Competition

Breaking the Tech Chain To Slow the Growth of Single-Family Rentals

April 17, 2022
Antitrust, Artificial Intelligence, Competition, Data, Discrimination, Economics, Economy, New Technology

Sarah Bauer, MJLST Staffer

For many of us looking to buy our first homes during the pandemic, the process has ranged from downright comical to disheartening. Here in Minnesota, the Twin Cities have the worst housing shortage in the nation, a problem that has both Republican and Democratic lawmakers searching for solutions to help both renters and buyers access affordable housing. People of color are particularly impacted by this shortage because the Twin Cities are also home to the largest racial homeownership gap in the nation. 

Although these issues have complex roots, tech companies and investors aren’t helping. The number of single-family rentals (SFR) units — single-family homes purchased by investors and rented out for profit — have risen since the great Recession and exploded over the course of the pandemic. In the Twin Cities, black neighborhoods have been particularly targeted by investors for this purpose. In 2021, 8% of the homes sold in the Twin Cities metro were purchased by investors, but investors purchased homes in BIPOC-majority zip codes at nearly double the rate of white-majority neighborhoods. Because property ownership is a vehicle for wealth-building, removing housing stock from the available pool essentially transfers the opportunity to build wealth from individual homeowners to investors who can both profit from rents as well as the increased value of the property at sale. 

It’s not illegal for tech companies and investors to purchase and rent out single-family homes. In certain circumstances, it may actually be desirable for them to be involved in the market. If you are a seller that needs to sell your home before buying a new one, house-flipping tech companies can get you out of your home faster by purchasing the home without a showing, an inspection, or contingencies. And investors purchasing single-family homes can provide a floor to the market during slowdowns like the Great Recession, a service which benefits homeowners as well as the investors themselves. But right now we have the opposite problem: not enough homes available for first-time owner-occupants. Assuming investor-ownership is becoming increasingly undesirable, what can we do about it? To address the problem, we need to understand how technology and investors are working in tandem to increase the number of single-family rentals.

 

The Role of House-Flipping Technology and iBuyers

The increase in SFRs is fueled by investors of all kinds: corporations, local companies, and wealthy individuals. For smaller players, recent developments in tech have made it easier for them to flip their properties. For example, a recent CityLab article discussed FlipOS, “a platform that helps investors prioritize repairs, access low-interest loans, and speed the selling process.” Real estate is a decentralized industry, and such platforms make the process of buying single-family homes and renting them out faster. Investors see this as a benefit to the community because rental units come onto the market faster than they otherwise would. But this technology also gives such investors a competitive advantage over would-be owner-occupiers.

The explosion of iBuying during the pandemic also hasn’t helped. iBuyers — short for “instant buyers” — use AI to generate automated valuation models to give the seller an all-cash, no contingency offer. This enables the seller to offload their property quickly, while the iBuyer repairs, markets, and re-sells the home. iBuyers are not the long-term investors that own SFRs, but the house-flippers that facilitate the transfer of property between long-term owners.

iBuyers like Redfin, Offerpad, Opendoor (and formerly Zillow) have increasingly purchased properties in this way over the course of the pandemic. This is true particularly in Sunbelt states, which have a lot of new construction of single-family homes that are easier to accurately price. As was apparent from the demise of Zillow’s iBuying program, these companies have struggled with profitability because home values can be difficult to predict. The aspects of real estate transactions that slow down traditional homebuyers (title check, inspections, etc…) also slow down iBuyers. So they can buy houses fast by offering all-cash offers with no inspection, but they can’t really offload them faster than another seller.

To the degree that iBuyers in the market are a problem, that problem is two-fold. First, they make it harder for first-time homeowners to purchase homes by offering cash and waiving inspections, something few first-time homebuyers can afford to offer. The second problem is a bigger one: iBuyers are buying and selling a lot of starter homes to large, non-local investors rather than back to owner-occupants or local landlords.

 

Transfer from Flippers to Corporate Investors

iBuyers as a group sell a lot of homes to corporate landlords, but it varies by company. After Zillow discontinued its iBuying program, Bloomberg reported that the company planned to offload 7,000 homes to real estate investment trusts (REITs). Offerpad sells 10-20% of its properties to institutional investors. Opendoor claims that it sells “the vast majority” of its properties to owner-occupiers. RedfinNow doesn’t sell to REITs at all. Despite the variation between companies, iBuyers on the whole sold one-fifth of their flips to institutional investors in 2021, with those sales more highly concentrated in neighborhoods of color. 

REITs allow firms to pool funds, buy bundles of properties, and convert them to SFRs. In addition to shrinking the pool of homes available for would-be owner-occupiers, REITs hire or own corporate entities to manage the properties. Management companies for REITs have increasingly come under fire for poor management, aggressively raising rent, and evictions. This is as true in the Twin Cities as elsewhere. Local and state governments do not always appear to be on the same page regarding enforcement of consumer and tenant protection laws. For example, while the Minnesota AG’s office filed a lawsuit against HavenBrook Homes, the city of Columbia Heights renewed rental occupancy licenses for the company. 

 

Discouraging iBuyers and REITs

If we agree as a policy matter that single-family homes should be owner-occupied, what are some ways to slowdown the transfer of properties and give traditional owner-occupants a fighting chance? The most obvious place to start is by considering a ban on iBuyers and investment firms from acquiring homes. The Los Angeles city council voted late last year to explore such a ban. Canada has voted to ban most foreigners from buying homes for two years to temper its hot real estate market, a move which will affect iBuyers and investors.

  Another option is to make flipping single-family homes less attractive for iBuyers. A state lawmaker from San Diego recently proposed Assembly Bill 1771, which would impose an additional 25% tax on the gain from a sale occurring within three years of a previous sale. This is a spin on the housing affordability wing of Bernie Sanders’s 2020 presidential campaign, which would have placed a 25% house-flipping tax on sellers of non-owner-occupied property, and a 2% empty homes tax on property of vacant, owned homes. But If iBuyers arguably provide a valuable service to sellers, then it may not make sense to attack iBuyers across the board. Instead, it may make more sense to limit or heavily tax sales from iBuyers to investment firms, or the opposite, reward iBuyers with a tax break for reselling homes to owner-occupants rather than to investment firms.

It is also possible to make investment in single-family homes less attractive to REITs. In addition to banning sales to foreign investors, the Liberal Party of Canada pitched an “excessive rent surplus” tax on post-renovation rent surges imposed by landlords. In addition to taxes, heavier regulation might be in order. Management companies for REITs can be regulated more heavily by local governments if the government can show a compelling interest reasonably related to accomplishing its housing goals. Whether REIT management companies are worse landlords than mom-and-pop operations is debatable, but the scale at which REITs operate should on its own make local governments think twice about whether it is a good idea to allow so much property to transfer to investors. 

Governments, neighborhood associations, and advocacy groups can also engage in homeowner education regarding the downsides of selling to an iBuyer or investor. Many sellers are hamstrung by needing to sell quickly or to the highest bidder, but others may have more options. Sellers know who they are selling their homes to, but they have no control over to whom that buyer ultimately resells. If they know that an iBuyer is likely to resell to an investor, or that an investor is going to turn their home into a rental property, they may elect not to sell their home to the iBuyer or investor. Education could go a long way for these homeowners. 

Lastly, governments themselves could do more. If they have the resources, they could create a variation on Edina’s Housing Preservation program, where homeowners sell their house to the City to preserve it as an affordable starter home. In a tech-oriented spin of that program, the local government could purchase the house to make sure it ends up in the hands of another owner-occupant, rather than an investor. Governments could decline to sell to iBuyers or investors single-family homes seized through tax forfeitures. Governments can also encourage more home-building by loosening zoning restrictions. More homes means a less competitive housing market, which REIT defenders say will make the single-family market less of an attractive investment vehicle. Given the competitive advantage of such entities, it seems unlikely that first-time homebuyers could be on equal footing with investors absent such disincentives.

The Music Modernization Act May Limit Big Name Recording Artists’ Leverage in Negotiations with Music Streaming Companies

October 28, 2018
Business Law, Competition, Copyrights, Economics, Economy, Intellectual Property, Property Law

By: Julia Lisi, MJLST Staffer

Encircled by several supportive recording artists, President Trump signed the Music Modernization Act (“MMA”) into law on October 11, 2018. Supporters laud the MMA as a long overdue update for U.S. copyright law. Federal law governs roughly 75% of recording artists’ compensation, according to some estimates. The federal regulatory scheme for music license fees dates back to 1909, before the advent of music streaming. Though the scheme has been tweaked since 1909, the MMA marks a major regulatory shift to accommodate the large market for music streaming services like Spotify and Apple Music.

Prior to the MMA, streaming services virtually had two options for acquiring music catalogs: (1) either acquire licenses for each individual song or, (2) provide music without licenses and prepare for infringement suits. Apple Music adopted the first strategy and as a result initially suffered from a much leaner music catalog. Spotify went with the second strategy, setting aside funds to weather litigation.

The MMA offers a preexisting mechanism, the mechanical license, on a broader scale. Once the MMA takes full effect, streaming services can receive blanket licenses to entire catalogs of music, all in one transaction. The MMA establishes the Mechanical Licensing Collective (the “Collective”), a board of industry participants, which will set license prices. The MMA is, in part, meant to ensure that more participants in the music industry will be paid for their work. For example, music producers and engineers can expect to receive more compensation under the MMA.

While the MMA may broaden the pool of industry participants who get compensation from streaming, the MMA could weaken big name artists’ bargaining positions with streaming services. Recording artists like Taylor Swift and Adele have struggled to keep their albums off streaming services like Spotify. Swift resisted music streaming based on her conviction that streaming services did not fairly compensate artists, writers, and producers. While Swift may have come to an agreement with Spotify and allowed her albums to be streamed, there are still holdouts. More than two years after its release, Beyoncé’s Lemonade still is not on Spotify.

With the Collective controlling royalty rates, big name artists might not have the holdout power that they wield now. If Swift’s music had been lumped into a collective mechanical license, she may not have had the authority to withdraw or withhold her albums from streaming services. The MMA’s mechanical licenses are compulsory, indicating the lower level of control copyright owners may have. Despite this potential loss of leverage, the MMA is widely supported by artists and industry executives alike. Only time will tell whether the Collective’s set prices will make compensation within the music industry fairer, as proponents suggest.

Policy Proposals for High Frequency Trading

April 21, 2016
Business Law, Competition, Economics, Securities Law

Steven Graziano, MJLST Staffer

In his article, The Law and Ethics of High Frequency Trading, which was published in the Minnesota Journal of Law, Science, and Technology Issue 17, Volume 1, Steven McNamara examines the ethics of high frequency trading. High frequency trading is the use of high-speed algorithms to take advantage of minor inefficiencies in trading technologies, and in doing so gain large market returns. McNamara looks into ethical, economic, and legal aspects of high frequency trading. In the course of his discussion McNamara determines that: high frequency trading is a term that actually describes an assortment of different practices; the amount of dollars involved in high frequency trading is declining, but is still a concern for certain types of investors and regulators; a proper analysis of high frequency trading requires use of expectation-based, deontological moral theory; and that modern technology may call into question the use of the Regulation National Market System regime. McNamara concludes that even though high frequency trading may lower costs to most investors, many practices associated with high frequency trading support the position that high frequency trading is not fair.

Securities and Exchange Commission Chair Mary Jo White has recently commented on the legality, and potential ways to approach, high frequency trading. White, while testifying before the Senate Appropriations Subcommittee on Financial Services and General Government, informed the Congressional Committee that “You don’t paint with the broad brush all high-frequency traders — they have very different strategies.” This sentiment mirrors McNamara’s assertion that the term high-frequency trading actually involves various practices. However, White is seemingly defending some practices, while McNamara has a more negative view.

Differing still from these two views are the results of a study done by United Kingdom’s Financial Conduct Authority. That study concluded with the conclusion that high-frequency trade technologies are not rapidly predicting marketable orders and then trading those orders. However, the study examined practices in Europe, which has less market participants and a slower moving market than the United States.

In conclusion, Steven McNamara offers a very insightful, encompassing look at high frequency trading. His analysis resonates through both White’s testimony, and in the results of the study from the Financial Conduct Authority. Although all three perspectives seemingly stand for somewhat different propositions, what is clear from all three sources is that the practice of high-frequency trading is extremely complex and requires in-depth analysis before making any conclusive policy decisions.

Drug Shortages: A Mask for Reprehensible Activity?

March 10, 2016
Competition, Drug Policy, Economics, Healthcare

Ethan Mobley, MJLST Articles Editor

Access to life-saving prescription medication grabbed headlines after Turing Pharmaceuticals raised the price of its HIV drug, Daraprim, by about 5,000% overnight. While the Daraprim price hike initially appears to be driven by pure greed, it’s at least conceivable that basic economic principles of supply and demand may have played a minor role. Indeed, many other drugs have undergone serious price hikes arising from innocent supply constraints. While the defensibility of Daraprim price hikes remains uncertain, the story does bring to focus an issue affecting accessibility of hundreds of other life-saving prescription medications—drug supply shortages.

Drug shortages naturally restrict many patients’ ability to obtain life-saving medication, which can have disastrous effects. The Minnesota Journal of Law, Science & Technology addressed the issue in 2013 with a note written by Eric Friske. Friske found that drug shortages are often caused by a “combination of perturbed supply, manufacturing capacity, and utilization.” Friske then analyzed the efficacy of proposed (and now failed) legislation meant to reduce these supply shortages by requiring manufacturers to notify the FDA of impending shortages; the legislation would have also allowed the FDA to collaborate with manufacturers in order to streamline production. However, Friske determined these tools were insufficient to properly combat the shortage problem and proposed his own solution. In addition to notification requirements, Friske pushed for affirmatively incentivizing manufacturers to produce certain drugs and streamlining the drug manufacturing approval process.

Since Friske’s proposal, we’ve seen new legislation and regulation that aims to reduce the number of drug shortages. What’s more, the legislation and regulations contain notification requirements, manufacturer incentives, and streamlined approval processes—just like Friske proposed. While it’s obvious the drug shortage problem has not been solved, it is equally clear drug shortages have decreased over the past few years. Hopefully the trend continues so that life-saving drugs remain accessible to everyone, and drug companies will no longer be able to use supply shortages as justification for obscene price hikes.

Compulsory Licensing and Health Law

March 10, 2016
Competition, Drug Policy, Healthcare, Intellectual Property

Nolan Hudalla, MJLST Staffer

In her articleA Public Health Imperative: The Need for Meaningful Change in the Trans-Pacific Partnership’s Intellectual Property Chapter, Roma Patel discusses the benefits that TRIPS “flexibilities” provide to the pharmaceutical markets in developing nations. Specific to this discussion, Ms. Patel notes that malaria is a permissible reason for a country to declare a “national emergency” or “circumstance of extreme urgency” under TRIPS. Such a declaration would allow a nation to utilize the TRIPS compulsory licensing provision. This permits “a government to allow the sale and manufacture of patented medicine without the patent holder’s consent.” With the recent development of aviable malaria vaccine, what can we expect the impact of this provision to be? In particular, will countries invoke compulsory licensing on the basis of a malaria “national emergency,” and, if so, what results can we anticipate?

According to history, we can’t expect much. According to Nicol & Owoeye, “[t]o date, there is little to suggest that the Implementation Decision and the Protocol [for the compulsory licensing provisions] can meaningfully contribute to reversing the failure of the industrialized world to supply essential medicines to the countries that need them the most. Nor does there appear to be widespread enthusiasm for using Implementation Decision and Protocol mechanisms to facilitate the provision of low-cost or no-cost pharmaceuticals to those most in need.” This certainly appears to be true for impoverished African nations. For example, the continent has already been devastated by the HIV/AIDS epidemic, yet compulsory licensing has not provided a sufficient solution. In fact, according to a UNAIDS report, “[o]f the 21.2 million people in Africa eligible for antiretroviral therapy in 2013 under the 2013 WHO guidelines, only 7.6 million people were receiving HIV treatment as of December 2012.”

Brian Owens’ article Questions Raised about Whether Compulsory Licenses get Best Pricesdiscusses one of the reasons for the disappointing results of compulsory licensing. He notes that “[t]he use of so-called ‘compulsory licenses’ by developing countries to obtain cheaper drugs for HIV and AIDS by circumventing patents has not been the best strategy for achieving the lowest prices over the past decade . . . .” Expanding on this, Owens states that, “of the 30 cases of compulsory licensing from 2003 to 2012 for which reliable data was available, the median price achieved through international procurement was lower for 19 of them [than compulsory licensing]—in the majority of cases by more than 25% . . . . The effect was strongest in the poorest countries, where in six out of seven cases the procurement price was more than 25% lower than the compulsory license price.” Amir Attaran, the director of the study discussed in Owens’ article, asserts that “countries should not rush into using compulsory licenses until they have exhausted all other options. “Countries can save money using compulsory licenses, but they can save more by negotiating and using international procurement channels . . . If saving money is paramount, then compulsory licenses may not be the optimal strategy.”

Unfortunately, saving money is paramount for many African nations. Thus the greatest “flexibility” given to these nations is not always a practical solution. Perhaps the arrival of the first malaria vaccine will motivate international leaders to learn from prior experience. Hopefully the international community will reconsider compulsory licensing, as Roma Patel did, to determine how it can better provide access to life-saving medications.

The Affordable Care Act, Meant to Increase Medical Care Accessibility, May in Practicality Hurt that Accessibility Through Narrow Networks

January 28, 2016
Competition, Healthcare, Healthcare Reform

Natalie Gao, MJLST Staffer

The Patient Protection and Affordable Care Act (PPACA) continues to perpetuate some of the issues of medical inaccessibility it was meant to fix. The PPACA uses insurers’ desire to dodge risk to make health insurance more widely available, preventing insurers from refusing coverage based on preexisting conditions and requires they guarantee renewalability without too extensive a waiting period. Although PPACA disincentive insurance companies to risk-select, insurance companies found new ways to compete.

Narrow Networks, the Very Sick, and the Patient Protection and Affordable Care Act: Recalling the Purpose of Health Insurance and Reform by Valarie Blake discusses the creation of narrow networks by insurance companies as new ways to compete, where insurance companies agree to better rates with a narrow group of providers. This allows them to give better prices and premiums to its customers, even if the potential consequences is that the customers actually end up with more restrictive coverage. PPACA theoretically regulates networks, guaranteeing network adequacy of by a minimum standard of care and that the network be with essential community providers. But PPACA does not require network adequacy of providers. Practically, narrow networks can affect the availability of specialize services that some patients need, and the quality and experience of those providers. Even if the need to compete for patients might also ensure that narrow networks never compromise the necessary care, tertiary and specialty care, and the quality of care and connection due the provider, can easily be limited.

“Network adequacy,” states Blake, “is not a debate about access of health insurance but rather access of healthcare.” One way to measure whether or not our health care system is doing what it is supposed to is to measure the health of the very sick, and it brings up the question of whether or not PPACA guarantees all the right of healthcare or the right to be healthy. And what does count as sufficient access and who should be responsible for paying the healthcare costs associated with that sufficient access? These questions evoke analysis for consumer choice and consumer rights. The article recommends that network adequacy standard in both State and Federal law include tertiary and specialized care, and not extra cost be added onto out-of-network care, and the article recommends a special standard for tertiary care be adopted into law. On principle and based the cases that have occurred already around PPACA, narrow networks can easily become an issue that, if left unregulated, can create the very thing it was meant to solve.

USPTO to Decide Who Will Own the Pioneer Gene Editing Patent for the Next Billion-Dollar Industry

January 28, 2016
Biotechnology, Competition, Intellectual Property

Na An, MJLST Staffer

Earlier this month, the United States Patent and Trademark Office (USPTO) declared an interference to determine which one of the two research groups will be awarded the patent protection of one of the most important scientific discoveries in the past decade: CRISPR technology. This technology enables deletion, repair or replacement of genes in such a precise fashion that it could be worth billions of dollars in human health, agriculture and biotechnology industries.

Clustered regularly-interspaced short palindromic repeats system (CRISPR) is a mechanism used by the immune system to resist invading viruses by recording their genetic information and then specifically target these exogenous genetic elements in bacteria, mammals and other organisms. It provides a reliable and precise tool for editing genes. Upon its discovery, CRISPR has been adopted for a wide range of applications from creating animal models with human cancers and turning specific genes on and off to genetically modifying plants.

In 2015, companies rushed to invest and occupy early markets of this potentially billion-dollar industry. The first was Novartis, who signed two deals with gene-editing start-ups to use CRISPR for engineering immune cells and blood stem cells, and as a tool for drug discovery. Soon after, AstraZeneca shook hands with the Wellcome Trust Sanger Institute, the Innovative Genomics Initiative, the Broad and Whitehead Institutes, and Thermo Fisher Scientific to identify and validate new targets in preclinical models with CRISPR. Simultaneously, immunotherapy firm Juno Therapeutics made deals with Editas and Vertex Pharmaceuticals to create anticancer immune cell therapies with an agreement that could be valued at $2.6 billion.

Amid the fast surge of research and commercial opportunities, a patent fight over CRISPR simmers in the background, which raises great uncertainties of the future market structure and commercial potential. The UC Berkeley team, lead by chemist Jennifer Doudna, filed a patent application (No. 13/842,859) on March 15, 2013 with a priority date of May 25, 2012. The application contained broad claims to CRISPR technology, but described only “genetically modified cells that produce Cas9,” an enzyme crucial to CRISPR mechanism, and “Cas9 transgenic non-human multicellular organisms.” On October 15, 2013, the MIT researcher Feng Zhang filed his own patent application (No. 14/054,414) with a priority date of December 12, 2012. Unlike the Doudna application, Zhang contemplated specifically adapting CRISPR in eukaryotic cells. Through Accelerated Examination, USPTO granted Zhang a patent on April 15, 2014, even though Doudna had an earlier invention date and filing date. After several amendments to Doudna application in response to two third-party submissions, the world has been waiting on the USPTO to make a decision. On January 19, 2016, the patent office finally agreed to conduct an interference to decide who was the rightful applicant to award the patent protection on CRISPR.

Since both applications have priority dates prior to March 16, 2013, the patent will be granted on a “first to invent” basis. Interference cases are historically rare and could stretch out for years, considering the high probability that the losing party will appeal the decision. It is unclear what the result will be. Mari Serebrov, regulatory editor at Thomson Reuters BioWorld, said “if the courts rule the technology isn’t patentable, it could chill investment. On the other hand, if one group is allowed the patent, it could result in a monopoly and will probably make licenses more expensive or discourage research because the patents could lock up the field, depending on how broadly they are written.” Faced with the great uncertainty, Monsanto has limited CRISPR’s applications until a decision is made. Tom Adams, vice president of global biotechnology at Monsanto, said “until we understand the intellectual property it’s hard to do much.”

As more capital is pouring in and risks skyrocketing, companies and researchers need to use caution in their inventive and investment activities relating to CRISPR.

Long-Term Success of Autonomous Vehicles Depends on its First-Generation Market Share

January 25, 2016
Autonomous Vehicles, Business Law, Competition

Vinita Banthia, MJLST Articles Editor

In its latest technology anticipations, society eagerly awaits a functional autonomous car. However, despite the current hype, whether or not these cars will be ultimately successful remains a question. While autonomous cars promise to deliver improved safety standards, lower environmental impacts, and greater efficiency, their market success will depend on how practical the first generation of autonomous vehicles are, and how fast they are adopted by a significantly large portion of the population. Because their usability and practicality depends inherently on how many people are using them, it will be important for companies to time their first release for when they are sufficiently developed and can infiltrate the market quickly. Dorothy J. Glancy provides a detailed account of the legal questions surrounding autonomous cars in Autonomous and Automated and Connected Cars Oh My! First Generation Autonomous Cars in the Legal Ecosystem. This blog post responds to Glancy’s article and suggests additional safety and regulation concerns that Glancy’s article does not explicitly discuss. Finally, this post proposes certain characteristics which must be true of the first generation of autonomous vehicles if autonomous vehicles are to catch-on.

Glancy thoroughly covers the expected benefits of autonomous cars. Autonomous cars will allow persons who are not otherwise able to drive, such as visually impaired people, and the elderly, to get around conveniently. All riders will be able to save time by doing other activities such as reading or browsing the internet during their commute. And in the long run, autonomous vehicles will allow roads and parking lots to be smaller and more compact because of the cars’ more precise maneuvering abilities. Once enough autonomous vehicles are on the road, they will be able to travel faster than traditional cars and better detect and react to dangers in their surroundings. This will decidedly lead to fewer crashes.

On the contrary, several other features may discourage the use of autonomous vehicles. First, because of the mapping systems, the cars will likely be restricted to one geographic region. Second, they might be programmed to save the most number of people during a car crash, even if that means killing the occupant. Therefore, many prospective buyers may not buy a car that is programmed to kill him or her in the event of an inevitable crash. In addition, initial autonomous cars may not be as fast as imagined, depending on whether they can detect faster moving lanes, frequently change lanes, and adapt to changing speed limits. Until there are significant numbers of autonomous cars on roads, they may not be able to drive on longer, crowded roads such as highways, because vehicles will need to interact with each other in order to avoid crashes. Some argue that other car-service provides will suffer as taxis, Ubers, busses, and trails become less relevant. However, this change will be gradual because people will long continue to rely on these services as cheap alternatives to car-ownership.

When these cars are available, in order to promote autonomous cars to enter the market rapidly, manufacturers should make the cars most attractive to potential buyers, instead of making them good for society as a whole. For example, instead of programming the car to injure its own occupants, it should be programmed to protect its occupants. This will encourage sales of autonomous cars, reducing the number of car crashes in the long run.

Glancy also states that the first generation of autonomous vehicles will be governed by the same state laws that apply for conventional vehicles, and will not have additional rules of their own. However, this is unlikely to be true, and specific state and possibly even federal laws will most likely affect autonomous vehicles before they may be driven on public roads and sold to private individuals. Because autonomous cars will co-exist with traditional vehicles, many of these laws will address the interaction between autonomous and conventional cars, such as overtaking, changing lanes, and respecting lane restrictions.

In the end, the success of autonomous cars depends widely on how practical the first fleet is, how many people buy into the idea and how fast, as well as the car’s cost. If they are successful, there will be legal and non-legal benefits and consequences, which will only be fully realized after a few decades of operation of the cars.

Patent Damages

January 20, 2016
Competition, Intellectual Property, Patents

Tianxiang (Max) Zhou, MJLST Staffer

In Dec. 2015, almost five years after Apple sued Samsung for infringing a smartphone design patent, Samsung agrees to pay Apple $548 million. Apple is now demanding Samsung pay an additional $180 million for the patent dispute. Besides the huge amounts of damages, the case is not over and it continues raising fundamental issues of how to evaluate values of design patent infringements.

In the petition for writ of certiorari challenging the $400 million that it has paid for infringing Apple’s design patent, Samsung writes, “The questions presented are: . . . Where a design patent is applied to only a component of a product, should an award of infringer’s profits be limited to those profits attributable to the component?”

The second issue stated in the writ is noteworthy. Under the current rule, the awards in a design patent infringement case to the patent owner are the whole profits from the sale of the infringing products. This rule has created and will create massive jury verdicts in design patent infringement cases, and the Supreme Court has not reviewed the rule. As Samsung writes in the petition, “the Supreme Court has not reviewed a design-patent case in more than 120 years.” With the new development of the industries and various design patents, it is doubted whether the awards of whole profits are reasonable.

Although statistically the Supreme Court will not take the case, the issue of design patent awards raised heated discussions. In 2014, a group of 27 law professors submitted an amicus brief in support of Samsung urging the Federal Circuit to interpret the relevant statutory provision to limit the award of profits in design patent infringement cases. The amicus brief stated: “the Court should require proof of some connection between the patented design and the defendant’s profits, the order the district court to remit the award of profits to the extent it exceeds those profits attributable to the patented designs.” The professors argued the origin and context of the controlling statute Section 289, and that awarding a defendant’s entire profits makes no sense in the modern world, and to prevent disgorgement of profits.

As stated above, the Supreme Court has not reviewed the issue for over one hundred years. With the unsettled dispute between Samsung and Apple continuing, we could look forward to whether the Supreme Court would take the case and redefine Section 289. However, a question posed to the judges is, if the awards to the design patent infringement are not the whole profits of the sale, then what proportion of the profits should be awarded? Judges should figure out a reasonable standard to evaluate the amount attribute to the infringed design.

Recent Developments in Automated Vehicles Suggest Broad Effects on Urban Life

January 20, 2016
Autonomous Vehicles, Business Law, Competition, Intellectual Property

J. Adam Sorenson, MJLST Staffer

In “Climbing Mount Next: The Effects of Autonomous Vehicles on Society” from Volume 16, Issue 2 of the Minnesota Journal of Law, Science & Technology, David Levinson discusses the then current state of automated vehicles and what effects they will have on society in the near and distant future. Levinson evaluates the effect of driverless cars in numerous ways, including the capacity and vehicles-as-a-service (VaaS). Both of these changes are illuminated slightly by a recent announcement by Tesla Motors, a large player in the autonomous vehicle arena.

This week Tesla announced Summon which allows a user to summon their tesla using their phone. As of now, this technology can only be used to summon your car to the end of your drive way and to put it away for the night. Tesla sees a future where this technology can be used to summon your vehicle from anywhere in the city or even in the country. This future technology, or something very similar to it, would play a pivotal role in providing urban areas with VaaS. VaaS would essentially be a taxi service without drivers, allowing for “cloud commuting” which would require fewer vehicles overall for a given area. Ford has also announced what it calls FordPass, which is designed to be used with human-driven cars, but allows for leasing a car among a group of individuals and sharing the vehicle. This technology could easily be transferred to the world of autonomous vehicles and could be expanded to include entire cities and multiple cars.

Beyond VaaS, these new developments bring us closer to the benefits to capacity Levinson mentions in his article. Levinson mentions the benefits to traffic congestion and bottlenecks which could be alleviated by accurate and safe autonomous vehicles. Driverless vehicles would allow for narrower lanes, higher speed limits, and less space between cars on the highway, but Levinson concedes that these cars still need to “go somewhere, so auto-mobility still requires some capacity on city streets as well as freeways, but ubiquitous adoption of autonomous vehicles would save space on parking, and lane width everywhere.” Tesla is seeking to alleviate some of these issues by allowing a vehicle to be summoned from a further distance, alleviating some parking congestion.

Audi, however, is seeking to tackle the problem in a slightly different fashion. Audi is partnering with Boston suburb Somerville to develop a network including self-parking cars. “UCLA urban planning professor Donald Shoup found 30 percent of the traffic in a downtown area is simply people looking for parking” and eliminating this traffic would allow for much higher capacity in these areas. Similarly, these cars will not have people getting in and out of them, allowing for much more compact parking areas and much higher capacity for parking. Audi and Tesla are just some of the companies working to be at the forefront of automated vehicle technology, but there is no denying that whoever the developments are coming from, the effects and changes David Levinson identified are coming, and they’re here to stay.

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