Bruce H. Kobayashi

Evidence Production in Adversarial vs. Inquisitorial Regimes

The advantage of the adversarial regime of judicial decision-making is the superior information of the parties, while the advantage of an idealized inquisitorial regime is its neutrality. We model the tradeoff by characterizing the properties of costly estimators used by each regime. The adversarial regime uses an ‘extremal’ estimator that is based on the difference between the most favorable pieces of evidence produced by each party. The inquisitorial regime uses the sample mean. We find that neither regime dominates the other.  2001 Elsevier Science B.V. All rights reserved.

An Economic Analysis of Uniform State Laws

Uniform laws proposed by the National Conference of Commissioners on Uniform State Laws (NCCUSL) cover virtually every area of state law. Yet there is no economic analysis of the NCCUSLs activities. This article addresses this gap in the literature by applying economic analysis to evaluate and explain the NCCUSLs activities and their success in state legislatures. We find that states efficiently sort between NCCUSL proposals in that they tend to adopt these proposals in which a cost-benefit analysis suggests that uniformity is efficient. Nevertheless, the NCCUSL promulgates many laws in which uniformity is not efficient, and the NCCUSLs influence causes some of these proposals to be adopted. Our results suggest that, in many cases, reliance on federal law or on centralized lawmaking bodies such as the NCCUSL to produce uniformity may be both unnecessary and perverse.

An Economic Analysis of the Private and Social Costs of the Provision of Cybersecurity and other Public Security Goods

This paper examines the incentives of private actors to invest in cybersecurity. Prior analyses have examined investments in security goods, such as locks or safes, that have the characteristics of private goods. The analysis in this paper extends this analysis to examine expenditures on security goods, such as information, that have the characteristics of public goods. In contrast to the private goods case, where individual uncoordinated security expenditures can lead to an overproduction of security, the public goods case can result in the under-production of security expenditures, and incentives to free ride. Thus, the formation of collective organizations may be necessary to facilitate the production of public security goods, and the protection of information produced by the collective organization should be a central feature of such organizations.

Intellectual Property and Standard Setting

This Chapter, forthcoming in the ABA Handbook on the Antitrust Aspects of Standards Setting (2010) provides an analytical overview of the antitrust issues involving intellectual property and standard setting including, but not limited to, patent holdup, royalty stacking, refusals to license, and patent pools.

The Effect of Contract Regulation on Franchising

Previous work on the regulation of termination clauses in franchise contracts has ignored the ability of parties to contract around state law. Using data on two national fast-food restaurants, we find that Washington, D.C.s termination restriction which did not restrict choice-of-law provisions had little systematic effect on business practice, while Iowas termination restriction which did prohibit choice-of-law provisions had a large negative effect on franchising.

Two Tales of Bundling: Implications for the Application of Antitrust Law to Bundled Discounts

The economic literature on bundling has made many theoretical advances. However, several omissions reveal themselves. The advances have largely been on the theoretical side. These models contain restrictive assumptions regarding the existence of monopoly in some markets, and the nature of rivalry in others. The models generally ignore obvious and ubiquitous reasons firms may use bundled discounts. These models have not been subject to robustness checks, nor have their assumptions been tested empirically. As a result, the literature that shows the possibility of anticompetitive harm does not provide a reliable way to gauge whether the potential for harm would outweigh any demonstrable benefits from the practice. As a result of the underdeveloped nature of the literature, simple rules that result in extreme tradeoffs between type I and type II errors may dominate more complex tests that attempt to differentiate procompetitive from anticompetitive behavior. Such complex tests may work well within the confines of a theoretical model, but not when applied to firms in actual antitrust cases. Improving the reliability of more complex tests for anticompetitive behavior will require economists to expand their understanding of both the anticompetitive and procompetitive reasons firms engage in bundling. This will entail studying the reasons bundling is adopted by firms without market power, relaxing the assumption of monopoly in theoretical models, and generating testable hypothesis and the data to test them.

Private Lawdrafting, Intellectual Property, and Public Laws

Public lawmakers have inadequate and misaligned incentives to engage in legal innovation. Private lawmaking is offered as a potential solution to this problem. However, private lawmaking faces a dilemma: In order to be effective, the cost-reducing standard forms produced by private lawdrafters need to be publicly enacted. However, enactment as law eliminates the intellectual property rights that are essential to properly motivate the private lawdrafters to produce such forms. As a result, private lawdrafters will have inadequate and misaligned incentives to engage in legal innovation that would provide widespread benefits. Absent some mechanism to allow the private lawdrafter a way to appropriate the gains from his investment in cost reducing legal innovation, the promise of private lawmaking may be minimal.

Monetary Penalties in China and Japan

Recent solicitations for comments on monetary penalties in China and Japan highlight opportunities to improve the deterrent effect of antitrust law by more closely aligning penalties with economic theory and evidence. When monetary penalties are not based upon economic analysis and clearly linked to identified harms, they are likely to generate costly errors, either by overdetering welfare-enhancing behavior or underdetering anticompetitive behavior. On June 17, 2016, China’s Anti-Monopoly Commission of the State Council requested comments on Draft Guidelines issued by the National Development and Reform Commission (NDRC) for the calculation of illegal gains (disgorgement) and setting of fines issued. On July 13, 2016, the Japan Fair Trade Commission (JFTC) requested comments on introducing flexibility into their administrative surcharge system, developing a settlement program, and reforming due process in conjunction with surcharge reform. Both proposed monetary penalty systems would benefit from a deeper grounding in economics. The NDRC’s Draft Guidelines provided only for the optional use of economic analysis in calculating illegal gains and appear to create a presumption that disgorgement would apply in addition to fines in nearly all cases. The JFTC’s consultation acknowledged that the current inflexible surcharge system could give rise to “unreasonable or unfair�? surcharges, but did not require economic analysis to determine appropriate monetary penalties. In both countries, monetary penalties are applied broadly and are not based upon identified harms, although the JFTC’s consultation invited comments on whether differentiation by type of infringement was necessary.

Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly

This paper examines the economics of litigation and settlement of patent disputes arising from Paragraph IV ANDA filings under the Drug Price Competition and Patent Term Restoration Act (“Hatch-Waxman Act”) within the framework set out in FTC v. Actavis. Recent economic analyses of reverse payment settlements are based upon a monopoly-to-duopoly model that assumes a single generic entrant. These analyses have been used to support antitrust rules that would enjoin reverse payments that exceed the cost of litigation. We demonstrate that the simple monopoly-to-duopoly models providing the analytical basis for the litigation cost benchmark for analyzing reverse payment settlements is incomplete. Our key institutional insight is the fact that entry by multiple firms follows the invalidation of a patent. Accounting for this critical institutional detail in a more generalized monopoly-to-duopoly model results in important and different implications for patent settlements, welfare, and application of the rule of reason pursuant to Actavis. The result is a broader settlement range than under the monopoly-to-duopoly model that yields robust incentives for the brand and generic entrant to settle the case. This broad settlement range makes attempts to regulate the size of patent settlements ineffective at achieving consumer welfare increasing settlements, or inducing the invalidation of “bad” patents through higher litigation rates. Incorporating multiple serial entrants also decouples the litigation-adjusted expected value of the patent and the consumer welfare standard, and further weakens the relationship between patent strength and the size of the settlement which has motivated numerous calls to deem presumptively unlawful all payments greater than anticipated litigation costs.

Indexing inventors: The ‘sources of invention’ revisited

Abstract This paper presents a behavioral model of an inventors contractual choice in which (a) newly established organized research is formulated to be an endogenous outcome of this choice, and (b) the value of the inventors inventive ingenuity or ability is conceptually defined. We hypothesize that the difficulty of appropriating the returns to basic knowledge is a reason why inventors form research organizations. The main implication of the model is that inventors with a higher inventive ability have a greater incentive to organize research. The career patent records of sixty-three poineering inventors, profiled in Jewkes, Sawers and Stillermans Sources of Invention , are examined. The data is consistent with the implication of our model: We find that inventors with a high index of inventive ability are more likely to be affiliated with organized research.