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The Tragedy of the AI Anticommons
No full textShould AI companies be allowed to “train” their models on the copy- righted works of others without consent or compensation? Legally, can they? These questions are being litigated in courts across the United States right now. When a resource, such as AI, is engulfed in effective rights of exclusion from a vast array of battling rightsholders, that resource is susceptible to un- derutilization. This phenomenon is referred to as a tragedy of the anticom- mons. This Article highlights how AI is subject to an anticommons weak- ness. If the millions of intellectual property holders, whose intellectual property these AI models are trained on, all see their rights of exclusion be- come effective, it could signal the end of AI before we know it.
As the first Article to shine a light on the anticommons property at the intersection of AI and intellectual property, this narrow focus reveals multi- ple possible solutions to thwart a tragedy of the AI anticommons. Relying on the cross section of traditional entitlements theories and efficiency ration- ales, possible solutions such as private market-based actors and legislatively compulsory licensing emerge. In addition to exposing these pre-existing mechanisms, this Article goes one step further by demonstrating how trans- ferring untapped bankruptcy principles into the AI and intellectual property anticommons is the novel solution this problem needs. Utilizing trusts and channeling injunctions from bankruptcy law to prevent a tragedy of the AI anticommons is a unique approach that allows for a clarification of intellec- tual property entitlements and a reduction in bargain-based transaction costs
The Duty to Diversify and the Logic of Indexing
No full textIndex funds, such as those that track the S&P 500, are popular with investors because they offer maximum diversification—and thus minimum risk—with management fees that are far lower than those charged by traditional, actively managed stock-picking mutual funds. As a result, investors have flocked to such funds, which have grown dramatically in size. But many observers find this trend alarming because they see index funds as a threat to both corporate governance and competition.
Most critics have focused on the passivity of index funds, which they see as a failure of fund managers to do their duty as stockholders to vote with care and otherwise to engage with portfolio companies to induce optimal performance. They also see index fund passivity as free riding on the efforts of other stockholders who do their duty to monitor investee companies. In other words, they see a case of market failure in which index funds offer higher returns at lower cost because they shirk their responsibility to participate in corporate democracy. Other critics focus on the idea that index funds own a large percentage of the market and then jump to the conclusion that they will use their market power to cajole or coerce portfolio companies to modify business strategies. In short, the critics are worried that index funds will both do too little and do too much. But it cannot be that index funds will use their power to meddle in the affairs of investee businesses and, at the same time, neglect to engage with the management thereof. This puzzling division of opinion suggests that index funds are not well understood—even by many sophisticated observers.
This Article addresses the confusion about index funds and concludes that the worries expressed by the critics are not only unfounded, but also that index funds make the market more efficient. Specifically, that critics have failed to see (1) the compelling logic that leads investors to invest in index funds, (2) the natural constraints on index fund managers that prevent abuses, and (3) the significant ways in which index funds augment the disciplinary forces of the market. This Article focuses solely on true index funds—those that track a broad-based capitalization-weighted market index (such as the S&P 500). Although there are many funds that track other indices— including industry sectors and even idiosyncratic investment theories—the argument here focuses on the logic of investing in the market as a whole (or as much of it as is reflected by the S&P 500).
First, ordinary investors in common stock—those who have no reasonable expectation of influencing company management or business policy—have no real choice but to invest in index funds, which offer the same expected return as stock-picking funds but at the least possible risk. Moreover, an index fund investor can expect a higher rate of return over the long-term than an investor who chooses a riskier fund—even though both funds offer the same average annual rate of return. Although this may sound too good to be true, it is a straightforward implication of compounding of returns. Finally, index investors ultimately drive stock prices higher because they are willing to pay more for a given stock because they assume less risk and expect higher returns by virtue of indexing. As a result, investors who decline to invest in an index fund must pay more for the stocks they buy than the prospect of expected returns justifies because they assume more risk than necessary.
It also follows that fiduciary duty requires investment advisers to recommend index funds to their ordinary-investor clients because the duty of care is measured by how a reasonably prudent person would act in the conduct of their own affairs. This is a radical proposition. It implies that much investment advice borders on fraud. It also explains why the securities industry has so vigorously opposed regulations that would classify broker-dealers as fiduciaries.
Second, the foregoing logic applies doubly to index fund managers, who are required by statute to be registered investment advisers and are thus fiduciaries. For an index fund manager, the logic of indexing leaves little room for discretion in connection with choosing or trading portfolio stocks, which must be held in proportion to market capitalization. Thus, indexing implies that research is a literal (and legal) waste because the fruits thereof it can have no use. To expend fund resources thereon or to charge the fund a fee to defray such costs is a per se breach of fiduciary duty. In contrast, the managers of a traditional stock-picking fund will almost always be protected by the business judgment rule in connection with any investment or trading decision they may make. This is true even to the extent of a decision to alter fund strategy, as long as the managers can provide some reasonable explanation for their decisions.
This same logic applies to voting and other forms of engagement with portfolio companies. Presumably, the purpose of engagement is to enhance performance and return. Consequently, managers of traditional stock-picking mutual funds have broad discretion both as to voting the shares they hold and otherwise kibbitzing with portfolio company management. But engagement is expensive. It requires delving into the operational details of individual portfolio companies. For index fund managers, whose portfolios are hedged by virtue of being fully diversified, it makes no sense to devote fund resources to such ends. One possible exception to this general rule arises when some improvement in corporate governance might make many companies better off. But ironically, such efforts have been dismissed by some critics as low-value engagement.
Third, despite their supposed passivity, index funds contribute significantly to the disciplinary forces of the market. The minimal trading they do for purposes of maintaining portfolio balance has the effect of rewarding companies who perform better and punishing companies who perform worse. Moreover, portfolio companies understand that indexing leaves no room for them to talk their way out of the consequences of mismanagement (as might be the case with the managers of a stock-picking fund). As for voting fund shares, index funds that follow the sensible practice of mirror voting—voting fund shares in proportion to the votes cast by other shares—effectively enhance the voting power of actively managed funds, which increases the voice of stockholders who have strong opinions. In other words, index funds reduce the separation of ownership from control.
The overarching point of this Article is that the logic of indexing has profound legal implications. For one, indexing should not be seen as opportunism (or market failure), but rather should be seen as an innovation that makes some investors better off without significant externalities, and without foisting any clear loss on other investors. For another, the benefits of indexing are so demonstrable that they imply that fiduciaries have no choice but to recommend that their clients who invest in common stocks invest in an index fund. In other words, it should be seen as a breach of fiduciary duty for an investment adviser not to recommend indexing to such clients, which may also explain much of the growth indexing. In short, index funds have made the financial world a much better place than it was in the past. And efforts to control their further growth and evolution should be undertaken only with an abundance of caution
Proactive International Law
No full textThis Article challenges the centuries-old reactive and past-oriented approach of international law. It suggests that while the reactive paradigm has facilitated practical solutions to the concrete problems faced by the international community, this paradigm has also led international law to become backward-looking and short-sighted, thereby hindering the discipline from acting in anticipation of long-term problems and developments.
Against this backdrop, this Article calls for a conceptual shift. It argues that the time has come to couple international law’s traditional reactive paradigm with a more proactive, forward-looking approach that is geared toward the future, with a view to preventing risks and realizing opportunities well in advance. Such a shift is particularly critical given that many of the global challenges on the horizon—such as artificial intelligence, synthetic biology, environmental degradation, demographic transformations, or outer space commercialization—are more complex and diffuse than those previously encountered. Moreover, these challenges present themselves in an accelerated global environment where the rapid pace of social and technological change leaves little room for maneuvering when action is due.
This Article begins by recounting the reactive record of international law while illustrating the prevalence of the reactive approach in numerous regulatory fields, including anti-terrorism, public health, refugees, and arms control. Thereafter the Article analyzes the root causes of international law’s reactive paradigm and highlights the paradigm’s limitations. The Article then turns to lay the theoretical foundations for a novel approach to the evolution and functioning of the discipline, called “proactive international law.” It presents the proactive approach’s core elements and identifies ways to mainstream them into the international legal system, thereby making long-term—even if uncertain—problems and advancements a real regulatory priority on the international agenda
Labor Law’s Preemption Problem: Glacier Northwest and What the Fate of Garmon Means for American Workers
No full textThe Supreme Court’s 2022–2023 term was, unsurprisingly, terrible for millions of Americans. From the environment to affirmative action to student loan forgiveness, the Court remained committed to its project of reshaping the nation’s laws in its conservative image. But despite its well-demonstrated antipathy for organized labor, the Court in Glacier Northwest v. International Brotherhood of Teamsters managed to leave a long-standing, purportedly worker-friendly doctrine in federal labor law largely intact. Glacier Northwest presented the question of whether an employer may sue a union in state court for damages over a strike that allegedly causes property destruction, or whether, under the Court’s decision in San Diego Building Trades Council v. Garmon, an employer’s claim is federally preempted and thus must be brought before the National Labor Relations Board if it alleges conduct that is even “arguably” protected or prohibited by the National Labor Relations Act. Rather than do what many feared it might and overrule Garmon, the Court instead found that the Teamster’s alleged conduct—allowing delivery drivers at a cement factory to fill their trucks with wet cement before calling a strike, thereby creating the risk of imminent property destruction—was not even arguably protected by federal law. The Court thus declined its invitation, at least for now, to discard a doctrine that has traditionally been viewed as a shield against costly state lawsuits by employers.
As this Note seeks to demonstrate, however, Garmon’s application within the current labor and employment law landscape is more ambiguous than the reaction to Glacier Northwest might imply. Indeed, recent case law suggests that Garmon is no longer serving American workers in the same way it did when it was decided, during the industrial pluralist heyday of the 1950s. This Note expands upon the existing body of scholarship that has criticized Garmon as overly broad and ill-suited to the realities of the modern American workplace. It argues that Garmon has in part become a procedural tool for employers, both those seeking to avoid liability for violating their employees’ rights under state law, as well as those seeking to avoid compliance with state and local ordinances aimed at shoring up workplace protections. It concludes by suggesting that as long as the NLRA remains woefully deficient in terms of protecting workers and unions from extreme union-busting tactics, federal preemption should not stand as an obstacle to state and local causes of action and experimentation aimed at facilitating workplace justice
Amazon’s Algorithmic Rents: The economics of information on Amazon
Get PDFAmazon’s maturing e-commerce platform has seen its business strategy evolve from growth at any cost to a “quest for profit”, underpinned by its burgeoning $37.7bn advertising business. Through advertising, Amazon compels its captive third-party merchant ecosystem to pay for one of its most valuable assets – customer attention. Advertising leverages Amazon’s unique position as a discovery platform. Discovery is governed by Amazon’s algorithms — the nerve centre of its conduct and a critical guide to market structure. Algorithms are the principal market institution coordinating exchange online, yet often escape market investigations.
Prevailing doctrine assumes that platform rent extraction, via algorithmic allocations to lower quality sponsored output, cannot persist since “competition is just a click away”: optimizing users, facing negligible search costs, will seek out higher quality results.
We show that antitrust’s benchmark model of competition, premised on perfect information and consumer rationality, is unable to dissect platform power today, grounded in algorithms exploiting the highly uncertain and informationally abundant decision-making environment. Users, reliant on a platform’s algorithms for decision-making, may continue to click on inferior quality advertising information when prioritized by the platform. This allows Amazon to extract pecuniary rents from its ecosystem and impair fair competition by making product visibility conditional on payment.
We explore antitrust and consumer protection paradigms for limiting platform exploitation through advertising. We focus on the relationship between the level of information and the level of competition in a market. Dominance is when a platform can disregard the full information content of its ecosystem and still profit