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AI Governance in China: A Tale of Three Digital Empires
No full textSince 2021, China has strategically expedited artificial intelligence (AI) legislation and refined algorithmic governance to compete with the US and the EU. The rapid growth of algorithm filing cases is a direct result of the “Made in China 2025” Initiative which prioritizes AI development driven by domestic leading tech companies like DeepSeek. As world-class digital powers, China, the US, and the EU diverge in their categorization of AI risks and adoption of regulatory measures. China’s centralized single-agency regulatory infrastructure differs from the multi-agency and decentralized governance models in the US and the EU, respectively. China does not impose the same level of obligations on AI deployers as on service providers, rarely punishes digital platforms, and prefers local laws and judges in dispute resolution. We argue that China should learn from the EU and the US and encourage the AI industry to self-regulate and delegate more powers to local regulators and entities. Regarding transparency, China’s AI filing system focuses on AI systems with public opinion influence, while the US and the EU require high-risk systems to meet reporting and certification obligations in a non-ideological manner. All three jurisdictions have employed sophisticated AI detection and labeling systems, but user notification and stakeholder protection in China are not as mature. Regarding law enforcement, China focuses on regulating AI operators instead of protecting users. China could benefit from the EU’s approach by refining rules to include a broader range of stakeholders, such as deployers and their employees. Regarding security assessment, the US and the EU emphasize continuous risk management post-deployment, while China integrates ex-ante assessments with national security considerations. Their security assessments have formal and functional divergences in mandatory nature, effect, and methods due to different legal traditions and sociopolitical contexts. AI has been widely applied in specific fields like content moderation and judicial reasoning. All three jurisdictions have strikingly different regulatory philosophies, focuses, and methods for AI content moderation. We argue that China should learn from the EU to avoid the unacceptable risks of judicial AI
The Essence of an Antitrust Violation
No full textJudicial embrace of the consumer welfare standard reduced the indeterminacy and political manipulability of U.S. antitrust law. Continual invocations of antitrust’s consumer welfare focus, however, have created the misimpression that consumer harm is a sufficient, not merely a necessary, condition for condemning antitrust-relevant behaviors like agreements in restraint of trade and exclusion-causing unilateral acts. Such a “consumer harm sufficiency” view underlay the plaintiffs’ claims in Epic Games v. Apple and FTC v. Qualcomm and has inspired scholarly proposals to condemn various antitrust-relevant behaviors simply because they occasion consumer harm.
Antitrust economics and dynamic efficiency considerations call for rejecting the consumer harm sufficiency view in favor of an approach that condemns antitrust-relevant conduct only when it (1) enhances the surplus-extractive power of the defendant or its co-conspirator (2) by weakening competitive constraints and (3) is not reasonably necessary to secure efficiencies sufficient to produce a net increase in market output. This Article contends that these three components collectively comprise the essence of an antitrust violation and are each necessary for condemning antitrust-relevant conduct.
This view, termed “antitrust essentialism,” is consistent with every major antitrust liability rule except one: the rule of per se liability for certain tying arrangements. The justification offered for condemning tie-ins that do not involve all three essential elements is that they may nevertheless reduce consumer welfare, an argument that embraces the consumer harm sufficiency view.
To reconcile its inconsistent caselaw, ensure that antitrust doctrine optimally protects consumer welfare, and reduce the administrative costs of antitrust litigation, the U.S. Supreme Court should: (1) abandon the per se rule against certain tie-ins in favor of a rule of reason that requires substantial tied market foreclosure, a standard consistent with antitrust essentialism; (2) declare expressly that antitrust liability requires the three elements cataloged above; (3) allocate proof burdens on the elements, with the plaintiff having the burden to plead and prove the first two and the defendant having the initial burden to show an absence of the third; and (4) impose a generally applicable “market power enhancement” requirement akin to the existing antitrust injury requirement. Such an antitrust essentialist approach would have led to the swift disposition of misguided and costly cases like Epic Games and Qualcomm and would resolve a pending circuit split concerning liability for misrepresentation in the standard-setting process
Rational Judicial Review: Constitutions as Power-sharing Agreements, Secession, and the Problem of Dred Scott
No full textScholars have engaged in a sharp argument over whether the judiciary should follow the original understanding in interpreting the Constitution. Recent criticism has argued that originalism fails because it does not advance a substantive moral or political good. This paper responds to this criticism by advancing an instrumental justification for originalism. It argues that a nation may fail to make a constitution because regions with differing policy preferences may not trust each other to obey the agreement after ratification. Constitution-makers can overcome this obstacle by committing to future enforcement of the agreement by an independent judiciary. To maintain the founding bargain, the judiciary would interpret the constitution based on the original understanding of its makers. Using Dred Scott as a case study of a failure in constitution making because of a flawed application of originalism, this Article argues that judicial review and originalism serve as valuable commitment mechanisms to enforce future compliance with a political bargain
Opportunities Lost: The Hidden Cost of Public Education in Pennsylvania K–12 Schools
No full texthttps://repository.uclawsf.edu/crej/1008/thumbnail.jp
Breaking Up Bottlenecks in Big Tech and Everywhere Else: Two Remedies That Keep Your Packages Arriving in Two Days
No full textThis article addresses the colossal problem of remedy in antitrust and regulatory cases combatting monopoly “bottlenecks.” A bottleneck monopoly lies somewhere along the chain of production and distribution of goods or services. Often both before and after the monopoly, the markets are workably competitive. When a bottleneck owner also participates in those workably competitive markets, the bottleneck owner has the incentive and ability to self-preference, discriminating against other competing products in the markets. As a monopolist, a bottleneck owner will also seek to constrain access to the bottleneck, assuring that the use of the bottleneck is not optimized. Traditional remedies for bottlenecks have not worked. Some remedies rely on savvy regulators to compel open access while keeping the incentive structures in place. Other remedies rely on establishing competing networks, which is a Sisyphean task. None of these remedies, however, address the core problem: the incentive of a monopolist to exploit its monopoly. This Article outlines alternative remedies we call the “condominium” and “cooperative” remedies. By reconfiguring the ownership structures of the bottleneck, these remedies eliminate or dramatically reduce the monopoly incentive problem, thus removing the need for a hypervigilant regulator or a failed competing network. These solutions are not perfect, and the Article details the potential risks of deploying such remedies. Finally, the Article takes both proposed remedies for a test drive, describing how they could be employed if the Federal Trade Commission wins its case against Amazon
11th Hour Option Discounting: The Significance of IPO Prognostications in Fixing Equity Compensation
No full textThis article examines the pervasive practice by pre-IPO firms of granting stock options as compensation while preparing to go public. These last-minute option grants, which are typically not contingent upon initial public offering (IPO) completion, feature substantially lower exercise prices relative to the IPO price, thus producing a windfall potential to executives and other option recipients once these firms consummate their IPOs shortly after having made these discounted option awards. I present empirical evidence to the effect that this 11th hour option discounting practice is common. I scrutinized the option grant practices of a hand-collected dataset comprising U.S. preclinical and clinical-stage biotechnology companies that pursued initial public offerings of common stock on a national stock exchange via registration on Form S-1 during the period from 2017 through 2021. The data I collected was derived from securities filings as well as correspondence by these pre-IPO firms with the Securities and Exchange Commission (SEC), including as a result of Freedom of Information Act requests.
The difference between the exercise prices of options awarded near the IPO and the IPO price at which firms offered their shares to the public shortly after making these option grants was substantial. Option holders enjoyed median and equal-weighted average discounts of forty-eight percent and forty-seven percent on the IPO price for 147 discounted option grants made during IPO preparations, with a weighted average of forty-eight percent. Almost half of these discounted options were awarded within forty-five days prior to the first day of public trading. These lastminute discounted option awards were sizable. When aggregating the shares of common stock underlying the discounted option grants during IPO preparation with the shares of common stock offered by these firms in their IPOs, the total shares of stock underlying these option awards represented, on average, eight percent of the total combined offering per firm, with a median of six percent. Albeit the pre-IPO firms allowed option recipients to effectively purchase eight percent of the total shares at a deep discount relative to the price at which they then offered the other ninety-two percent to the public, thus depriving firms of needed capital while significantly diluting IPO investors.
All of the firms in this study were emerging growth companies. At the time of their IPO, their business model was still unproven. All had accumulated a deficit and virtually none of them were profitable. They went public to raise capital in order to advance their therapeutic candidates through clinical trials. As a result, IPO investors would expect that the equity compensation awarded to corporate insiders—the chief executive officer, other corporate officers, and the board of directors—as well as other key employees incentivized them to grow their firm’s equity value post-IPO. Yet, corporate insiders received sizable equity awards at deep discounts on the IPO price just before their firms went public. For example, more than three-quarters (78%) of the firms in this study that granted discounted stock options during IPO preparation awarded heavily discounted options to corporate insiders, who, collectively, captured an average potential windfall of 2.6 million. Firms routinely asserted in their securities filings and in their correspondence with the SEC that these option grants made in close proximity to their upcoming IPO were “at-the-money” even though the fair value they assigned to the underlying stock was substantially lower than the price at which they would offer shares to the public shortly after option grant. The average and median increases between option exercise price and IPO price were 124% and ninety-two percent.
Current regulatory and accounting rules incentivize firms to keep the fair value of the stock underlying their last-minute option grants low to reduce option expenses, thus improving corporate earnings or reducing corporate losses. Option recipients are highly motivated to receive options with an exercise price equal to a low fair value of the underlying stock to avoid adverse tax consequences and benefit from a future windfall potential. The practice of 11th hour discounting is facilitated by glaring weaknesses in the regulatory framework. Pre-IPO firms exploit a seemingly quantitative stock valuation technique, the Probability-Weighted Expected Return Method. They conjure up exceedingly pessimistic prognostications as to IPO outcome which allow them to set option exercise prices well below the price at which they sell shares to investors in their upcoming IPO. Pre-IPO firms often make incomplete and arguably misleading disclosures regarding their last-minute discounted option grants in their registration statements. Discounted awards made to corporate insiders during IPO preparations are often obscured.
Prospective IPO investors expect pre-IPO firms to take measures during their IPO preparations to align the interests of management and employees with the interests of their new investors in the forthcoming IPO as these firms rapidly transition to public company status. I propose regulatory improvements to address 11th hour option discounting in order to correct the misalignment created by this practice and to ensure corporate insiders and their subordinates are incentivized to grow firm value post-IPO
