skeptical that this decision says anything profound about the merger policy one can expect from the DOJ in the years to come. Of course, I anticipate that many will be willing to extrapolate a “hands-off” approach from this decision.

David Zaring, guest blogging at Concurring Opinions, has some thoughts on the sunsetting of the ABA’s consent decree this June. David asked for my thoughts on what this will mean for the market for legal education (also, I am quite flattered that Zaring describes me as a “prominent and businessey professor blogger,” but, I am a sucker for puffery) in exchange for the right to cross-post here at TOTM. My short answer to his question: probably not much. Here goes:

Perhaps you have wondered why the money that law school professors pull down is only obvious at certain law schools subject to state cognates of the Freedom of Information Act. Antitrust may be the culprit. Pursuant to a consent decree with the United States resolving a case brought under the Sherman Act, the ABA’s school accreditation committee has, among other things, “agreed to refrain from using law school compensation data and from adopting or enforcing any standards that have the purpose or effect of imposing requirements as to the base salary, stipends, fringe benefits or other compensation paid to law school deans, administrators, faculty, librarians or other employees.�

This consent decree sunsets on June 25, after a ten year run during which a number of new law schools entered the market, and salary data got enshrouded in an aura of mystery. Did the consent decree affect legal education, was it a good thing, and what will happen when it expires?

Antitrust ain’t my raison d’etre. I only wonder – and I confess I only wonder this because of a tip from a colleague – if the law reviews, with their concerted action on article length are going to be the next up against the wall. [ed. Uh, the article length thing isn’t commercial and varies from review to review. Oh really? Each of the eleven law reviews that got the ball rolling on article length signed on to a joint statement, each is “committed to rethinking and modifying its policies,â€? presumably at the behest of the other ten, and each is “actively exploring how to addressâ€? article length in concert with one another. So I recommend against loose talk around Thomas Barnett.]

Anyway, I farmed this one out to an expert. I asked Josh Wright, a prominent and businessey professor blogger, what he thought about the sunset of the ABA accreditation decree, in exchange for an offer to cross-post the result. Here’s what he said:

“The consent decree prohibited activity that was plainly anticompetitive: colluding with respect to faculty salaries and other benefits as well as boycotting non-ABA approved schools. Forcing existing law schools to face competition from schools, even those that offer lower salaries and fewer amenities, can only improve legal education. However, my guess is that the expiration of the decree will not tempt further collusion, because any such attempt would be both highly visible and likely to attract antitrust scrutiny.”

But Josh and I would welcome further thoughts.

A standard provision of an acquisition agreement is a “no-shop/no-talk.â€? Under this provision, the target company contractually agrees with the buyer not to solicit or talk to other buyers, even if unsolicited, regarding making a superior bid. A no-shop/no-talk is designed to protect the buyer against another buyer stealing the deal. However, the provision is generally coupled with a “fiduciary-out,â€? which allows the target company to communicate with other potential buyers if the board determines that such discussions are required by the board’s fiduciary duties to the target’s shareholders. This is how Guidant was able to talk to Boston Scientific notwithstanding Guidant’s deal with J&J.

Yesterday’s NYT has an article about “go shop� provisions in acquisition agreements (click here). As the name implies, instead of prohibiting a target from soliciting and talking to other potential buyers, a “go shop� explicitly allows just that. The article reports that six deals over the last year have included go-shops, including Maytag’s initial deal with a private equity firm Ripplewood Holdings (see below the fold for the go-shop provision from the Maytag/Ripplewood deal).

According to the article:

IF you’re wondering why the first suitor would ever agree to a go-shop provision, the breakup fee may be part of it. Nobody buys a business to get a breakup fee, but the option does provide buyers with some comfort, covering their costs and then some if they end up losing the deal.

More important, buyers often have no choice. A seller can easily say: either take the deal with a go-shop provision or submit to an open auction. And, of course, there’s no evidence so far that any would-be buyer would choose the auction route.

(more…)

What a game!  George Mason beat UCONN 86-84 in overtime and is heading to the Final Four after eliminating Michigan State, North Carolina, Wichita State, and now, UCONN.  Congratulations to the Patriots!

I’m really starting to worry about the lawyers for former Qwest CEO, Joseph Nacchio. (I first expressed concern here.) Mr. Nacchio has been charged with 42 counts of criminal insider trading. The charges are based on allegations that Mr. Nacchio learned, after Qwest had made some rosy public statements, that business wasn’t going as well as predicted, and he then sold $101 million worth of stock on the basis of that non-public information.

According to today’s W$J, the defense is arguing “that the information Mr. Nacchio had was, by definition, not significant since the prosecution hasn’t claimed that it needed to be disclosed to investors.” In other words, the bad news couldn’t have been “material” (illegal insider trading must involve material non-public information), for there was no affirmative duty to disclose it.

The law, though, does not require immediate disclosure of all material information, so the fact that the information did not have to be disclosed does not imply that it was immaterial as a matter of law.

As Judge Easterbrook explained in Gallagher v. Abbott Labs., 269 F.3d 806 (7th Cir. 2001),

Much of plaintiffs’ argument reads as if firms have an absolute duty to disclose all information material to stock prices as soon as news comes into their possession. Yet that is not the way the securities laws work. We do not have a system of continuous disclosure. Instead firms are entitled to keep silent (about good news as well as bad news) unless positive law creates a duty to disclose.

Judge Easterbrook went on to discuss when the securities laws create disclosure requirements (i.e., the Securities Act does so prior to issuance; the Exchange Act mandates various periodic disclosures). If none of those disclosure requirements has kicked in, then negative information–even highly material negative information–need not be immediately disclosed. It is thus entirely possible that information could be material (as required for insider trading liability) but not subject to an immediate disclosure requirement. The assertion by Nacchio’s lawyers that there could no materiality if the information didn’t have to be disclosed doesn’t hold water.

The University of Chicago Initiative on Chicago Price Theory — whose founders include Gary Becker, Kevin M. Murphy, and Steve Levitt — is holding a conference on April 7-8. The line up is spectacular, and includes excellent panels on: the market for talent in finance, the environment and economics, a tribute to Gary Becker, the economics of health and disease, the role of the media, and a concluding panel of Becker, Nobel Laureate George Akerlof, and Edward Glaesar on “The Biggest Questions of the Day.” Speaking of prices, it looks like registration is free! Sadly, I will not be attending. On a happier note, the reason I will not be in Chicago is because I will be in Boston presenting my new (soon to be posted to SSRN) empirical paper, “Slotting Contracts and Consumer Welfare,” at the International Industrial Organization Society Annual Meeting.

In a recent speech at the Brookings Institution, Senator Richard Lugar (R-IN) bashed what he called “a laissez-faire energy policy that relies on market evolution.” Under such a policy, he says, “life in America is going to be much more difficult in the coming decades.” He insists that “[w]hat is needed is an urgent national campaign led by a succession of presidents and Congresses who will ensure that American ingenuity and resources are fully committed to this problem.” Government action to spur development of alternative technologies is essential, he contends, because

by the time a sustained energy crisis fully motivates the market, we are likely to be well past the point where we can save ourselves. Our motivation will come too late, and the resulting investment will come too slowly, to prevent the severe economic and security consequences of our oil dependence. This is the very essence of a problem requiring government action.

NYT columnist Thomas Friedman concurs, praising Sen. Lugar’s “new grip on reality.” I dissent.

The profit motive is an amazing thing. It drives innovators to develop marvelous new technologies. And, because the early bird catches the worm, entrepreneurs are constantly on the lookout for opportunities to market those technologies. Lazy business people who don’t plan ahead–who fail to have new technologies ready when they can be profitably marketed–don’t succeed. Diligent entrepreneurs make gazillions. If Sen. Lugar really believes that market actors will sit on their hands and fail to pursue innovation until a full-on energy crisis develops, he’s losing it. If he thinks the government will outperform private actors at selecting appropriate alternative technologies, he’s on glue.

Somewhat ironically, while Thomas Friedman was praising Sen. Lugar in the Times, the W$J was reporting on Shell’s $400M purchase of extraction rights in Canada’s oil sand fields. Oil sands contain substantial quantities of oil that is significantly more difficult to extract than the oil in conventional reserves. Oil companies have known about Canada’s vast oil sand reserves for quite some time, but they’ve not bothered to develop the reserves because it hasn’t been profitable to do so. Well guess what — market forces are changing that. As the Journal reports, “amid today’s superhigh oil prices and fewer prospects elsewhere for big oil companies, Canada’s oil sands have attracted significant new investments.” So have non-petroleum sources of energy. (See “Alternative Fuels Attracting Venture Capital.”)

I seriously doubt that Sen. Lugar genuinely believes that the market won’t be motivated to produce alternative sources of energy until we are “well past the point where we can save ourselves.” More likely, he’s disparaging the market because he represents a corn-producing state that stands to benefit substantially from his (and Illinois Senator Obama’s) plan to “replace hydrocarbons with carbohydrates.” It’s disheartening to see a respected Republican senator bash markets for political gain.

It drives me nuts when the government attempts to justify rules mandating particular business practices on grounds that they reduce costs for the businesses being regulated. My favorite recent example of this is OSHA’s ultimately repealed (thank goodness!) ergonomics standard. The agency sought to justify the extraordinarily intrusive rule on grounds that it would save employers $9.1 billion per year (after compliance costs) in reduced sickdays and workers’ compensation costs. Of course, the agency never bothered to explain why, in light of these cost-savings, the government needed to force compliance.

Today’s W$J reports on a new standard purportedly designed to save businesses money. The standard would ban semi-private (i.e., shared) patient rooms in newly constructed hospitals. When I initially read the headline, “New Standards for Hospitals Call for Patients to Get Private Rooms,� my first thought was that mandating private rooms is senseless in an age of upward-spiraling health care costs. A main point of the article, though, is that the standards at issue will cut health care costs by, for example, reducing the incidence of disease transmission, patient falls, medicine mix-ups, and empty beds (no need to segregate rooms by gender). Indeed, a representative of the group that authored the standard explains that hospitals with all private rooms “pay for themselves very quickly and are much less expensive to operate� in the long run.

If that’s really the case, why should regulators require new hospitals to have only private rooms? The Journal indicates that such regulation is on the horizon, for the guidelines at issue “are used by more than 40 state governments to set regulations, approve construction plans and license hospitals to operate.�

Are regulators in a good position to determine the most cost-effective way to run a hospital? I think not. As Josh noted yesterday (and as F.A. Hayek famously observed), the notion that centralized regulators are better able than the “man on the spot” to make cost-saving business decisions is hubristic — and almost always wrong. If the drafters of the new hospital standards truly believe that the practices they’re pushing can really lower health-care costs, then they should share that information with hospitals. But there’s no reason for bureaucrats to force hospitals to make cost-saving decisions.

Today’s W$J has an article detailing tech oriented measures being pushed at the SEC by Chairman Cox. These measures include:

• Offering incentives to companies to disclose financial information in a way that tags various pieces of data — such as revenue, profit margins and reserves — so that investors can compare companies against each other and across industry groups.

• Weighing the creation of a new benchmark that would allow investors to evaluate mutual funds’ performances after taxes and fees, akin to the auto miles-per-gallon results calculated by the Environmental Protection Agency.

• Proposing to allow companies to bypass paper forms entirely for shareholder votes — unless specifically requested by an investor — and to post proxy statements and the like on a Web site.

The article notes that the measures “are tweaked to reflect Mr. Cox’s free-market view that financial markets armed with information can discipline companies, an alternative to government regulation.â€? But under a free-market view, is there even a need for the first two measures? Specifically, doesn’t the market already provide convenient means to compare companies and mutual funds? For example, for access to various analytical tools, research reports, etc. that allow you to compare companies, just open an account at E*Trade.com. As for mutual funds, see Morningstar.com. If investors want more information than is being provided at these and other sites, won’t the market respond accordingly?

I’m certainly in favor of the SEC making it easier for the market to respond by, for example, improving EDGAR to allow companies to make their filings more user friendly, if the companies so choose (and maybe this is all Cox has in mind; the article isn’t clear on this point). However, I’m dubious of the government mandating a specific format for disclosure or a specific auto miles-per-gallon calculation for mutual funds. As Geoff has pointed out, disclosure requirements have costs beyond implementation. Bottom line: Let the market handle it.

Economists, free-marketeers, and law and econ types are often accused of invoking this phrase as a knee-jerk reaction to regulations of all shapes and sizes. The position is sometimes attacked as overly simplistic, based upon an unjustified faith in markets, or just plain lazy. On this score, Don Boudreaux (Cafe Hayek, GMU) has a must-read post on what it means to favor the market solutions to government solutions to various public policy problems. While you really should go read the whole thing, here are a few highlights:

“Saying ‘Let the market handle it’ is to reject a one-size-fits-all, centralized rule of experts. It is to endorse an unfathomably complex arrangement for dealing with the issue at hand. Recommending the market over government intervention is to recognize that neither he who recommends the market nor anyone else possesses sufficient information and knowledge to determine, or even to foresee, what particular methods are best for dealing with the problem.

To recommend the market, in fact, is to recommend letting millions of creative people, each with different perspectives and different bits of knowledge and insights, each voluntarily contribute his own ideas and efforts toward dealing with the problem. It is to recommend not a single solution but, instead, a decentralized process that calls forth many competing experiments and, then, discovers the solutions that work best under the circumstances . . . .

While declaring ‘Let the government handle it’ comes across as a solution, it’s no such thing. Instead, it is merely a sign of a simple and baseless faith — a simple and baseless faith that people invested with power will not abuse it; that political appointees possess or will find better answers than will millions of people pursuing solutions in their own ways, and staking their own resources and reputations on their efforts; that only those ’solutions’ that are spelled out in statutes and regulations and that have officials paid to implement them are true solutions.”

The Smoking Gun is reporting that Prince and Utah Jazz forward Carlos Boozer are involved in a property dispute over a leased West Hollywood mansion. Apparently, Prince performed unauthorized modifications to the property owned by the C Booz Multifamily I LLC. The suit alleges design updates including “painting the exterior of the [house] with purple striping, ‘prince’ symbol, and numbers 3121.” Prince’s new album, “3121,” is scheduled for release tomorrow. Other noted renovations mentioned: purple monogrammed carpet was installed in the master bedroom and plumbing and piping was added in the downstairs bedroom “for water transfer for beauty salon chairs.” Prince is also scheduled to perform a concert at the property as part of a promotion for his upcoming album.

The Boozer company filed its lawsuit two months after hand-delivering a “three day notice to cure or quit” to the Sierra Alta Way property. Prince’s legal counsel denied the allegations and pointed out that rent of $70,000 was accepted in December and January. In February, a month after the complaint was filed, an attorney for the Boozer company sought the suit’s dismissal, which was approved by the court. The dismissal was granted “without prejudice,”, thus allowing the suit to be re-filed later. Likely the modifications were made in conjunction with the planned concert promotion, and Mr. Boozer is waiting until after the performance is given to allow Prince reasonable time to cure the alterations and thereby return the property to its original state before reinitiating the lawsuit.

Click here for a copy of the complaint.

[post written by my RA, Ron Taylor]