Liability Rules Research Articles

Free Circulation of Information and Online Intermediaries \u2013 Replacing One \u201cValue Gap\u201d with Another

The role of online intermediaries in allowing third parties to perform legal as well as illegal activities and the growing economic power of such intermediaries are profoundly challenging the legal framework established 20 years ago with the European Union e-Commerce Directive. European courts first, and legislatures more recently, have taken a position regarding the need for further regulation of online intermediaries. The new liability rules for copyright infringement are just an example of a more general tendency to charge intermediaries with responsibility. This tendency goes beyond the realm of intellectual property and includes consumer law, antitrust and competition law. The forthcoming EU Digital Services Act aims to revise the regulation of online intermediaries by means of new rules framing the responsibilities of digital services and online platforms’ market behaviour.In this context there is no doubt that the current scenario requires modern rules. However, it is licit to ask whether and how European institutions are considering the collateral effects of the above-mentioned tendency. It is also not clear how the basic principles underpinning the e-Commerce Directive – and, in particular, freedom of expression – will be assured in a new legal framework where online intermediaries may not enjoy the safe harbours originally laid down in the e-Commerce Directive.

Pandemic-Resistant Corporate Law: How to Help Companies Cope with Existential Threats and Extreme Uncertainty During the Covid-19 Crisis

This essay argues that, to address the Covid-19 crisis, in addition to creating a special temporary insolvency regime, relaxing provisions for companies in the vicinity of insolvency, and enabling companies to hold virtual meetings, policymakers should tweak company law to facilitate equity and debt injections and address the consequences of the extreme uncertainty firms are facing. After some general reflections upon the type of rules that are needed in these exceptional times, examples of temporary corporate law interventions for the emergency are provided. Specifically, rules to facilitate injections of equity capital and shareholder loans are suggested, together with relaxations of directors’ liability rules and measures to protect firms against hostile takeovers. All of these measures should apply merely by default and only for so long as the emergency lasts. The essay concludes with some thoughts about how to make normal-times corporate law ready for similar emergencies in the future. The goal is both to reduce the risk that the temporary extreme measures enacted for this crisis are made permanent under the pretence that another crisis may hit again and to have quick adaptation mechanisms already in place to respond to such a crisis.

On the Choice of Liability Rules

Abstract Legal assignment of liabilities for losses arising out of interactions involving negative externalities usually depend on which of the interacting parties are negligent and which are not. It has been established in the literature that, if negligence is defined as failure to take some cost-justified precaution then there is no liability rule which can always lead to an efficient outcome. The objective of this paper is to try and understand if it is still possible to make pairwise comparisons between rules on the basis of efficiency and to use such a method to explain/evaluate choices from a given set of rules. We focus on a set of five of the most widely analyzed rules (no liability, strict liability, negligence, negligence with the defense of contributory negligence and strict liability with the defense of contributory negligence), and use a binary relation according to which a rule in the set is considered to be at least as efficient as another if and only if the set of applications for which it is inefficient is a subset of the set of applications for which the other one is inefficient. We show that, with respect to the above mentioned relation, pairwise comparisons between rules in this set fail. The paper, thus, demonstrates that an efficiency based explanation for any choice from these five rules is not consistent with the notion of negligence defined as failure to take some cost-justified precaution.

“No Bodies to Kick or Souls to Damn”: The Political Origins of Corporate Criminal Liability

AbstractResearch on corporate criminal law has grown since the Great Recession, but corporate criminal liability, the principle charging corporations for crimes, remains understudied. Literature points to a 1909 Supreme Court decision as its basis, but historical analysis of the doctrine's deeper political roots reveal that its development was contingent on the convergence of several unique factors driving turn of the century American politics. First, corporate criminal liability would not have emerged had it not been for shifts in jurisprudential theory reconceptualizing the corporate form as an independent entity. Second, middle managers of railroads emerged as powerful political players during this period who capitalized on this discursive shift to advocate for corporate criminal liability as an alternative to individual liability rules directed against them. Third, the Supreme Court upheld corporate criminal lability in 1909 because it was constructed by the era's Republican majority to protect the party's economic preferences, and corporate criminal liability was viewed as consistent with their conservative agenda. These factors were each necessary, but alone insufficient, in paving the way for the Court to validate the principle in 1909. How they fit together sequentially illuminates how the doctrine's construction was contingent on specific political and historical circumstances.

Corporate Criminal Liability: A Comparative Analysis of Judicial Trend.

Large scale corporations are reality and determining factor behind the globalized world. Taking undue advantage of corporate veil created by statutory provisions, individuals operating behind this veil often commit crimes. Keeping this in mind, the judiciary around the world has determined the grounds and rules for criminal liability of Corporations. This research article is an attempt to analyse judicial trend in USA, UK and India with respect to the criminal liability of corporations.

Producer Liability for AI-Based Technologies in the European Union

The manufacturer's liability for defective products has remained almost unmodified since 1985 when Directive 85/374/EEC (=PLD) was enacted. Perhaps new technology based on artificial intelligence (=AI) could bring about a turning point in the regulation if concepts such as "product" and "defect" or aspects such as "grounds of liability", the so-called "development risks defense", and the "solidarity" are reconsidered. The Group of Experts on Liability and New Technologies (=NTF), in its “Liability for AI and other emerging digital technologies” Report, recommends, inter alia, the regulation of two different civil liability regimes: strict liability and fault-based liability. Thus, it will be necessary to determine precisely the cases to which these regimes apply and how to deal with “uncertain causation”. The alleviation of the victim’s burden of proof should be considered. From the various documents being published, it appears that the producer’s strict liability will remain as the main liability rule, but it will be combined -as the NFT suggests- in the case of the breach of a duty of care with a fault-based liability rule. This approach leaves some open questions, i.e., how to properly combine both grounds of liability in the domain of products that cause damages. In my view, the liability regime suggested by the NTF is far more complicated that the regime which distinguishes three types of defects that are often stressed: the defect of design, the defect of manufacturing, and the defect of information.

A System of Fiduciary Protections for Mutual Funds

The regulation of mutual funds in the United States arguably contains the world’s most extensive system of fiduciary protection, buttressed by elaborate liability rules and a host of procedural protections and mandatory disclosure requirements designed to facilitate investor protection and choice. The intensity of this regulatory structure is a subject of perennial debate, as public officials and policy analysts attempt to balance the cost of compliance and oversight against benefits to investors. Over time, government officials have made numerous supervisory accommodations to ameliorate the system’s costs and facilitate industry innovations. But, the burdens of this enhanced system of fiduciary protections for mutual funds remain significant and have encouraged industry participants to evade these legal requirements in a number of ways, such as the creation of alternative vehicles for collective investments (including insurance products and managed accounts of various sorts) and the imbedding of regulated mutual funds into other legal structures that escape the full application of the enhanced systemic of fiduciary protections for mutual funds. Technological innovations, such as robo-advising, are likely to accelerate this trend. In this chapter, I explore this important illustration of regulatory arbitrage and suggest areas where aspects of mutual fund regulation might appropriately be extended to functionally similar investment vehicles.

Rethinking Liability Rules for Online Hosting Platforms

With the growing economic and societal importance of online platforms, the question of their liability for illegal content or products they host becomes more important. Based on an analysis of platforms’ incentives, we address the appropriate liability rule for hosting service providers and derive policy recommendations for an efficient liability regime in the European Union. Online hosting platforms may take monitoring efforts on their own initiative that are suboptimal due to the presence of externalities and asymmetric information problems, warranting some form of liability rules. However, for more fundamental reasons of free speech and preventing censorship, policy makers may want to be cautious in entrusting – and burdening – private parties which such an extensive ‘policing’ role. Additionally, higher monitoring requirements may disproportionally burden small entrants. As we argue, since several actors participate to the diffusion of illegal material online, the responsibility of a safe Internet should be shared among all these actors. Concrete regulatory improvements may encourage online hosting platforms to do their part in monitoring proactively and diligently, such as affirming a good Samaritan clause.

Decentralization and mutual liability rules

This paper builds on the recent work of Groote Schaarsberg et al. (Math Methods Oper Res 87(3):383–409, 2018) on mutual liability problems. In essence, a mutual liability problem comprises a financial network in which agents may have both monetary individual assets and mutual liabilities. Here, mutual liabilities reflect rightful monetary obligations from past bilateral transactions. To settle these liabilities by reallocating the individual assets, mutual liability rules are analyzed that are based on centralized bilateral transfer schemes which use a certain bankruptcy rule as its leading allocation mechanism. In this paper we derive a new characterization of mutual liability rules by taking a decentralized approach instead, which is based on a recursive individual settlement procedure. We show that for bankruptcy rules that satisfy composition, this decentralized procedure always leads to the same allocation as the one prescribed by the corresponding mutual liability rule based on centralized bilateral transfer schemes. Finally, we introduce a new reduction method for mutual liability problems and prove that any bankruptcy-rule-based mutual liability rule is invariant with respect to such a reduction.

Liability design for autonomous vehicles and human-driven vehicles: A hierarchical game-theoretic approach

Autonomous vehicles (AVs) are inevitably entering our lives with potential benefits for improved traffic safety, mobility, and accessibility. However, AVs’ benefits also introduce a serious potential challenge, in the form of complex interactions with human-driven vehicles (HVs). The emergence of AVs introduces uncertainty in the behavior of human actors and in the impact of the AV manufacturer on autonomous driving design. This paper thus aims to investigate how AVs affect road safety and to design socially optimal liability rules in comparative negligence for AVs and human drivers. A unified game is developed, including a Nash game between human drivers, a Stackelberg game between the AV manufacturer and HVs, and a Stackelberg game between the lawmaker and other users. We also establish the existence and uniqueness of the equilibrium of the game. The game is then simulated with numerical examples to investigate the emergence of human drivers’ moral hazard, the AV manufacturer’s role in traffic safety, and the lawmaker’s role in liability design. Our findings demonstrate that human drivers could develop moral hazard if they perceive their road environment has become safer and an optimal liability rule design is crucial to improve social welfare with advanced transportation technologies. More generally, the game-theoretic model developed in this paper provides an analytical tool to assist policy-makers in AV policymaking and hopefully mitigate uncertainty in the existing regulation landscape about AV technologies.

Patent Accidents: Questioning Strict Liability in Patent Law

Accidental infringement of patent rights is a pervasive and growing problem in the Information Age. As IP rights proliferate and expand in scope, it is becoming increasingly easy for companies and individuals to inadvertently infringe patents. When such accidental infringement occurs, patent law holds the infringer strictly liable. This contrasts with many areas of tort law where defendants are only liable if they act negligently. This Article questions the normative desirability of strict liability in patent infringement cases. Assuming the primary value of patent law is utilitarian, the Article poses the research question: What liability rule will maximize social welfare? The Article answers the question theoretically by applying economic models of accidents developed in tort law literature. The research finds that a negligence rule is preferable. Unlike strict liability, negligence liability will encourage both patentees and technology users to take reasonable measures to prevent accidental infringement, and thus minimize the social cost of patent accidents. Therefore, the Article recommends reforms to the liability rule in direct patent infringement cases. Defendants should be liable for accidental patent infringement only when they fail to adopt reasonable care to avoid the infringement.

Tort Reform and Moral Hazard

States have been enacting tort reforms to reduce the liability of physicians conducting malpractice. However, tort reform may create a moral hazard because physicians may take less care due to reduced liability. This paper investigates whether physician moral hazard presents after tort reform. I study this problem through the lens of medical malpractice insurers who, as the primary payer of medical malpractice claims, have the data and ability to predict the behavioral changes of physicians as well as patients. I look at insurers’ post-reform revisions on loss reserves, which were the overall changes in future expected malpractice losses and can be affected by three factors – physician moral hazard, patients filing fewer claims, and caps on loss payments. Physician moral hazard causes an increase in the expected malpractice losses, whereas the other two factors both lead to reduced loss payments. The loss reserve revision is estimated through the full information reserve revision, which is the reported incurred losses minus an actuarial prediction based on a regression method and previous year’s reserve data. The main identification strategy is a difference-in-difference model. I find that after controlling for state and firm characteristics, insurers adjust loss reserves upward after the enactment of the reform to punitive damages and the reform to joint and several liability rules, indicating the prevalence of physician moral hazard. Punitive damages may unpredictably lead to a catastrophic jury verdict against physicians, and the joint and several liability rules can make physicians liable for losses of others who are jointly liable but bankrupt. The empirical results imply that tort reform that significantly lowers physicians’ financial liabilities can reduce the deterrence effect of law and cause a moral hazard issue.

COVID-19 Vaccines: Injury Compensation Issues

This analysis summarises the particular injury compensation arrangements that are needed to support adequate take-up of vaccines for COVID-19 and the compensation of those who are unlucky enough to suffer harm arising out of their use. It indicates the inadequacies of the standard liability rules and arrangements, and the advantages of compensation schemes. It notes the widespread use of vaccine compensation schemes but also differences in their design and evolution, before summarising the state of the art on the design of such a scheme for Europeans and on how it may be funded.

Product Liability's Amazon Problem

Throughout its rise from startup bookseller to the world’s most valuable company, Amazon has managed to disrupt nearly every aspect of the twentieth-century retail model. Its website now accounts for over half of all online shopping in the United States, acting as a literal “Everything Store” for the millions of customers who browse its virtual catalog each day. But Amazon is more than just a store - in addition to directly selling merchandise, its marketplace also lists the offerings of hundreds of thousands of independent merchants. By some estimates these third-party sellers now account for over 60% of Amazon’s transactions, and the fees collected from these sales now make up one of the company’s most important revenue streams. As Amazon has reinvented retail, tort law has struggled to keep up. Modern product liability doctrines were developed at a time when supply chains were linear and market participants could be neatly cabined into roles like “seller” or “manufacturer.” By design, Amazon’s business model disrupts that paradigm, removing the middlemen between manufacturers and consumers while reducing the friction that might keep foreign (or otherwise judgment-proof) manufacturers from putting dangerous products on the market. And while courts have readily held its third-party merchants strictly liable when they sell defective products through Amazon’s website, Amazon’s own role in these transactions is far less clear. This Article proceeds in three parts. Part I begins with an overview of contemporary product liability law, discussing the origins of the strict liability rule and the rise of the Second Restatement’s approach to no fault recovery. Part II focuses on the doctrine’s application to Amazon, tracking the outcome of every product liability lawsuit filed against the company between January 2015 and December 2020. Finally, Part III is prescriptive, discussing both why and how courts should respond to Amazon’s disruption of product liability law.

Pandemic-Resistant Corporate Law: How to Help Companies Cope with Existential Threats and Extreme Uncertainty During the Covid-19 Crisis

This essay argues that, to address the Covid-19 crisis, in addition to creating a special temporary insolvency regime, relaxing provisions for companies in the vicinity of insolvency, and enabling companies to hold virtual meetings, policymakers should tweak company law to facilitate equity and debt injections and address the consequences of the extreme uncertainty faced by European firms. After some general reflections upon the type of rules that are needed in these exceptional times, examples of temporary corporate law interventions for the emergency are provided. Specifically, rules to facilitate injections of equity capital and shareholder loans are suggested, together with relaxations of directors’ liability rules and measures to protect firms against hostile takeovers. All of these measures should apply merely by default and only for so long as the emergency lasts. The essay concludes with some thoughts about how to make normal-times corporate law ready for similar emergencies in the future. The goal is both to reduce the risk that the temporary extreme measures enacted for this crisis are made permanent under the pretence that another crisis may hit again and to have quick adaptation mechanisms already in place to respond to such a crisis.

Evaluating China’s Environmental Management and Risks Avoidance Policies and Regulations on Offshore Methane Hydrate Extraction

Methane hydrates (hereinafter, MH), for many reasons, are widely recognized as a form of sustainable energy due to their environmentally friendly nature. MH, while burning, produce fresh water, which could in turn offer one possible solution to worldwide shortages of water. MH also maintains the capacity to change the landscape of the global energy supply. According to recent scientific evaluations, the potential global supply of MH is even higher than the total storage of traditional crude oil and conventional natural gas. However, its offshore extraction process could be linked to both catastrophic and non-catastrophic events that may contribute to global warming and climate change, cause harm to human health and life, endanger the flora and fauna, and threaten the very global environment as a whole. Therefore, from a legal viewpoint, an efficient and effective system of civil liability rules seem crucial to control the risks, and to compensate the victims to which damages may occur. This article takes into consideration China’s legal framework in assessing the risks connected to MH offshore extraction. Such a choice for examination is justified by China’s leading position for implementing the technology necessary for extracting MH. This analysis shows that China’s current legal instruments are still far from fully equipped to prevent the risks associated with the offshore extraction of MH, as well as to offer effective remedies for the victims once any damages have occurred. Therefore, more efficient measures and remedies should be considered (or even imposed) to address the specific risks of offshore methane hydrate extraction. Indeed, in the past few decades, China’s environmental protection laws and regulations have mainly focused on the environmental risks that may occur during the process of extracting conventional resources; however, they do not address methane hydrates specifically. This presents a legal challenge for environmental protection laws. The potentially catastrophic events that may occur as a result of the offshore MH extraction processes in particular present a legal challenge for environmental protection laws in China and across the globe. Thus, this article focuses on how to prevent these risks before they even occur, followed by a careful attempt to address compensation efforts for any damages caused by said catastrophes.

국제증권발행에서 투자설명서 부실표시책임의 준거법 결정원칙

국제적 증권공모발행과 같이 발행인 소재지, 증권의 공모지, 투자자 소재지 등이 서로 다른 경우에는 어느 국가의 자본시장관련법상 투자설명서책임규정이 적용되는지가 문제된다. 이는 국제적인 자본시장관련법 위반행위의 준거법 결정원칙, 즉 국제자본시장법 내지 자본시장저촉법에 속하는 문제이다. 실질법 차원에서와 마찬가지로 저촉법 차원에서도 투자설명서책임은 불법행위책임으로 성질결정하여야 한다. 우리 국제사법상 불법행위에 관한 일반저촉규정인 제32조 제1항의 불법행위지에는 행동지와 결과발생지가 모두 포함되나, 투자설명서책임과 같이 순전한 재산적 손해를 발생시키는 자본시장 불법행위에서는 결과발생지의 개념을 상정할 수 없으므로 행동지만을 기준으로 불법행위지를 확정하여야 한다. 로마Ⅱ규정의 해석론으로 송금계좌 소재지, 투자자 재산중심지, 투자자 상거소지 등을 결과발생지로 파악하려는 시도는 로마Ⅱ규정 제4조 제1항이 결과발생지 일원주의를 채택함에 따라 불가피하게 제시된 것이고, 우리 국제사법의 해석론으로는 적당하지 않고 필요하지도 않다. 결국 투자설명서책임에서 불법행위지는 행동지로서의 시장지이고, 이는 발행인이 공모 관련 신고의무를 이행하기 위하여 관할당국에 투자설명서를 제출하고 발행인, 인수인 등이 투자자에 대한 청약의 권유를 위하여 투자설명서를 사용·교부한 공모지를 의미함과 동시에, 부실표시 없는 투자설명서를 작성·교부할 작위의무가 있음에도 이를 이행하지 않은 공모신고의무지를 의미한다. 유럽연합은 투자설명서 역내통용체계를 정립함으로써 공모신고의무지가 공모지와 분리될 수 있음을 예정하고 있으나, 일반적으로는 증권의 공모가 행하여지는 국가에서 공모에 관한 신고의무도 이행하여야 하므로, 공모신고의무지와 공모지는 같은 국가임이 원칙이고, 문제되는 사안에 따라 양자 중 어느 하나의 속성이 부각될 뿐이다.<BR> 다만, 불법행위의 준거법 결정원칙에 따르는 경우 불법행위지원칙에 우선 하는 당사자자치원칙, 종속적 연결원칙, 공통상거소지원칙의 처리가 문제된다. 목적론적 축소에 의하여 당사자자치를 인정하지 않고, 예외조항을 통하여 종속적 연결원칙과 공통상거소지원칙을 회피함으로써, 행동지로서의 시장지로 연결하는 것이 가능하다고 본다. 먼저 투자설명서책임은 발행공시규제의 실효성 확보를 위하여 당사자자치원칙이 타당하지 않은 영역이다. 다음으로 공모 관련 신고의무는 당사자들 간의 기존 법률관계가 아니라 관할 당국과 발행인 간의 행정규제법상 관계이고, 투자자와 투자설명서책임주체 간에 직접 성립된 계약관계 등이 있는지 여부는 투자설명서책임의 준거법 결정에 중대한 의미가 없으므로, 투자설명서책임에는 종속적 연결원칙도 타당하지 않다. 마지막으로 투자자와 투자설명서책임주체 간의 공통상거소지 여부에 따라 공통상거소지법과 불법행위지법을 개별화하여 적용하는 것은 합리적이지 않다. 따라서 예외조항의 목적과 취지, 특히 투자자들 간에 같은 준거법이 적용되어야 할 필요성을 고려한다면, 예외조항을 통하여 행동지로서의 시장지로의 연결이 정당화된다. 이는 투자설명서책임에 대하여 우리 국제사법 제8조와 제32조 제1항을 정형적으로 결합하여 도출해낼 수 있는 결론이다.

On the Redesign of Accident Liability for the World of Autonomous Vehicles

This article proposes a scheme of liability that would desirably control accident risks in the coming world in which motor vehicles will be autonomous. In that world, travelers will not be drivers, rendering liability premised on driver fault irrelevant as a means of reducing accident dangers. Moreover, no other conventional principle of individual or of manufacturer liability would serve well to do so. Indeed, strict manufacturer liability, recommended by many commentators, would actually tend to leave accident risks unchanged from their levels in the absence of liability. However, a new form of strict liability – the hallmark of which is that damages would be paid to the state – would be superior to conventional rules of liability in alleviating accident risks and would be easy to implement.

Does the EU's Drive for Private Enforcement of Competition Law Have a Coherent Purpose?

The Competition Laws of the European Union (‘EU’) have been a major influence on countless jurisdictions around the world, but their strength as a public enforcement regime have always contrasted with a perceived absence of private enforcement. Private parties cannot bring an action for damages or injunctive relief before EU courts. They can only make a complaint to the European Commission or National Competition Authority, to investigate an infringement of competition law, on their behalf. Therefore, a party’s ability to recover damages falls on the national tort and civil liability rules of each Member State. Although most European legal systems can broadly be described as belonging to the civil law tradition, there are significant differences in procedure and legal culture when it comes to recovering damages. It is also important to remember that the EU has continued to grow in the last fifteen years, with the accession of ten new Member States in 2004, and a further three between 2007 and 2013. These include states that have made a rapid transition from centrally planned economies and Communist-era legal systems.

Addressing Misinformation on Whatsapp in India Through Intermediary Liability Policy, Platform Design Modification, and Media Literacy

Abstract Through a case study of lynchings in India that are perceived to have been catalyzed by misinformation on WhatsApp, this article explores how policymakers can mitigate social media misinformation without compromising public discourse. We evaluate the costs and benefits of three approaches to managing misinformation: intermediary liability reform, changes to platform design, and public information endeavors addressing user attitudes and behaviors. We find that while current media literacy endeavors seem somewhat misdirected, more locally attuned initiatives might productively address the underlying susceptibility to misinformation while avoiding the free speech compromises that come with stringent liability rules and restrictions on anonymous speech.