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Inspired by PlanetPlanet's feed reader and aggregator and by Six Apart's Project Comet initiative, the Jurisdynamics Network presents the Jurisdynamics Network Orbiter. The Orbiter aggregates the latest posts from all of the Jurisdynamics Network's weblogs. The posts are presented in reverse chronological order so that visitors can see the freshest discussions of law in the context of societal and technological change. The Orbiter even has its own RSS feed, which you are invited to download by clicking here:
July 3, 0:46 AM / Jurisdynamics / I wish it would rain
July 1, 1:11 PM / MoneyLaw / Litigation or Transactional Law Career: Some Advice to Law StudentsAn incoming law student sent me an interesting question about choosing between a litigation and a transactional career in law, and I've offered up some thoughts over at Legal Profession Blog.
June 30, 10:08 PM / Jurisdynamics / Rock 'n' roll federal courts
Bedrock(er)s of American law
This multimedia post serves as a sequel to Rock 'n' Roll Law School — the SSRN download as well as the Jurisdynamics entry. Scott Greenfield of Simple Justice and Adam Liptak of the New York Times have extracted maximum musical value out of one passage in Chief Justice John Roberts's dissent in Sprint Communications Co. V. APCC Services, Inc., No. 07-552 (U.S. June 23, 2008):“The absence of any right to the substantive recovery means that respondents cannot benefit from the judgment they seek and thus lack Article III standing. ‘When you got nothing, you got nothing to lose.’ Bob Dylan, Like a Rolling Stone, on Highway 61 Revisited (Columbia Records 1965).”A Times pop-up graphic explains the broader place of rock 'n' roll citations in the federal courts. The rest of this post will let the music speak for itself:
June 30, 9:01 PM / MoneyLaw / A lawyer walks into a barBy way of Prettier Than Napoleon and The Volokh Conspiracy comes this news flash: There is a documentary about the bar exam. The moviemakers' MySpace page contains this preview of A Lawyer Walks into a Bar:
The MoneyLaw point, however, doesn't lie so much in the movie as it does in Ilya Somin's commentary on The Volokh Conspiracy:I think many law school graduates get overly stressed out and obsessed about taking the bar, and spend too much time studying. Most bar exams are primarily just tests of memorization. They're not much of an intellectual challenge, and require far less thinking than most law school exams.Most important, all you have to do is pass. Unlike on the SAT or the LSAT, there is no need to maximize your score. As one of my law school classmates put it, every point you score above the minimum needed to pass is evidence that you spent too much time studying. I took this excellent advice to heart, and saved a lot of time and aggravation as a result (primarily by not attending any Bar/Bri lectures, and confining my preparation efforts to reading the books and taking some practice tests). If you're reasonably good at managing your time and memorizing legal rules, you can probably do the same thing.
It's not often that a professor tells students to spend less time studying. But when it comes to the bar exam, for many students it's the best pedagogical advice I can give.Sorry, Ilya. Though I'm often sympathetic to your views on the market economy, this simply is not good advice. Many law school graduates do get "stressed out and obsessed about taking the bar," but that's because many law school graduates flunk the bar. Yes, it's also true that "all you have to do is pass." Actual bar passage numbers show that this is more readily said than done. Every year, a not insubstantial number of recent law school graduates stride up to the bar and fail. These failures matter for a reason that is as important as it is simple: law school graduates who don't pass the bar can't practice law.
The vast majority of law school graduates lead lives and face realities that are not the lot assigned to their teachers. An academic appointment is an immense privilege in a world of finite resources and constrained opportunities, and those of us lucky enough to hold a winning ticket should refrain from treating our life circumstances as realistic benchmarks for the legal profession as a whole. Students attend law school in order ultimately to work. That is the market that counts, and the bar exam, for better or for worse, represents a very real and economically crucial first step.
June 29, 4:43 AM / Jurisdynamics / Amazing grace, in the key of black» Cross-posted at Danzig U.S.A. «
Negro Spiritual Singers, from the Works Progress Administration's Federal Music Project, entertained King George VI and Queen Mary at the White House, June 8, 1939.addressing one another in psalms and hymns and spiritual songs, singing and making melody to the Lord with all your heart
The Negro spiritual is a powerful and influential art form. Through their music and their words, spirituals transformed the tragedy of slavery into an enduring expression of faith, hope, and love.
Among the many beautiful songs within this tradition, Amazing Grace stands out. And how:
Hat tip: Already Not Yet and Rick Ianniello.
Wintley Phipps says he has God on his side, at his back, and in his soul. I am in absolutely no position to question any of that. I come solely to show that Reverend Phipps also has music theory and cultural history in his favor.
Amazing Grace uses a pentatonic scale. Properly spaced, five intervals within any octave are sufficient to generate an astonishing diversity of musical idioms, including Celtic, blues, and Negro spiritual. The belief that the pentatonic scale is the native tonality of children underlies Orff Schulwerk, a method of music education perhaps best known for withholding keys from kids' xylophones.It's easy to generate a pentatonic scale. You can climb the circle of fifths on a piano. Starting at middle C, this trip yields the note sequence C G D A E. If you have a violin handy, the strings there give you the last four steps in that sequence: G D A E. Rearranging all five notes within a single octave gives you the pentatonic sequence, C D E G A.
Or you can subtract two from seven and yield five. Remove the fourth and seventh scale degrees from the familiar "do-re-mi" diatonic scale — or F and B — and you will reach the same C D E G A sequence.
Most simply, you can follow Reverend Phipps's advice and play just the black keys: G♭ A♭ B♭ D♭ E♭. How sweet the sound.
Finally, as for the cultural history of the Negro spiritual, I am pleased to leave the explanation to The Spirituals Project, whose mission is "[t]o preserve and revitalize the music and teachings of the sacred songs called 'spirituals,' created and first sung by enslaved Africans in America in the 18th and 19th centuries":
Editor's note: This Spirituals Project video presents an excerpt from I Can Tell the World, a new documentary by Larry Bograd and Coleen Hubbard.
June 27, 7:21 PM / BioLaw: Law and the Life Sciences / Macfie, McCain, and McPrizes
In late 19th Century Britain, a British Member of Parliament, Robert Macfie, vigorously advocated awarding governmental cash prizes to inventors whose inventions proved useful, and pressed for such a reward system to replace patents. Patents are usually justified on the grounds that they promote technological innovation. The United States Constitution is rather explicit about this, granting Congress the right to set up a patent system "To promote the Progress of...[the] useful Arts". However, the monopoly right to exclude that a patent confers to its owner can also create a deadweight loss to society. Macfie's system of government-funded rewards was intended to sidestep the deadweight loss from patent monopolies by making new inventions free for anyone to exploit.
Earlier this week, John McCain revealed that he shares more with Macfie than just most of the letters in his name. McCain proposed a version of Macfie's invention reward system to improve automobile fuel efficiency:
I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars...That’s one dollar, one dollar, for every man, woman and child in the U.S. — a small price to pay for helping to break the back of our oil dependency.
Though McCain's formula for deriving the size of the prize may seem unsophisticated, he shares the philosophy underlying his proposal with Steven Shavell, a professor of law and economics at Harvard Law School. Shavell has suggested the advantages of a reward system over a patent system for more than a decade. As he and coauthor Tanguy Van Ypersele observe in their 2001 paper, "Rewards Versus Intellectual Property Rights" (Journal of Law and Economics, Volume XLIV: 525-547):
We conclude in our model that intellectual property rights do not possess a fundamental social advantage over reward systems and that an optional reward system—under which innovators choose between rewards and intellectual property rights—is superior to intellectual property rights.
Technological optimists tend to view technological innovation as the key to solving the world's problems, and the patent system has traditionally been viewed as playing a pivotal role in spurring and advancing innovation in the "useful Arts". However, other legal models of promoting innovation exist. In the spirit of Robert Macfie, not to mention Shavell and Van Ypersele, perhaps John McCain's proposal is worth a try.
June 27, 6:44 PM / Jurisdynamics / Poverty and natural disasters
Herewith the RealPlayer video of my February 16, 2007, presentation (alongside Daniel A. Farber) on Poverty and Natural Disasters, during the Law & Inequality Symposium: The Next 25 Years. I have summarized these thoughts in an essay called Law Among the Ruins (previously discussed on Jurisdynamics).
June 27, 6:11 PM / Commercial Law / Butchering Credit Cards
In my last post, I explained that all credit card systems in the United States charge merchants a fee above marginal cost and that the systems use this revenue to stimulate card use. The Visa and MasterCard systems call this increment above cost their interchange fees, but all systems effectively do the same thing. At first blush, this sort of above cost pricing suggests serious antitrust concern. Aren’t card systems extracting supra-competitive profits from merchants? And even if they compete these profits away simulating card use, doesn’t overcharging merchants distort resource allocations? This post explains why the answers may be no.
In a typical market in which a producer competes for a single type of customer, an efficient price – one that will lead to an optimal consumption level – will generally approximate the marginal cost of production plus the profit necessary to attract investment to the industry. This pricing model is efficient because it maximizes short-run output consistently with the producer earning sufficient revenue to continue providing the product or service.
Credit card markets are not typical, however, in that card systems must price their products in a way that appeals to two inter-related sets of customers, merchants and cardholders. In such a two-sided market, a purely cost-based rule – such as “set the price charged to the cost-causer at marginal cost” – is unlikely to produce an optimal pricing structure. Although the economic literature is riddled with papers written by consultants for the card systems – not that there’s anything wrong with that – economists on all sides generally agree on this basic point. Compare Meg Guerin-Calvert and Janusz Ordover’s analysis with Michael Katz’s take, from which I quote above.
In a two-sided market, efficient pricing must take account of both total cost and the relative elasticities of demand between the two customer sets. If customers in such a market were charged the marginal cost of serving them, they would fail to internalize the benefits of their decisions to the customer set on the other side. If demand elasticities diverge to any significant degree, industry output under a marginal-cost pricing policy would be inefficiently low. To obtain an efficient output level, a producer must charge the customer set that is more sensitive to price less than marginal cost (effectively enabling those consumers to internalize the benefits to both sides of the market).
The classic example is the daily newspaper. Readers have many sources of news, including television, magazines, and the internet. Reader demand for newspapers is thus likely to be quite elastic, leading them to turn away from the morning paper if the subscription price were to approach the marginal cost of producing and delivering it. By contrast, advertisers perceive significant benefits in print advertising (so long as readership is high) and are thus willing to pay substantially above the newspapers’ marginal cost of printing and providing associated services. As a result, readers pay significantly below marginal cost and advertisers pay substantially more. Competition between newspapers and other media for advertising space still drives pricing, but not to marginal cost plus normal profit for each customer set.
This pricing pattern efficiently optimizes newspaper circulation, satisfying both the advertisers’ need for broad exposure and the readers’ need for information. Assuming that newspapers have little market power, both advertisers and readers would be worse off if pricing were forced into line with marginal cost. Were advertising fees to drop, and reader fees proportionally increased, prices would move toward marginal cost on each side of the market. Because reader demand is more elastic, however, readership would drop more than advertising would increase, and advertising rates would thus fall. As a result, the paper would (1) earn lower overall revenue; (2) be less valuable to advertisers because readership would fall; and (3) be less valuable to readers because the paper would have less revenue for newsgathering.
To the extent that the elasticity of demand varies significantly between merchants and cardholders, credit systems resemble newspapers. Assuming that merchants, like print advertisers, are willing to pay significantly above the marginal cost of credit card acceptance services, but cardholders, like newspaper readers, would be unwilling to pay the marginal cost of providing credit cards and associated services, then efficient credit card pricing should place a greater share of the costs on merchants.
One might question whether this analysis explains the array of interchange fees that the card systems now charge. Even if efficient pricing requires merchants to pay more, why should they pay more still for reward cards used primarily by wealthy customers who would arguably make roughly the same purchasing decisions with a simple basic credit card? The answer may be that price discrimination can result in competitive markets. Michael Levine’s work is instructive. He uses the example of cattle, which are generally sold as whole animals in a competitive market. The butcher’s cost of preparing particular cuts does not vary in any significant way, and those cuts are again sold in quite competitive markets. Yet, ultimate consumer prices vary considerably depending on the desirability of the cut of meat. Although the comparison between wealthy customers and filet mignon may be somewhat crude, the value of high spending consumers to merchants may justify higher card acceptance fees for the cards used by big spenders in much the same way that the desirability of the tender cuts leads to higher prices despite competition.
All this suggests that interchange fees and price discrimination based on type of card would exist in an efficient and competitive credit card market. But these pricing practices do not ensure that the market we have is in fact efficient and competitive. If above cost pricing and discrimination are not determinative, what can we look to in order to evaluate the competitive performance of credit card markets? My next post will comment on that issue.
June 27, 12:30 PM / Jurisdynamics / Mountain of sorrowOne wistful Nanci Griffith cover on MoneyLaw merits a musical response in the form of a wistful Nanci Griffith tune on Jurisdynamics:
Nanci Griffith
Mountain of Sorrow
Hearts in Mind (2005)
Easy come, easy go
Anything but easy . . . though
You were here, now you’re gone
That’s the only thing I know
And it’s just one more sorrow
To throw upon the heap
Mountain of sorrow . . . steep
What you see, the new me
Changing right before your eyes
Like a leaf on a tree
Letting go before she flies
And it’s just one more sorrow
To throw upon the heap
Mountain of sorrow . . . steepMountain of sorrow
How high the top
Must I climb, must I climb
Ever blue
Mountain of sorrow
When I can I stop
And be fine
Knowing I’m over you?
Easy come, easy go
Anything but easy . . . though
Said goodbye, knowing I
Would have rather said hello
And it’s just one more sorrow
To throw upon the heap
Mountain of sorrow . . . steep
Mountain of sorrow . . . steep
June 26, 9:25 PM / Agricultural Law / Oh No! The Free Market Is Acting Like a Free Market!
Much has been written lately about how “speculators” might be impacting crude oil markets and other commodities markets, such as corn. Some analysts even told Congress recently that gas prices could go as low as $2 a gallon if Congress acted to limit market speculation.
That sounds more than a little fishy to me. Speculators, like everyone else trading in the market, are trying to make money. That requires that they be correct about their “speculation”; otherwise, they take a bath. Note that speculation is not the same as market manipulation, which is impacting the market through fraudulent activities, like wash trading or false price reporting.
Increased numbers of speculators are driving up prices, but I think that the resulting price increase is primarily the result of a proper market reaction. This all seems analogous to a "value gap" that triggers a leveraged buyout, merger, or tender offer, which leads to a bidding war, ratcheting up the price well beyond the trading price of the stock. (See, for example, the RJR Nabisco sale chronicled in Bryan Burrough and John Helyar’s book, Barbarians at the Gate, subsequently a film starring James Garner).Quite simply, the market price for oil has been impacted by “new money” interested in the market. Whether it is a hedge fund or pension fund or other investors moving to the market because of the decline of the dollar and rising inflation, there are additional market participants that have joined the fray. But this is not inherently a bad thing. There are just some new people who think the commodities are worth more than the market reflected in the past. But these speculators need to be “right” for the market to stay at these levels. Just ask Time Warner about that purchase of AOL, or Mortimer and Randolph Duke.
This is not to say that sky-high prices in both fuel and food markets are not a concern. Rather, we need to stop focusing on speculators and market manipulators as the primary cause, and look deeper into how current policies create the markets themselves. Market regulators can and should look for those defrauding or cheating the market. Congress, on the other hand, should be looking at the markets themselves, rather than complaining about a (relatively) free market acting like a free market.
If Congress is going to fix the problem, the focus needs to be on figuring out how to reduce our use of and reliance on foreign energy, improve gas mileage and use of other fuel sources for vehicles, expand energy-efficiency measures in homes and businesses, and promote sustainable activities in farming and energy production. But then, this is a lot more work, for a lot less media coverage, than complaining about rogue speculators.
June 26, 9:16 PM / MoneyLaw / Summer wagesIn honor of Deven Desai's post, Summer reading, which in turn lauds Patrick O'Donnell's fantastic bibliographies, which we may and should contemplate even as "the years are gambled and lost / like summer wages," I offer this rendition of Ian Tyson's classic cowboy tune:
Never hit seventeen
When you play against the dealer
You know that the odds
Won't ride with you
And never leave your woman alone
With your friends around to steal her
She'll he gambled and gone
Like summer wagesAnd we'll keep rolling on
Other versions:
- Emmylou Harris joins Ian and Sylvia Tyson in a 1986 performance of Summer Wages (1986) (YouTube video — embedding disabled by request)
- Nanci Griffith, 1998 cover, on Other Voices, Too (A Trip Back to Bountiful)
Till we get to Vancouver
And the woman that I love
She's living there
It's been six long months
And more since I've seen her
Years have gambled and gone
Like summer wages
Chorus:
In all the beer parlors
All down along Main Street
The dreams of the seasons
Get all spilled down on the floor
All the big stands of timber
Just waiting for the falling
And the hookers standing watchfully
Waiting by the door
So I'll work on the towboats
With my slippery city shoes
Which Lord I swore I would never do again
Through the gray fog-bound straits
Where the cedars stand watching
I'll be far off and gone
Like summer wages
[Repeat chorus]
Never hit seventeen
When you play against the dealer
You know that the odds
Won't ride with you
And never leave your woman alone
With your friends around to steal her
She'll be gambled and gone
Like summer wages
And the years are gambled and lost
Like summer wages
June 26, 5:07 PM / Jurisdynamics / AIDS as a global disaster
The International Federation of Red Cross and Red Crescent Societies has just released its World Disasters Report 2008 to a "Focus on HIV and AIDS":The report can be read online or downloaded in .pdf format. Hat tip: Imogen Foulkes, AIDS epidemic a "global disaster."The AIDS epidemic is a disaster on many levels. In the most affected countries in sub-Saharan Africa, where prevalence rates reach 20 per cent, development gains are reversed and life expectancy may be halved. For specific groups of marginalized people — injecting drug users, sex workers and men who have sex with men — across the world, HIV rates are on the increase. Yet they often face stigma, criminalization and little, if any, access to HIV prevention and treatment services. As this report explains, HIV is a challenge to the humanitarian world whose task is to improve the lives of vulnerable people and to support them in strengthening their capacities and resilience. Disasters, man-made and ‘natural’, exacerbate other drivers of the epidemic and can also increase people’s vulnerability to infection.
Published annually since 1993, the World Disasters Report brings together the latest trends, facts and analysis of contemporary crises — whether "natural" or man-made, quick-onset or chronic.
The World Disasters Report 2008 features:
- The challenge of HIV and AIDS
- The disaster of HIV
- The humanitarian interface: using the HIV lens
- HIV and population mobility: reality and myths
- Refugees and the impact of war on HIV
- Natural disasters: the complex links with HIV
- HIV and AIDS funding: where does the money go?
June 25, 10:09 PM / Jurisdynamics / Le Bassin aux Nymphéas
An important work by Claude Monet has set a record price at auction. As reported in the New York Times:The summer auction season here began at Christie’s on Tuesday night when a standing-room-only crowd of dealers, collectors and art lovers came from all over the world to watch and bid on one of the largest London sales the auction house has held. . . .On a summer night in London, one of the rarest of Monet's waterlilies sold for $80.4 million. That price, however, bears no necessary relation to Le Bassin aux Nymphéas. Monet himself approached his waterlilies with no objective in mind besides the pleasure of planting and admiring them: "It took me time to understand my waterlilies. I had planted them for the pleasure of it; I grew them without ever thinking of painting them."A sea of hands shot in the air when . . . Le Bassin aux Nymphéas, which had been expected to sell for $36 million to $47 million, came up on the block. Among at least six would-be buyers, a blond woman in the front row bid tenaciously against several Christie’s representatives on the telephone with clients. When the price hit nearly $70 million, Christopher Burge, Christie’s honorary chairman in the United States and one of the evening’s two auctioneers, leaned over and said to the woman, “Take as long as you like.” The woman, identified as Tania Buckrell Pos of Arts & Management International, a London company, ended up winning the painting on behalf of an unknown client, and the salesroom burst into applause. . . .
Le Bassin aux Nymphéas, from 1919, a large horizontal work measuring more than 3 feet by 6 feet, is from a series of four that Monet signed and dated and that experts consider to be among the most important paintings from his late period. Unlike most of his late works, which remained unfinished at the time of his death in 1926, this series was sold by him. One is in the collection of the Metropolitan Museum of Art; another was cut in two; and a third is in a private collection, having been sold at Christie’s in New York in 1992 for $12.1 million, a stellar price at the time.
Hat tip: Sentences we love.
June 25, 7:33 PM / MoneyLaw / Rating Law Schools
As some of you know from reading classbias, I have had a wonderful experience teaching in Rio for the past month. Today I was chatting with some Brazilian law professors who know about the ratings madness in the U.S. What one told me was particularly interesting since I have always felt that the best law school is the one that takes a group of students and moves them along in terms of knowledge, skill and analytical ability more than other schools. Thus, the best law school may be USN&WR number 125.
In Brazil, as in most other countries I know about, law school is a five year program starting after law school. There is a process here where students are tested in the areas of general knowledge and law when they enter law school. Students in the fifth year are also tested in those areas. The process is designed to determine if the school makes a difference and how much relative to others. This is not done every year for every school nor do I know if there is a national ranking that results but it does occur to me that this is a measure of performance unknown to those who rank US law schools. Maybe the distinction is this. You can rank a law school on the basis of LSAT, GPA, etc but that does not tell much about actual performance. Or you can rank schools on the basis what actually happens during the three years. If performance counts, the before and after approach makes sense.
As a side note, the School at which I have taught is a private school. Admission is based on an entrance exam. Numbers only. (This has changed some as the public colleges have quotas for those from public schools or who are of African-Brazilian descent and there are incentives for private schools to open up admissions more. More on this over on classbias.) The top 180 are accepted. I asked what would happen if that meant all while men. The answer was that it would not matter. I asked what the reality was. Over 50% of the admissions are women.
June 25, 3:21 AM / Jurisdynamics / Homage to Lampyridae
As with the photographer who snapped the shot above, this too is my favorite part of summer. The season with the least amount of dark offsets that deficit by allowing the meekest lights among us to rule the night. Hail Lampyridae; long may you glow.
June 24, 11:53 PM / MoneyLaw / Mentally gifted, emotionally stunted
Michelangelo Merisi da Caravaggio, Narciso (ca. 1598)
Two tales of the mentally gifted but emotionally stunted, from different corners of a law school:
- From the admissions office:
Our heavily recruited 1L is exceptionally gifted, scored 178 on the LSAT, and sports a 4.03 undergraduate GPA, but she has always been so difficult.
While many other students are thoughtful, kind, and mannerly, this student often acts like a 2-year-old. She wants the best of everything, wants it first, bawls like a baby if she doesn't get her way, and is maddeningly stubborn.
She also has little self-control, is extremely impulsive, and does things right in front of law school faculty and administration even when she knows they are absolutely wrong. This behavior shows up in the way she acts with fellow students, in the way she confronts her instructors, and on those occasions when she represents the school at outside events, although she apparently acts better at home.- From the faculty lounge:
Our highly vaunted faculty member is exceptionally gifted, landed one of his earliest articles in the Yale Law Journal, and is very proud of his 2,000 SSRN downloads, but he has always been so difficult.
While most other members of our faculty are thoughtful, kind, and mannerly, this professor often acts like a 2-year-old. He wants the best of everything, wants it first, bawls like a baby if he doesn't get his way, and is maddeningly stubborn.
He also has little self-control, is extremely impulsive, and does things right in front of his colleagues and his students even when he knows they are absolutely wrong. This behavior shows up in the way he ignores his students, in the way he abuses law school staff, and in his egotistical disdain of his colleagues, although he apparently acts better at home.Both tales, of course, are nothing but lightly modified versions of a classic advice column letter to The Washington Post. The original subject of these laments was the writer's "beautiful 9-year-old daughter." It is more regrettable than it is remarkable that those sentiments can so readily describe law school stars — the tuition-paying variety as well as the tuition-collecting sort. Legal academia could do worse than embracing the advice that The Post gave to that exasperated mother: "Firstborns often think they deserve more than their younger siblings, but your eldest is taking her sense of entitlement way too far." Substitute prime donne for firstborns . . . . . You get the idea.
Click on the flowering narcissus to crack this conundrum
The admissions office version of the story is more readily understood but less readily remedied. The rankings-driven game of law school admissions drives admissions directors and committees everywhere to prize exactly one trait — apparent achievement in fields demanding raw analytical power — above all others and to the frequent detriment of other traits that law schools, the legal profession, and society at large should all prize. But the admissions offices of law schools everywhere are trapped in the beggar-thy-neighbor game that rankings fuel, and no easy cure lies in sight.Faculty hiring should be different, but often it isn't. Some and perhaps all law school faculties suffer from a marginal propensity for hiring odiously selfish colleagues, perhaps even an Arschloch so extreme as to be the worst law professor in America. One might imagine that slavish dedication to the rankings might propel this sort of mistake, but the situations seem awfully dissimilar. It's one thing to admit a grotesquely selfish student, or even to unleash her on the profession, but it is an altogether horrifying prospect for a faculty to entrench a relatively young Arschloch among its ranks. You have to share breathing space with this jerk! Imagine how much worse matters can be if you overpay Professor Arschloch, grant him tenure, and hire his superficially charming, insidiously destructive spouse. That power couple has the potential to suck your law school dry for four decades for $1 million to $1.5 million during every three-year cycle typically needed to confer the degree of juris doctor.
Here is a somewhat different way of quantifying the damage from hiring (and tenuring) even one mentally gifted, emotionally stunted faculty member. Conservatively speaking, a law school would commit the cash flow from an endowment valued between $2.5 million and $3.5 million for four decades in order to pay salary and benefits to an imprudently appointed Arschloch. Four decades' payouts come close to exhausting the entire value of the endowment. It's easy to double or triple the damage: hire the spouse, grant either or both an otherwise unfunded "center of excellence," agree to finance boondoggles foreign and domestic. A total bill of $8 million in wasted endowment value doesn't seem unreasonable.
That, at any rate, is the price tag attached to awful hiring. You might think — and I fervently hope — that the legal academy has ample incentive to solve this problem. On the other hand, it may simply be our fate as lawyers, or at least as law professors, to be drawn like bees to the bloom to mentally gifted, emotionally stunted individuals. After all, that description fits far too many of us, both in the broader legal profession and in the little corner we call legal academia.
June 24, 6:57 AM / Ratio Juris / Romancing Opiates
The title of this post is the title of a recent book by Theodore Dalrymple: Romancing Opiates: Pharmacological Lies and The Addiction Bureaucracy (New York: Encounter Books, 2006). Wikipedia introduces our author: "Anthony (A.M.) Daniels (born 1949) is a British writer and retired physician (prison doctor and psychiatrist), who generally uses the pen name Theodore Dalrymple. He has written extensively on culture, art, politics, education and medicine, drawing upon his experience as a doctor and psychiatrist in Zimbabwe and Tanzania, and more recently at a prison and a public hospital in Birmingham, in central England."
In a brief description of the views that animate his writing, the entry notes that Daniels "contends that the middle class abandonment of traditional cultural and behavioural aspiration has, by example, fostered routine incivility and ignorance among members of the working class. Occasionally accused of being a pessimist and misanthrope, his defenders praise his persistently conservative philosophy, which they describe as being anti-ideological, sceptical, rational and empiricist."
I happen to be an unabashed Marxist in economics (along the lines, in part, of the 'analytical Marxists'), while, at the same time, subscribing to many of the values and principles found in the Liberal tradition of political philosophy. Nevertheless, risking inconsistency and contradiction, I feel free to draw upon, say, classical Greek thought, the natural law tradition, and even anarchist political philosophy if it suits my fancy. And this is only the political and economic parts of my worldview: the broadly philosophical and spiritual parts are principally of Asian provenance. In short, my own worldview is a hodgepodge, a motley, in the words of the late Ninian Smart: "Our values and beliefs are more like a collage than a Canaletto. They do not even have consistency of perspective" (From Religion and the Western Mind, 1987, p. 17). All of this by way of accounting for the fact that while Daniels is clearly a consistent conservative, that does not preclude me from finding this particular book persuasive on many counts, a reminder that, at least on what are sometimes confusingly called "cultural matters," I too am fairly conservative.
For some inscrutable and unjustifiable reason, the book lacks notes of any kind, which is inexcusable, especially with regard to the extensive quoted material of others, nor is there a bibliography, and the index is far from complete. As I was digesting the argument it called to mind Herbert Fingarette's controversial but equally provocative and, by my lights, well-argued book, Heavy Drinking: The Myth of Alcoholism as a Disease (1988). It turns out that Dalrymple/Daniels thought so too, for near the end of his work we learn that "What Fingarette said of alcoholism can be applied with equal force to opiate addiction," as he quotes a passage from Heavy Drinking that supports his contention that "the addict has a problem, but it is not a medical one: he does not know how to live. And on this subject the doctor has nothing, qua doctor, to offer."
According to Daniels, "The temptation to take opiates, and to continue to take them..., arises from two main sources: first, man's eternal existential anxieties, to which there is no wholly satisfactory solution, at least for those who are not unselfconsciously religious; and second, the particular predicament in which people find themselves. Modern societies have created, or at least resulted in, a substantial class of persons peculiarly susceptible to what De Quincy calls 'the pleasures of opium.'" Now it is the second source that Daniels elaborates upon in the following:
"...[I]n most western societies, there is now a class in which tedium vitae is very common, almost normal. This is the class from which the great majority of heroin addicts now comes....
The young of this class are disaffected, and have good reason to be so. They are for the most part poor, though not of course in the absolute sense. On the contrary, they are healthier, better fed, dressed, and sheltered than the great majority of the world's population, past and present, and dispose of appurtenances whose sophistication would have astonished our forefathers. But they are poor in the context of their own societies (which is what counts psychologically [such 'relative poverty' counts in other ways too, as Amartya Sen has recently argued]) and they are so badly educated (this time in the absolute sense) that any historical or geographical comparison, by means of which they might put their poverty in some kind of perspective, is completely beyond them.
They have no interests, intellectual or cultural. The consolations of religion are closed to them. As for their family lives, loosely so-called, it is usually of an utterly chaotic nature.... Their sexual relationships are a kaleidoscope of ephemeral couplings, often with abandoned offspring as a result, motivated by an immediate need for sexual release and often complicated by primitive egotistical possessiveness leading to violence and conflict. Their emotional life is intense but shallow, and their interactions with others governed by power rather than any kind of principle. Life is a matter of doing what you can get away with.
Their economic prospects are poor. They are unskilled in countries in which the demand for unskilled labour is limited. [....] Any work that they do will be repetitive and dull; and while a man might once have derived satisfaction from performing a menial task well, from leading a life of modest usefulness to others, this is not an age when such humility is very common. In large part, this is because people live to a quite unprecedented degree in the virtual world of so-called popular culture. From the very earliest age, their lives are saturated with images of celebrities, whose attainments are often modest but who have been whisked by good fortune into a world of immense and glamorous luxury. This comparison with their own surroundings, squalid if not poor in the literal sense, is not only stark but painful, and is experienced as an open wound into which salt is continually rubbed. It is also experienced as an injustice, for why should people with tastes and accomplishments not so very different from their own lead a life of fairy-tale abundance? The injustice of which they feel themselves to be the victim reduces any lingering inhibitions against causing harm to society, which means in practice individual members of society. Crime ceases to be crime, but is rather restitution or justified revenge. And the fact that the abundance they so desire is itself empty and leads to dissatisfaction and boredom entirely escapes them.
The end result is that, while profoundly dissatisfied with their present lot, they do not have ambitions towards which they might actually work in a constructive fashion, but daydreams, in which every thing is solved at once in a magical way, daydreams from which the emergence into reality is always painful. Any aid to the perpetuation of the state of daydreaming (or reverie, as Coleridge and De Quincy call it) is therefore greatly appreciated."
Highly recommended.
[Cross-Posted at the Medical Humanities Blog]
June 24, 2:54 AM / MoneyLaw / Some recent developments in legal educationFor Northwestern Law's new two-year JD curriculum, see here, here, here, here, and here (among others).
For Thomas Sowell's take on the rankings, see my post here.
June 23, 10:36 PM / Jurisdynamics / George CarlinGeorge Carlin has died. A Prawfsblawg post by Howard Wasserman featured this video of Carlin's Seven Dirty Words routine:
Howard Wasserman's broader point regarding Carlin's legal legacy is squarely on target. There simply is no way to reconcile FCC v. Pacifica Foundation, 438 U.S. 726 (1978), with core First Amendment principles, let alone the admittedly unwieldy mass of free speech decisions rendered by the Supreme Court. The routine itself, transcribed on the pages of United States Report, succinctly summarizes the reaction of most legal scholars to Pacifica: "I've had that shit up to here." 438 U.S. at 753.For my part, I always think of Carlin whenever I think of a specific "two-way word[]" and its peculiar etymology in the English language. According to the original Seven Dirty Words routine, "ass is okay providing you're riding into town on a religious feast day." Otherwise, the sentiment "up your ass" must be recast as the milder "stuff it!"
As it happens, ass in modern English appears to represent the merger of two distinct Germanic roots, one referring to the odd-toed ungulate, Equus asinus, and the other referring to the buttocks. Modern German distinguishes sharply between Esel and Arsch, but English does not. My frequent use of the German word Arschloch pays homage to the rather awkward way I first learned the difference between the words: by using Arsch when I really, really, really meant Esel.
And insofar as Western artists have made much use of the Hebrew Bible's story of Balaam and his talking ass (chapter 22 of the Book of Numbers), I suppose it makes sense to dedicate the following collage to George Carlin, a comedic genius and a friend of civil liberties:
Gustav Jaeger, Bileam und der Engel (1836)
June 23, 6:37 PM / MoneyLaw / So you want to be a law clerk?
Behold So You Want to Be a Law Clerk?, which touts itself as "[a] place to find the latest federal law clerk openings, advice about the application and interview process, and, in general, how to land that coveted offer."
Hat tip: A discussion board on the "best schools for clerkships/academia" at Top Law Schools.
June 23, 1:17 AM / MoneyLaw / At the pit of hell lives a Blue Devil
In addition to its immense wealth, Duke University enjoys a rich sports tradition. There's the basketball program, to be sure, but don't forget Bull Durham and the 1942 Rose Bowl. Despite all that, Duke has the gall to argue — with absolute accuracy — that its football team is so bad that Duke University owes the University of Louisville no damages for breaching a contract to pit the Blue Devils against the Cardinals.
Boo, hiss. This is yet another reason for all Kentuckians — indeed, all decent Americans — to despise Duke. Further details in The Cardinal Lawyer and Danzig U.S.A.
Hat tip: Red Lion Reports.
June 21, 8:25 PM / MoneyLaw / You're no good: An ongoing MoneyLaw series
You're no good
- Linda Ronstadt, You're No Good, Heart Like a Wheel (1974):
Feeling better now that we're through
Feeling better 'cause I'm over you
I learned my lesson, it left a scar
Now I see how you really are
Many things in academic life are simply no good. The task of identifying these things falls happily to MoneyLaw.
This ongoing series will highlight aspects of academic life that seem as inevitable as they are entrenched, but in reality deserve to be scrutinized. MoneyLaw undertakes this project in the belief that no academic practice is so sacrosanct that it cannot be questioned. Indeed, it should be an academic leader's calling to expose, perchance ultimately to reform or even to overthrow, those practices that are corrosive of academic values and the interests of higher education's true constituents. To get things started, I'll give this forum's readership a hint: Among the three T's most familiar in higher education and its finance — tuition, taxes, and tenure — only two are familiar to the system's true constituents.
True to MoneyLaw's belief in the wisdom of crowds, I invite readers to nominate practices, customs, and expectations that — in Linda Ronstadt's simple and persuasive way of expressing the point — are no good. Fire away in the comments to this post. As Linda would say, it's so easy.
June 21, 3:12 AM / Jurisdynamics / Rock 'n' roll law schoolJoan Jett loves rock 'n' roll. So do I. And so should the Supreme Court. Herewith Rock 'n' Roll Law School, 12 Constitutional Commentary 315 (315), plus part of its accompanying soundtrack:
June 21, 1:23 AM / MoneyLaw / Silver threads, golden needles, and ClassBiasAs homage to Class Bias in Higher Education and the proletarian rage that Jeff Harrison so eloquently expresses, I offer one of the many versions of Silver Threads and Golden Needles now playing at Danzig U.S.A.:
- I grew up in faded gingham where love is a sacred thing
- You grew up in silk and satin where love's the passing game
- I know now you never loved me, and I know I was a fool
- To think your pride would let you live by the golden rule
June 21, 0:54 AM / First Movers / 2 year J.D. Now a Reality at NorthwesternSee here.
June 20, 5:18 PM / BioLaw: Law and the Life Sciences / Biotechnology Goes Underground
Although advocates of comprehensive reform to the United States Patent Act have so far failed to shepherd any of their bills into statute, the next Congress is sure to take up the baton again. After all, the 2007 proposals actually passed the House before dying in the Senate. New regulations proposed by the United States Patent and Trademark Office ("USPTO") and decisions by U.S. Supreme Court have both added to a sense that patent protection is weakening.
There seems to be a near-consensus at the 2008 Biotechnology Industry Organization ("BIO") International Conference that erosion of patent protection will disproportionately affect the biotechnological innovation. As BIO President and CEO, James Greenwood, declared during a lunchtime plenary speech, BIO and others in the biotechnology and pharmaceutical industries have decided to dedicate themselves to sustaining strong patent rights in the U.S. and elsewhere.
Regardless of the outcome of this patent battle, the perception of risk to patent rights may already be changing intellectual property strategy in biotechnology. As patent rights lose some of their lustre, there may be increased reliance on trade secret protection. Generally, trade secret law is ill suited to protect drugs and other molecules because the structures of such compositions of matter are readily discernible once the composition itself has become available in the marketplace. Trade secret protection does not extend to reverse engineering if the product to be reverse engineered is itself public. However, inventive methods and best practices whose secrecy can be maintained are susceptible of protection.
The quid pro quo of the monopoly exclusions rights that patents confer is the requirement that patent applicants disclose detailed information enabling others to make and use the invention into the so-called "public storehouse" of knowledge. Without the prospect of patent protection, patent applicants may shift their efforts to protect their inventions towards secrecy, depriving the public storehouse of vital knowledge. In addition, such a decline in public disclosure may worry those who monitor biotechnologies for their potential dangers to society. Obviously, since products themselves are difficult to keep secret, such a change in protective strategy has limits. However, the sense among the biotechology community here at BIO 2008 is that current patent reform efforts are forcing them to become more guarded in what information to share with the public, and that this may harm future innovation. The consequences of a more cloak-and-pipette biotechnology industry could be significant, perhaps even profound.
June 20, 7:04 AM / BioLaw: Law and the Life Sciences / Biotechnology's Unsettled Forecast
The global biotechnology industry came within a whisker of profitability in 2007. In the 35 years since Boyer and Cohen first produced recombinant DNA, the industry as a whole has suffered staggering losses. That may change in 2008, a cause for cheer among the more than 20 000 biotechnology aficionados attending this year's BIO International Conference. However, instead of celebration, and despite enthusiastic endorsements of biotechnology by conference keynote speakers, Craig Venter, Arnold Schwarzenegger, and Colin Powell, the overall mood at BIO 2008 appears to be one of growing fatalism, even gloom.
So, what is raining on biotechnology's parade? Three clouds have come up repeatedly in a variety of panels and plenaries: (1) risks of weakening patent protection, (2) a drastic deceleration in Food and Drug Administration ("FDA") drug approvals, and (3) the credit crisis.
Patent protection. After several years of aborted efforts, the House of Representatives finally managed to pass a significant patent reform bill, H.R. 1908. The Senate, by contrast, let its counterpart bill, S. 1145, die. Though aligned on many policy issues over the years, the high technology and biotechnology industries strongly disagree about Congress' patent reform bills. James Greenwood, President and CEO of BIO, defiantly told at a plenary lunchtime crowd that, although high technology has had the upper hand on promoting patent reform, the tide has now turned, and "We are going to win [the battle against weakening of patent protection]". Even so, the combined effects of KSR v. Teleflex (U.S. 2007), Congressional patent reform efforts, and proposed new rule changes at the United States Patent and Trademark Office ("USPTO") have sown uncertainty about what level of patent protection is, and will be, available for biotechnology inventions.
FDA regulation. With a modern record low of 24 approvals in 2007, the FDA has strongly signaled that the bar for drug and diagnostic approvals has now risen considerably. So, once they survive the USPTO frying pan, biotechnology companies developing drugs or diagnostics now face the prospect of the fire of the FDA approval process.
The credit crisis. Over the last decade, the funding required to sustain biotechnology companies through the billion dollar expense of drug development has become increasingly difficult to obtain. What began as a gradual decline became a precipitous fall last year, and has not improved much since then. With money for biotechnology companies so tight, failed ventures are accelerating.
Mixed with the gloom is a spirit of defiance. BIO is spearheading increasingly effective efforts to ensure that Congress does not weaken patent rights. USPTO efforts to limit continuation pratice have been permanently enjoined, providing a template for legal challenges to other proposed rule changes, such as heightened disclosure obligations and much more difficult procedures for appealing claim rejections to the Board of Patent Appeals and Interferences ("BPAI"). The biotechnology product pipeline appears to be healthy, with exciting progress in stem cells, gene therapy, genomics, proteomics, and synthetic biology. Biotechnology in Asia and Latin America is booming as never before. And, the biotechnology industry can, at least, enjoy Schadenfreude that the pharmaceutical industry is experiencing even harsher challenges, such as vigorous competition from generics companies and an approaching epidemic of patent expirations of blockbuster drugs.
Given the legal and financial challenges it faces, the biotechnology industry may be entering a new, less wildly optimistic, phase. The coming year may be one of tempered expectations. On the other hand, the biotechnology industry as a whole will almost certainly make a net profit in 2008, an unprecedented event that may allow at least some singing in the rain at BIO 2009.
June 20, 4:23 AM / BioLaw: Law and the Life Sciences / The case for banana sex
The commercial banana is a sterile mutant that hasn't had sex for decades. Visit Jurisdynamics to read the compelling case for banana sex.
June 20, 3:35 AM / Jurisdynamics / Banana twilightA widely read and frantically e-mailed New York Times story has opened many new eyes to a horticultural disaster anticipated for many years: the commercial extinction of the Cavendish banana. Dan Koeppel's warning is right on target:
The problem is straightforward. Commercial bananas are sterile mutants, whose separation from sexual reproduction prevents the Cavendish cultivar from evolving resistance to Fusarium oxysporum (the fungal agent responsible for Panama disease), black sigatoka, and any number of other fungal or bacterial threats. The technical details regarding the use of asexual vegetative reproduction to propagate bananas are fascinating:By sticking to [a] single variety, the banana industry ensures that all the bananas in a shipment ripen at the same rate, creating huge economies of scale. The Cavendish is the fruit equivalent of a fast-food hamburger: efficient to produce, uniform in quality and universally affordable.
But there’s a difference between a banana and a Big Mac: The banana is a living organism. It can get sick, and since bananas all come from the same gene pool, a virulent enough malady could wipe out the world’s commercial banana crop in a matter of years.
This has happened before. Our great-grandparents grew up eating not the Cavendish but the Gros Michel banana, a variety that everyone agreed was tastier. But starting in the early 1900s, banana plantations were invaded by a fungus called Panama disease and vanished one by one. Forest would be cleared for new banana fields, and healthy fruit would grow there for a while, but eventually succumb.
By 1960, the Gros Michel was essentially extinct and the banana industry nearly bankrupt. It was saved at the last minute by the Cavendish, a Chinese variety that had been considered something close to junk: inferior in taste, easy to bruise (and therefore hard to ship) and too small to appeal to consumers. But it did resist the blight.
Over the past decade, however, a new, more virulent strain of Panama disease has begun to spread across the world, and this time the Cavendish is not immune. The fungus is expected to reach Latin America in 5 to 10 years, maybe 20. The big banana companies have been slow to finance efforts to find either a cure for the fungus or a banana that resists it. Nor has enough been done to aid efforts to diversify the world’s banana crop by preserving little-known varieties of the fruit that grow in Africa and Asia.The cultivated banana is often listed in botanical references as Musa x paradisiaca (Musaceae), although it is actually a complex hybrid derived from two diploid Asian species, M. acuminata and M. balbisiana. Common cultivated bananas are usually triploid (3n) with three sets of chromosomes. [Note: The word "set" is defined here as one haploid set of chromosomes.] If A represents one set of chromosomes from diploid M. acuminata (AA) and B represents one set of chromosomes from diploid M. balbisiana (BB), then hybrid bananas have three sets of chromosomes represented by AAB, ABB or another 3-letter (triploid) combination of A's and B's. Like seedless watermelons and red grapes, bananas are sterile and do not produce mature seeds. . . . Bananas are sterile and seedless because they are odd polyploids in which one set of chromosomes (A or B) has no homologous set to pair up with during synapsis of meiosis. Therefore meiosis does not proceed normally, and viable gametes (sex cells) are not produced. Since banana fruits (technically berrylike ripened ovaries) develop without fertilization they are termed parthenocarpic. Without viable seeds, banana plants must be propagated vegetatively (asexually) by planting corms, pieces of corms or sucker sprouts.
The solutions are obvious and expensive. Organizations preserving diverse cultivars and wild varieties need all the help they can get. One of those varieties — if we haven't already destroyed it in our ongoing, careless elimination of natural and agricultural biodiversity — may offer temporary relief against Fusarium oxysporum and Panama disease. And the commercial banana, trapped in the sterile trap of mass propagation, needs for the first time in decades to have sex.
June 19, 8:25 PM / Agricultural Law / Manipulating Market Manipulation
The U.S. Commodity Futures Trading Commission (CFTC) recently announced that it would be investigating agriculture futures markets, “including the lack of convergence between the futures and cash prices, the impact of higher margin requirements, and the role of speculators and commodity index traders.” This comes on the heels of last month’s unusual revelation that, "because of today’s unprecedented market conditions," the CFTC was six months into an investigation of U.S. oil markets, focusing largely on possible price manipulation.
The CFTC, FTC, SEC, FERC, and other agencies all have a role in monitoring and/or investigating price manipulation, and any time markets boom or bust regulators are likely to take notice. And high prices in oil and agriculture sectors very well may have been made even higher by market manipulators. However, the fact that agriculture prices are soaring at the same time crude oil prices are skyrocketing should be of little surprise.
It seems to me an awful lot of time is being spent “looking” for market manipulators instead of looking at the policies impacting the markets themselves. Ethanol mandates, increased worldwide demand for oil and food, and a falling dollar all are having more impact on the markets than are market manipulators.
I am all for catching cheaters, and I am confident there are more than a few, but I fear all this talk of market manipulation will artificially inflate the role of unscrupulous investors in causing the rise of high food and fuel prices when large-scale U.S. and global food and fuel policies should be under the microscope. I suppose, as usual, only time will tell.
June 19, 6:44 AM / BioLaw: Law and the Life Sciences / Social Contract On Drugs
Each year at BIO, Ernst & Young offer a numerically intensive update of the biotechnology industry, rich in charts, tables, graphs, pie charts, and Venn diagrams. However, this year's update managed several moments of philosophy as well. The most interesting involved several panel members discussing the "social contract" between the public and the bio/pharmaceutical industry.
According to the panel, this contract involves public tolerance of relatively strong patent protection for truly innovative new drugs in return for these new drugs to be abundant and,...well,...truly innovative. Apparently each party to this bargain has increasingly been shirking its obligations to the other.
Apparently, rather than ensure consistent, predictable, and strong patent protection for new drugs, public distrust has led to pressure on both Congress, the United States Patent and Trademark Office ("USPTO"), and even the courts to diminish patent rights. Why would this happen? Well, simultaneously, the public has apparently begun to feel cheated by trivial improvements in patent drugs, such as time-release or newly formulated versions, rather than the development of radically new drugs.
Who is to blame? The panel called for the bio/pharmaceutical industry to start developing truly new drugs in return for stronger, more reliable patent protection. Rather than allowing drug development to languish, industry was asked to embrace true innovation. True innovation would then be rewarded with stronger patent protection.
Perhaps a period of confidence-building is in order to convince both parties to renew their social contract. Without reconciliation with consumers, bio/pharma may continue to suffer a surfeit of trivially new patent applications claiming variations on previously patented molecules, not to mention a retreat to traditional therapeutic approaches, such as small molecules or monoclonal antibodies, while consumers may try to punish the industry by supporting patent weakening disguised as patent reform.
Of course, there is a chicken/egg challenge in avoiding this spiral of blame. Which needs to come first: - (1) renewed vigor in patent protection, thus creating an incentive for more truly innovative drugs, or (2) redoubled efforts to develop truly innovative drugs, thus justifying stronger patent protection? It will be interesting to watch efforts to renew the social contract surrounding drugs. If unsuccessful, the biotechnology industry and consumers may continue to play their current game of patent chicken, to the detriment of both.
June 18, 9:28 PM / Commercial Law / The Ubiquity of Interchange Fees
I am very pleased to join the Commercial Law Blog as a guest, blogging about credit card payments. Before discussing the economic effects of current fee structures and how card pricing might be improved, this post lays some groundwork, suggesting that these fees are best understood as the portion of the merchant discount fee that a credit card system uses to support card issuing. Viewed in this way, all credit card systems in the United States charge the economic equivalent of interchange fees.
Back in the early days of credit cards, virtually all banks in the associations both issued cards and signed merchants to accept them, a function known as merchant acquiring. The systems then required that the entire merchant fee go to the issuing bank. Over time, this fee structure, channeling all revenue to the issuer, did not provide sufficient incentives to add merchants to the network. To remedy the problem, the two bank associations that became Visa and MasterCard adopted a system-wide formula for dividing the merchant fees between issuers and acquirers.
Functionally, acquirers paid merchants a discounted price for credit card paper and then sold that paper to the card-issuing bank at a somewhat lower discount. The total merchant fee came to be called the “merchant discount” and the portion passed on to the card-issuing bank was labeled the “interchange reimbursement fee.” The amount retained by the acquirer never got a formal name, but might have been called the short-end-of-the-stick fee. From early on, interchange raised antitrust concern because it enabled card-issuing banks to avoid competition on the fees that they effectively charged to merchants. Nevertheless, it has withstood legal challenge for more than three decades.
Over the years, the interchange fee has evolved. Although Visa’s and MasterCard’s fees differ in some ways, they have both followed a similar path. Initially, each charged a single fee to all merchants. In the 1980s, the associations developed separate fees for paper and electronic transactions. The 1990s brought different fees for certain merchant types, as the systems sought to bring in lower margin retailers such as supermarkets. They also added a separate fee for situations in which the magnetic stripe could not be swiped, reflecting perceived fraud risks. Today, interchange fee schedules are a complex array of charges that vary depending upon the type of merchant and its card sales volume, the type of transaction, and the type of card used. The most significant factor may now be what one might term
