TABLE OF CONTENTS
ARTICLES
Equity and Efficiency in Intellectual
Property Taxation
To Be or Not to Be Both CEO and
Board Chair
Daubert and its Discontents
Xuan-Thao Nguyen
Jeffrey A. Maine 1
Thuy-Nga T. Vo 65
Ronald J. Allen
Esfand Nafisi 131
The Promissory Character of Adequate
Assurances of Performance
Why Dicta Becomes Holding and Why it Matters
Michael J. Borden 167
Judith M. Stinson 219
NOTES
Leave It on the Field: Too Expansive an Approach to Evaluating Title IX
Compliance in Biediger v.
Quinnipiac University ? Carolyn Davis 265
The British Importation of
American Corporate Compliance Jessica Naima Djilani 303
Uncharted Waters: The Private
Sector’s Fight Against Piracy on the High Seas
Policing the Policing of Intersex Bodies:
Softening the Lines in Title IX
Athletic Programs
Michael G. Scavelli 343
Laura A. Zaccone 385

*
Xuan-Thao Nguyen † and Jeffrey A. Maine ‡
I NTRODUCTION
Intellectual property assets are integral to U.S. businesses.
1 Companies, large and small, expend substantial
*
© 2010 Xuan-Thao Nguyen and Jeffrey A. Maine. All rights reserved.
†
Professor of Law, SMU Dedman School of Law. The article was made possible with research grants from SMU Dedman School of Law, the Michael C. and
Jacqueline M. Barrett Endowed Faculty Research Fund, and the University of Maine
School of Law. Professor Nguyen thanks her co-author and friend Professor Maine for the endless excitement on the intersection of intellectual property and taxation. She gives special thanks to Erik Darwin Hille and Khai-Leif Nguyen-Hille for their love, patience, and support.
‡
Professor of Law, University of Maine School of Law. Professor Maine is grateful to his co-author and friend Professor Nguyen for the many collaborations on the intersection of intellectual property and taxation. He would like to thank Professor
Jennifer Wriggins for her valuable comments on early drafts and Nathan Brown and
Julie Welch for their valuable research assistance.
1
Consider, for example, Intellectual Ventures, a $5 billion startup company founded in 2000, which has a patent portfolio of 27,000 patents. See Nigel Page, IV
Shifts Gears , 36 I NTELL .
A SSET M GMT . 8, 9, 10 (2009), http://www.intellectualventures. com/Libraries/Article_Reprints/IAM_IV_story_July_-_Aug_2009.sflb.ashx (reporting the strategies of acquiring and creating inventions by Intellectual Ventures in the
United States and five Asian countries). The company accumulates patents from individuals, companies, and its own laboratory in Bellevue, Washington, in a wide range of fields to serve its numerous purposes, among them, the monetization of intellectual property. Id.
at 8-17 (discussing Intellectual Ventures’s monetization of intellectual property by employing innovative business models). Intellectual Ventures handsomely collects royalties from companies that use any of its patented inventions.
See Brier Dudley, Bellevue Lab Is an Inventor’s Real Dream , S EATTLE T IMES (May 27,
2009, 6:01 PM), http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document_ id=2009266390&zsection_id=2003907475&slug=intvent70&date=20090527. As of 2009, the company had collected $1 billion in royalties. Id.
It is now one of the top twenty-five research institutions in the United States and one of the top fifty in the world based on annual patent productivity. Id.
Intellectual Ventures provides financing to many companies and research universities to continue their invention productivities, and, in
1

2 BROOKLYN LAW REVIEW [Vol. 76:1 resources creating and developing products and services covered by patents, copyrights, trade secrets, and trademarks.
2
If businesses lack the expertise, facilities, financing, or time, they license these intellectual property rights from others; segmentation is the business modus operandi.
3 For tax, employment, and productivity reasons, multinational companies shuffle and migrate their intellectual property assets to favorable state and foreign jurisdictions. Some companies leverage their intellectual property assets for financing, while others leverage for litigation purposes.
4
Because intellectual property assets are highly valuable, companies seek different forms of intellectual property to protect their products or services, bundling multiple intellectual property rights.
5
The importance of intellectual property to U.S. business and the economy underscores the need for a sound tax policy governing intellectual property rights. Presently, the Internal
Revenue Code contains several special rules governing intellectual property.
6 Some special tax provisions affect a large group of intellectual property assets; 7 most, however, cover only return, Intellectual Ventures gains the ownership of or exclusive rights in patented inventions. See Page, supra .
2
Government statistics reveal the high level of intellectual property development activity in the United States. In 2008, the United States Patent Office received 485,312 patent applications and of those granted 185,224 patents. U.S. Patent
Statistics Chart: Calendar Years 1963-2009 , U.S.
P AT .
& T RADEMARK O FF . (Apr. 20,
2010, 1:04 PM), http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm (providing statistics of patent applications and grants for each fiscal year). That same year, total trademark filings at the Trademark Office covered 401,392 classes of goods or services and 430,343 disposals, which are “abandonments of applications plus issued registrations.” Trademark Pub. Advisory Comm., Annual Report , U.S.
P AT .
&
T RADEMARK O FF . 4 (2008), http://www.uspto.gov/web/offices/com/advisory/reports/tpac_
2008annualrpt.pdf. Also during 2008, the Copyright Office received 561,428 copyright claims, of which 232,907 were registered, as well as 526,508 copies of registered and unregistered works valued at $24 million. Fiscal Year 2010 Budget Request , U.S.
C OPYRIGHT O FF .
(Jun. 8, 2009), http://www.copyright.gov/docs/regstat060409.html. The
Copyright Office recorded more than 330,000 titles of works in fiscal year 2008. Id.
3
See infra notes 148-49 and accompanying text.
4
See Xuan-Thao Nguyen & Jeffrey A. Maine, Acquiring Innovation , 57 A M .
U.
L.
R EV . 775, 791 (2008) [hereinafter Nguyen & Maine, Acquiring Innovation ]
(describing how some companies without “resources, personnel, and facilities to conduct further research and development or to create end products or services” realize their returns on the patent portfolios by finding “potentially deep-pocketed infringers” and forcing them to pay “through litigation and threat of injunction”); Xuan-Thao
Nguyen, Collateralizing Intellectual Property , 42 G A .
L.
R EV . 1, 16-19 (2007)
(explaining how companies leverage intellectual property assets to obtain financing).
5
See infra Part IV.B.1.
6
Unless otherwise noted, all references to the Internal Revenue Code are to the Internal Revenue Code of 1986, as amended.
7 e.g.
, I.R.C. §§ 167(g)(6), 170(e)(1)(B)(iii), 170(m), 197 (2006).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 3 specific types of intellectual property.
8 While these rules were largely designed to address the shortcomings of traditional taxation principles in the intellectual property context, 9 ironically, many special tax rules are circumscribed in ways that relegate the tax analysis back to these traditional principles.
10 Thus, the current income tax system governing intellectual property is a mix of special tax rules and general taxation principles.
Ideally, the current intellectual property tax system should embrace the principles of fairness and efficiency. While few would disagree that fairness and efficiency, in the abstract, are important features of any tax policy, disagreement may arise over the applied meaning of these two criteria. The first criterion—tax fairness—is usually described in terms of horizontal equity.
11 Horizontal equity requires that persons who are similarly situated should be taxed in a similar fashion.
12 A
8 e.g.
, id.
§§ 41, 167(f)(1), 167(g)(8), 174, 1221(a)(3), 1221(b)(3), 1235, 1253.
9 infra notes 185-94 and accompanying text.
10 infra notes 185-94 and accompanying text.
11
See J OHN A.
M ILLER & J EFFREY A.
M AINE , T HE F UNDAMENTALS OF
F EDERAL T AXATION 4 (2d ed. 2010); see also M ICHAEL J.
G RAETZ & D EBORAH H.
S CHENK , F EDERAL I NCOME T AXATION : P RINCIPLES AND P OLICIES 28 (6th ed. 2009).
12
See M ILLER & M AINE , supra note 11, at 4; G RAETZ & S CHENK , supra note
11, at 28. Horizontal equity has been compared to the constitutional principle of equal protection under the laws. U.S.
C ONST .
Amend. XIV, § 1; see also Richard A. Musgrave,
Horizontal Equity, Once More , 43 N AT ’ L T AX J. 113 (1990); Joseph E. Stiglitz,
Utilitarianism and Horizontal Equity: The Case for Random Taxation , 18 J.
P UB .
E CON . 1 (1982).
Some theorists question the utility of horizontal equity in tax policy analysis, contending that horizontal equity lacks independent significance and is devoid of any normative content. See, e.g.
, Paul R. McDaniel & James R. Repetti,
Horizontal and Vertical Equity: The Musgrave/Kaplow Exchange , 1 F LA .
T AX R EV . 607,
607 (1993). For the actual debate between Professors Louis Kaplow and Richard
Musgrave over the merits of horizontal equity, see Louis Kaplow, Horizontal Equity:
Measures in Search of a Principle , 42 N AT ’ L T AX J. 139 (1989); Louis Kaplow, A Note on
Horizontal Equity , 1 F LA .
T AX R EV . 191 (1992) [hereinafter Kaplow, A Note ]
(contending horizontal and vertical equity are aspects of the same principle);
Musgrave, supra ; Richard A. Musgrave, Horizontal Equity: A Further Note , 1 F LA .
T AX
R EV . 354 (1993) [hereinafter Musgrave, A Further Note ] (arguing horizontal equity has independent significance distinct from vertical equity); see also Anthony C. Infanti, Tax
Equity , 55 B UFF .
L.
R EV . 1191, 1193-94 (noting criticism of horizontal equity as lacking independent significance); Eric M. Zolt, The Uneasy Case for Uniform Taxation , 16 V A .
T AX R EV . 39, 89-97 (1996) (summarizing criticisms of horizontal equity).
Critics often point to the difficulty of determining relevant likeness (i.e., the comparison of taxpayers and economic activities). Kaplow, A Note , supra , at 192-93;
McDaniel & Repetti, supra , at 612-13. But see Musgrave, A Further Note , supra , at 359; see also Zolt, supra , at 95 (“Defining horizontal equity as requiring equal tax treatment for individuals who are, in all relevant aspects, equal accomplishes little. It just begs the question of what is relevant. . . . The principle of horizontal equity does nothing to determine which differences justify different tax treatment.”). Requiring equal treatment for equals, they argue, merely begs the question of what equals actually are.

4 BROOKLYN LAW REVIEW [Vol. 76:1 related concept of equity is that economically equivalent activities should be taxed in the same manner even if they differ in form.
13 Horizontal equity was once considered the primary goal of tax policy, 14 and even if no longer held in quite this same regard, it nonetheless remains an important principle of tax theory.
15
But this objection rests on an “exaggerated view of the level of precision required in order for equality to have meaning.” John A. Miller, Equal Taxation: A
Commentary , 29 H OFSTRA L.
R EV . 529, 545 (2000) (“All of our major tax schemes have found ways to determine likeness (or difference) that are generally recognized as fair.”).
As one commentator notes, “[H]orizontal equity is concerned with individuals who are
‘similarly situated,’ not with those who are ‘identically situated.’” David Elkins,
Horizontal Equity as a Principle of Tax Theory , 24 Y ALE L.
& P OL ’ Y R EV . 43, 44 (2006)
(“Tautologically, any conceivable tax arrangement will treat identically situated taxpayers equally. . . . Taxpayers are similarly situated when their situations are considered equivalent.”). Moreover, even if this criticism of horizontal equity is valid, horizontal equity could nevertheless serve as a useful tool to uncover potential problems in a tax system. See Jeffrey H. Kahn, The Mirage of Equivalence and the Ethereal
Principles of Parallelism and Horizontal Equity , 57 H ASTINGS L.J. 645, 651 (2006). For example, the tax system’s differential treatment of two intellectual property owners that appear to be in similar economic circumstances might signal a flaw in the intellectual property tax system, or it might at least challenge us to justify disparate treatment.
Some critics also question the use of horizontal equity to analyze tax expenditures (i.e., tax credits and deductions), arguing that a tax expenditure is a subsidy that occurs outside of traditional tax equity analysis. McDaniel & Repetti, supra , at 621.
In the context of home ownership, Professor Miller has argued that horizontal equity analysis can actually challenge us to justify disparate treatment between homeowners and renters caused by the mortgage interest deduction. Miller, supra , at 537-38.
Likewise, in the context of intellectual property ownership, horizontal equity analysis can challenge us to justify disparate tax treatment that exists between individual patent and copyright creators and corporations whose employees invent or create.
13
See Kahn, supra note 12, at 647 (using the term “parallelism” for the proposition that “the same or equivalent receipts, expenditures or losses should be treated the same by the tax law”; non-parallelism “results in disparate tax treatment of taxpayers who occupy similar positions”); Zolt, supra note 12, at 49 (using the term
“uniform taxation,” which rests on the concept of horizontal equity, “to refer to tax treatment in accordance with some general approach . . . without any differentiation as to type of income or type of taxpayer,” and using the term “nonuniform taxation” to refer “to tax rules that vary by type of income or type of taxpayer”).
14
See, e.g.
, R ICHARD A.
M USGRAVE , T HE T HEORY OF P UBLIC F INANCE : A
S TUDY IN P UBLIC E CONOMY 160 (1959) (“Perhaps the most widely accepted principle of equity in taxation is that people in equal positions should be treated equally.”); H ENRY
C.
S IMONS , F EDERAL T AX R EFORM 11 (1950) (“Equity in this primary sense must, in an advanced nation, predominate over, if not wholly override, all other objectives.”); see also Joseph T. Sneed, The Criteria of Federal Income Tax Policy , 17 S TAN .
L.
R EV . 567,
574-80 (1965).
15
See, e.g.
, Miller, supra note 12 (discussing the merits of horizontal equity analysis); Elkins, supra note 12 (showing independence of horizontal equity as a principle of tax theory); Brian Galle, Tax Fairness , 65 W ASH .
& L EE .
L.
R EV . 1323,
1328, 1335-62 (2008) (providing justifications for tax fairness and claiming that horizontal equity “can be defended as an essential feature of the revenue function of taxation” and can operate on principles of its own); Samuel A. Donaldson, The Easy
Case Against Tax Simplification , 22 V A .
T AX R EV . 645 (2003) (arguing equity and efficiency, as opposed to simplicity, are core values); Kahn, supra note 12 (recognizing

2010] EQUITY AND EFFICIENCY IN IP TAXATION 5
The second criterion of sound tax policy—efficiency— has been measured by contradictory standards and means various things in various contexts.
16 Ideally, a tax system should be administratively efficient; the costs of administering and complying with intellectual property tax rules should be minimized. Efficiency in tax theory can also be measured in terms of economic growth.
17 Under this standard, the intellectual property tax system would be viewed as efficient if it promoted economic growth 18 and inefficient if it inhibited such growth.
19 Thus, tax subsidies—in the form of deductions, credits, and lower tax rates—for certain intellectual property activities might upset the free market allocations of capital, but equal treatment of the same items serves the normative goal of fairness, but arguing that parallelism need not necessarily prevail over other legitimate goals).
16
See M ILLER & M AINE , supra note 11, at 4; see also G RAETZ & S CHENK , supra note 11, at 29-30 (summarizing various meanings of the efficiency criterion).
17
Alternatively, efficiency can be viewed as a utilitarian concept that seeks a balance between maximizing tax revenues and minimizing the social costs of taxation.
See M ILLER & M AINE , supra note 11, at 4; Edward A. Zelinsky, Efficiency and Income
Taxes: The Rehabilitation of Tax Incentives , 64 T EX .
L.
R EV . 973, 978-1012 (1986);
Herman P. Ayayo, Tax Expenditures: Useful Economic Concept or Budgetary
Dinosaur?
, 93 T AX N OTES 1152 (2001); Zolt, supra note 12, at 63 (“Efficient taxes distort as little as possible”; describing three forms in which distortions come).
According to this standard, an optimal intellectual property tax system would be neutral—that is, it would not interfere with intellectual property owners’ economic behavior and would avoid deadweight losses caused by restructuring of intellectual property transactions to minimize taxes.
G RAETZ & S CHENK , supra note 11, at 29
(stating that efficiency requires that a tax interfere as little as possible with people’s economic behavior); Elkins, supra note 12, at 47 (stating that efficient taxes minimize deadweight losses caused by taxpayer actions to reduce tax burden by choosing courses of action that minimize tax).
But this standard is of questionable value in the context of intellectual property taxation. Most intellectual property tax rules are deliberately not neutral; thus, under this standard, these rules generate high efficiency costs. Many of the special tax provisions governing patents and copyrights, for example, were a deliberate attempt to support the social-utility mandate of patent and copyright laws. Tax expenditures in the form of deductions and credit for certain research and development, and short write-off periods for certain intellectual property acquisitions, were deliberately designed to drive economic decision-making to achieve more important intellectual property social policies. Whether tax expenditures (i.e., deductions and credits used to influence behavior) represent sound tax policy has been the subject of much debate. See, e.g.
, Zelinksky, supra ; Ayayo, supra . In any event, at least with respect to the intellectual property tax scheme, neutrality violations are inevitable to achieve more important intellectual property social engineering policies and to advance the public interest.
18
G RAETZ & S CHENK , supra note 11, at 29 (“The efficiency criterion sometimes has other meanings. A tax often is said to be efficient when it promotes economic growth and inefficient when it inhibits such growth.”); Edward Yorio, The
President’s Tax Proposals: A Major Step in the Right Direction , 53 F ORDHAM L.
R EV .
1255, 1262-63 (1985) (examining economic growth as a principal criterion of sound federal income tax policy).
19
G RAETZ & S CHENK , supra note 11, at 29.

6 BROOKLYN LAW REVIEW [Vol. 76:1 they might be justified because the targeted activities involve significant beneficial externalities.
20 And if these subsidies correctly quantify society’s interests, according to the economicgrowth efficiency standard, they contribute to market efficiency.
21
The design of any tax system involves tradeoffs between equity and efficiency principles.
22 It may be efficient to provide tax breaks to certain innovators because society as a whole benefits from high innovation via encouragement of individual effort through personal gain.
23 But such measures may violate horizontal equity because conflicts between equity and efficiency are often inevitable byproducts. The government must therefore establish reasonable tradeoffs when designing an intellectual property tax system.
24 For example, the government might decide to grant equity primacy over efficiency or vice versa.
25 If inequity gives way to efficiency, a certain level of inequity might be acceptable; in other words, horizontal equity violations might sometimes be justified but only if the efficiency gains are significant.
26
20
Under an economic-growth efficiency standard, the tax system might be said to be efficient even if neutrality violations upset the free market allocations of capital. For example, if policymakers chose to adopt a lower tax on patent owners vis-à-vis copyright owners to stimulate the economy, capital might flow from the copyright segment to the patent segment as a result of the tax change.
21
Elkins, supra note 12, at 48 (“Where the economic activity concerned produces beneficial externalities, a negative tax (i.e., a subsidy) may be offered. . . .
When the subsidy correctly quantifies society’s interests, it actually contributes to the efficiency in the market.”).
22
See supra note 12, at 541 (“Equity and efficiency principles will often coincide.”); Zolt, supra note 12, at 85 (concluding that “nonuniform tax treatment may yield efficiency gains not available under uniform taxation”).
23
Under the contradictory efficiency standard discussed supra note 17, some would argue that such tax breaks to innovators violate the principle of neutrality by encouraging taxpayers to choose patent activities over other intellectual property activities. Under this view, the greater the inequity, the greater the inefficiency.
24 supra note 12, at 68 (“[E]very tax system must allow some degree of inequality in order to encourage beneficial economic activity.”); Zolt, supra note 12, at 60-85 (examining choices where unequal treatment yields efficiency gains).
25
See Zolt, supra note 12, at 99 (While “efficiency and equity may conflict,
[o]ne approach could [be to] grant primacy to equity, regardless of efficiency considerations.”).
26
Id.
at 100 (“If efficiency gains are minor, then there may be strong reasons for not adopting provisions that have inequity, or the perception of inequity. The presumption should be in favor of uniform tax treatment where gains from nonuniform treatment cannot be adequately justified. Where we can demonstrate substantial efficiency gains, rejecting proposals on equity grounds becomes more problematic.”
(footnote omitted)).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 7
This article evaluates the current U.S. income tax regime governing intellectual property by focusing on the traditional principles of tax policy—tax fairness and efficiency.
It highlights the shortcomings of the current tax system in fulfilling both of these tenets. It begins, in Part I, with an overview of intellectual property rights, highlighting substantive similarities and differences among patents, copyrights, and trademarks. Part II turns to the current intellectual property tax system. It evaluates the intellectual property tax scheme in terms of horizontal equity, identifying differences in tax treatment of what appear to be similar intellectual property activities. Part III assesses the efficiency of the intellectual property tax system. Specifically, it examines numerous tax subsidies for intellectual property and their effectiveness in promoting economic growth. It argues that many of these tax expenditures are circumscribed to have limited effectiveness and thus do not optimally contribute to economic growth. It also argues that the current intellectual property tax regime, with varying rules for different types of intellectual property, does not provide necessary certainty and clarity for sound administration and compliance with the law.
As an example, the intellectual property tax system is not easily applied to evolving intellectual property rights and trends, such as the bundling of intellectual property rights in actual practice.
Finally, Part IV proffers guidelines for the government in designing a more efficient and equitable tax system for intellectual property. As to the efficiency criterion, a legal framework should establish the proper role, if any, of the tax system in promoting beneficial intellectual property activity.
27
While the current tax system aims to promote the innovation goals of patents and patent-like property through various tax expenditures, it arguably hinders beneficial copyright and trademark goals through the absence of adequate tax incentives.
28 This article questions this result, viewing most intellectual property rights as achieving similar goals—namely, innovation and/or efficiency policy objectives—and taking a broad view of intellectual property’s positive effects on society.
As to the equity criterion, a legal framework should establish a basis for rational tax distinctions among intellectual property
27
See infra Part IV.A-B.
28
See infra notes 211-34 and accompanying text.

8 BROOKLYN LAW REVIEW [Vol. 76:1 forms if distinctions are to be maintained. One solution would be to base tax distinctions not on the legal attributes of intellectual property, which has been the historical approach, but on the intellectual property purposes that intellectual property assets serve. Instead of developing separate tax rules for identified intangibles, creating legal definitions and carving out exceptions, different tax results could be dictated by whether intellectual property is technology-based, marketingbased, or artistic-based—categories the government has adopted for financial reporting purposes.
I. O VERVIEW OF I NTELLECTUAL P ROPERTY R IGHTS
Before evaluating the intellectual property tax scheme, it is useful to examine the nature of intellectual property rights. In American law, “intellectual property rights often cover . . . patents, copyrights, and trademarks.” 29 In contrast to tangible property, which is visible and has physical existence, intellectual property is intangible and has no physical existence.
30 Intangible intellectual property rights are separate
29
See generally Nguyen, supra note 4, at 6. Computer technology poses challenges to intellectual property doctrines. Copyright law has traditionally served as the source of legal protection for computer programs. See Williams Elecs., Inc. v. Artic
Int’l, Inc., 685 F.2d 870, 875 (3d Cir. 1982) (“[T]he copyrightability of computer programs is firmly established after the 1980 amendment to the Copyright Act.”).
Copyright law now defines computer software, extends the exclusive rights in a copyright to copyrightable computer software, and imposes limitations on the exclusive rights to allow certain statutorily noninfringing use of the copyrightable computer software. 17 U.S.C. §§ 101, 117 (2006). In addition to copyright law, patent protection has been extended to computer software. See State St. Bank & Trust Co. v. Signature
Fin. Grp., Inc., 149 F.3d 1368 (Fed. Cir. 1998).
30
Current tax rules for intangible intellectual property differ substantially from tax rules for tangible property, with intellectual property treated less favorably than tangible property in many instances. For example, the costs of purchasing certain machines and equipment for active use in businesses are immediately deductible, see
I.R.C. § 179 (2006) (allowing taxpayers to elect to expense the costs of certain tangible property), but the costs of purchasing intellectual property assets for use in businesses are not and must be capitalized, id.
§ 263(a); Treas. Reg. §§ 1.263(a)-4(b)(1)(i), -4(c)(1)
(2004). In addition, the purchase price for a computer can be written off over a period of five years, I.R.C. §§ 167, 168(c), 168(e)(3)(B) (2006), but the purchase price for custom software to run the computer must be written off over either three years or fifteen years, depending on how the software was acquired, id.
§ 167(f) (providing a three-year recovery period for separately acquired computer software); id.
§ 197 (providing a fifteen-year recovery period for software acquired as part of the acquisition of a trade or business). Similarly, a charitable contribution of a building provides the donor with a tax deduction equal to the fair market value of the building, id.
§ 170(a); Treas. Reg.
§ 1.170A-1(c) (as amended in 2008), whereas a charitable contribution of a patent provides the donor with a deduction equal to the donor’s basis, I.R.C. § 170(e)(1)(B)(iii)
(2006). In these and other instances, the current tax system treats intellectual property inconsistently with, and less favorably than, tangible property.

2010] EQUITY AND EFFICIENCY IN IP TAXATION 9 from the physical objects containing the intellectual property.
Ownership of a book, for example, does not mean ownership of the copyright of the book.
Patents and copyrights are substantively similar in many respects. Patents and copyrights are both intangible personal property.
31 While neither has a physical form, both are generally dependent on physical forms for their creative existence.
32 In addition, both confer similar exclusivity rights.
Just as patent owners can exclude others from using, making, selling, or exporting their patented products, 33 copyright owners enjoy the exclusive right to make copies, prepare derivative works, distribute the copyrighted work, and publicly perform and display the work.
34 The same clause of the U.S.
Constitution empowers Congress to promote the progress of both science and the useful arts.
35 In response, Congress has granted significant protections for both patents and copyrights.
36
31
See 1 J.
T HOMAS M C C ARTHY , T RADEMARKS AND U NFAIR C OMPETITION § 6:4
(4th ed. 2008) (“That there are many common characteristics of patents . . . and copyrights cannot be denied. They all share the attributes of personal property, and are referred to en masse as ‘intellectual property’ or ‘proprietary rights.’”).
32
See Jeanne L. Schroeder, Unnatural Rights: Hegel and Intellectual
Property , 60 U.
M IAMI L.
R EV . 453, 499-500 (2006) (“[O]bjects of intellectual property have no separate, natural, empirical existence. They ‘exist’ contingently and only insofar as not only their creator, but also other subjects, recognize them as such.”); Dan
L. Burk, Legal and Technical Standards in Digital Rights Management Technology , 74
F ORDHAM L.
R EV . 537, 538 (2005) (stating intellectual property is generally “embodied in particular physical forms—on paper, on canvas, on magnetic or optical media—that can be guarded from a physical theft”).
33
See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 392 (2006) (“[T]he
Patent Act also declares that ‘patents shall have the attributes of personal property,’ including ‘the right to exclude others from making, using, offering for sale, or selling the invention.’” (citations omitted)).
34
See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 432-33
(1984) (“Copyright Act grants copyright holder ‘exclusive’ rights to use and to authorize the use of his work in five qualified ways, including reproduction of the copyrighted work in copies.” (citation omitted)).
35
U.S.
C ONST . art. I, § 8, cls. 1, 8 (“The Congress shall have Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries . . . .”).
36
Congress passed both patent and copyright legislation in 1790 during the first congressional session. Patent Act of 1790, ch. 7, 1 Stat. 109-112 (current version at
35 U.S.C. §§ 1-376 (2006)); Copyright Act of 1790, 1 Stat. 124 (current version at 17
U.S.C. §§ 101-1332 (2006)). The patent statutes went through major revision in 1952.
See Diamond v. Diehr, 450 U.S. 175, 182 (1981) (noting certain amendments to patent statutes in 1952 and what Congress revised in that year); Graham v. John Deere Co. of
Kansas City, 383 U.S. 1, 12-17 (1966) (discussing the Patent Act of 1952). Copyright laws witnessed two major revisions: the Copyright Act of 1909 and the Copyright Act of
1976. See Act of March 4, 1909, ch. 320, 35 Stat. 1075; Copyright Act of 1976, Pub. L.
No. 94-553, 90 Stat. 2541 (codified at 17 U.S.C. § 101 (2006)); see also Lotus Dev. Corp.

10 BROOKLYN LAW REVIEW [Vol. 76:1
Copyrights include the exclusive rights to make copies, prepare derivative works, distribute the works, display the works in public, and perform the works in public.
37 Copyright law requires that a work of authorship be original and fixed in a tangible medium of expression.
38 Works of authorship cover a wide range of subject matters—for example, movies, video games, software, music, and books; 39 originality means that the works must be created independently by the author and must bear some degree of creativity.
40 The bundle of rights does not last forever, however, as it faces a time limit.
41 This time limitation is consistent with the Founding Fathers’ intent in drafting the Patent and Copyright Clause. While the Founding
Fathers clearly sought to award authors exclusive rights to their works—based on the belief that a reward-based system would “promote the Progress of Science and useful Arts” 42 —they also understood that an unfettered right would do little to promote such cultural progress and therefore placed a time v. Paperback Software Int’l, 740 F. Supp. 37, 47-51 (D. Mass. 1990) (discussing changes and legislative history of copyright statutes).
37
See N.Y. Times Co. v. Tasini, 533 U.S. 483, 495 n.4 (2001); see also 17
U.S.C. § 106 (2006) (“Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.”).
38
17 U.S.C. § 102(a) (2006) (“Copyright protection subsists . . . in original works of authorship fixed in any tangible medium of expression . . . from which they can be perceived, reproduced, or otherwise communicated . . . .”).
39
Id.
§ 102(a) provides a list of categories for works of authorship: “(1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works;
(5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.”
40
See Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 358-59 (1991)
(stating that “[o]riginality requires only that the author make the selection or arrangement independently . . . and that it display some minimal level of creativity.
Presumably, the vast majority of compilations will pass this test, but not all will. There remains a narrow category of works in which the creative spark is utterly lacking or so trivial as to be virtually nonexistent.” (citation omitted)).
41 generally Eldred v. Ashcroft, 537 U.S. 186 (2003).
42
U.S.
C ONST . art. I, § 8, cl. 8.

2010] EQUITY AND EFFICIENCY IN IP TAXATION 11 limit on the exclusivity for copyrights, the same as they did for patents.
43
As with patents, the exclusive rights in copyrights, though limited in time, are granted to encourage the progress of science and the useful arts for the benefit of society.
44 There is a long-held belief that copyright protection promotes innovation and the “creative activity of authors,” 45 and induces authors and artists to “release to the public . . . the products of his creative genius.” 46 Technological advances in the reproduction and distribution of copyrighted works, however, force new changes in copyright law, as Congress continually searches for a balance between copyright protection 47 and future innovations.
Despite their similarities, there are many substantive differences between patents and copyrights. For example, the legal life of a patent is dictated by the federal patent statute and lasts twenty years from the date of patent application.
48
The legal life of a copyright under the federal copyright statute is much longer; it spans the life of the original author plus
43
Id.
44
Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and useful Arts.’”); United States v. Paramount Pictures, Inc., 334 U.S. 131, 158 (1948)
(“The copyright law, like the patent statutes, makes reward to the owner a secondary consideration. . . . It is said that reward to the author or artist serves to induce release to the public of the products of his creative genius.”).
45
Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984)
(explaining that “[t]he monopoly privileges that Congress may authorize are neither unlimited nor primarily designed to provide a special private benefit. Rather, the limited grant is a means by which an important public purpose may be achieved. It is intended to motivate the creative activity of authors and inventors by the provision of a special reward”). But see Stewart E. Sterk, Rhetoric and Reality in Copyright Law , 94
M ICH .
L.
R EV . 1197, 1205, 1209, 1213-15 (1996) (arguing that “demonstrating how neither the need to generate creative activity nor the desire to reward deserving authors provides a plausible justification for current copyright doctrine”).
46
Pictures , 334 U.S. at 158; see also Stephen Breyer, The Uneasy
Case for Copyright: A Study of Copyright in Books, Photocopies, and Computer
Programs , 84 H ARV .
L.
R EV . 281, 288-89 (1970) (examining the “property” right in copyrights and asserting that “property rights are often created for reasons of efficiency” rather than “solely on the basis of labor expended”).
47
See Eldred v. Ashcroft, 537 U.S. 186, 222 (2003) (“[T]he Copyright Clause empowers Congress to determine the intellectual property regimes that, overall, in that body’s judgment, will serve the ends of the Clause. . . . Congress may ‘implement the stated purpose of the Framers by selecting the policy which in its judgment best effectuates the constitutional aim.’” (quoting Graham v. John Deere Co. of Kansas City,
383 U.S. 1, 6 (1966))).
48
35 U.S.C. § 154(a)(2) (2006) (providing that the patent term is twenty years from an effective filing date).

12 BROOKLYN LAW REVIEW [Vol. 76:1 seventy years after the author’s death.
49 If the author is an entity, the life of the copyright is 120 years from the date of creation or 95 years from the date of publication, whichever expires first.
50
In contrast to patent and copyright laws, Congress relied on the Commerce Clause to pass the trademark statutes.
51 Unlike patent and copyright laws, trademark laws do not exist to reward trademark owners for innovations of products or services.
52 Rather, trademark laws are recognized as important to facilitate efficiency.
53 Specifically, trademark laws prevent competitors from copying source-identifying marks and minimizing the likelihood of consumer confusion.
54
Consumers can rely on the trademarks in their decision of whether to purchase a product or service.
55 Consequently, trademark laws reduce the consumers’ costs of shopping and making purchasing decisions and help assure “a producer that it (and not an imitating competitor) will reap the financial,
49
17 U.S.C. § 302(a) (2006).
50
17 U.S.C. § 302; see also Thomas F. Cotter, Toward a Functional Definition of Publication in Copyright Law , 92 M INN .
L.
R EV . 1724, 1733 (2008) (reviewing the statutory provision for the legal life of a copyright created by natural authors and works made for hire).
51
Nguyen, supra note 4, at 8.
52
See TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29, (2001).
“The Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity.” Id.
at 34. Federal trademark law “has no necessary relation to invention or discovery.” In re Trade-Mark Cases, 100 U.S. 82, 94 (1879).
53
See Int’l Bancorp, L.L.C. v. Societe des Bains de Mer et du Cercle Des
Etrangers a Monaco, 329 F.3d 359, 381 (4th Cir. 2003) (stating that “the very real interest that our trademark laws have in minimizing consumer confusion” is to ensure
“that our economy may enjoy the greatest possible of efficiencies”). William M. Landes
& Richard A. Posner, Trademark Law: An Economic Perspective , 30 J.L.
& E CON . 265,
265-66 (1987) (“Our overall conclusion is that trademark law . . . can best be explained on the hypothesis that the law is trying to promote economic efficiency”).
54
See Berner Int’l Corp. v. Mars Sales Co., 987 F.2d 975, 982 (3d Cir. 1993)
(commenting that “[t]rademark protection is desirable because of the efficiencies and incentives produced by symbolic affiliation of producer and quality product”).
55
Many commentators also believe that trademarks foster efficiency in information and search costs “‘by providing a compact, memorable and unambiguous identifier of a product or service.” Barton Beebe, A Defense of the New Federal
Trademark Antidilution Law , 16 F ORDHAM I NTELL .
P ROP .
M EDIA & E NT .
L.J. 1143,
1148 (2006) (quoting Richard Posner, When Is Parody Fair Use?
, 21 J.
L EGAL S TUD . 67,
75 (1992)).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 13 reputation-related rewards associated with a desirable product.” 56
II. E VALUATING E QUITY IN THE I NTELLECTUAL P ROPERTY
T AX S YSTEM
Having introduced the characteristics of intellectual property rights, we turn to the current tax system governing those rights. Ideally, the income tax regime for intellectual property transactions should embrace the principle of fairness.
57
Unfortunately, it is difficult to evaluate a tax system governing intangible rights from an equity perspective because these rights involve such a broad range of economic activities that no two taxpayers will be situated exactly equally. For example, should a person selling a literary copyright and a person selling a musical copyright be treated as equals for tax purposes?
Should a seller of computer software protected as a patent be viewed as similarly situated to a seller of similar computer software that is protected as a trade secret? Should a purchaser of a domain name functioning as a trademark be considered equal to a purchaser of a generic domain name? Is a person who donates intellectual property to a large university engaged in applied research similar to a person who donates similar intellectual property to a small college engaged in fundamental, purely scientific research?
56
Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 163-64 (1995). As explained by the Court in Qualitex ,
In principle, trademark law, by preventing others from copying a sourceidentifying mark, “reduce[s] the customer’s costs of shopping and making purchasing decisions,” for it quickly and easily assures a potential customer that this item—the item with this mark—is made by the same producer as other similarly marked items that he or she liked (or disliked) in the past. At the same time, the law helps assure a producer that it (and not an imitating competitor) will reap the financial, reputation-related rewards associated with a desirable product. The law thereby “encourage[s] the production of quality products,” and simultaneously discourages those who hope to sell inferior products by capitalizing on a consumer’s inability quickly to evaluate the quality of an item offered for sale.
Id.
(internal citations omitted); see also Mark Bartholomew, Advertising and the
Transformation of Trademark Law , 38 N.M.
L.
R EV . 1, 1 (2008) (stating that trademark law promotes efficiency as consumers reduce their research cost by relying on brand names); Mark P. McKenna, The Normative Foundations of Trademark Law , 82 N OTRE
D AME L.
R EV . 1839, 1841-43, 1848 (2007) (critiquing the law and economic approach to trademark law which emphasizes economic efficiency of trademark law purposes).
57 supra notes 11-15 and accompanying text.

14 BROOKLYN LAW REVIEW [Vol. 76:1
Viewing all intellectual property owners as equals and treating them equally for tax purposes would have unarguable appeal. Consider the general tax treatment of both patents and copyrights. The legal protections granted to patents and copyrights are very similar in substance—both essentially functioning as grants of monopolies.
58 If the intellectual property system treats patents and copyrights similarly, the tax rules designed to support the system might also treat them similarly—an approach that seems consistent with tax notions of fairness.
59
A fundamental problem with the current intellectual property tax system, however, is inconsistency. Patent and copyright owners are treated equally in some tax contexts but unequally in others. For example, the acquisition costs of patents and copyrights are treated similarly for tax purposes, 60 as are patent and copyright donations.
61 But the taxation of development costs differs between patents and copyrights.
Patent development costs are deductible when incurred, 62 whereas most copyright creation costs must be capitalized.
63
Likewise, sales of self-developed patents are generally entitled to preferential capital-gains treatment, 64 while sales of most self-created copyrights are generally not.
65
58
See
59
See supra text accompanying notes 11-15.
60
See I.R.C. §§ 197(a), (e)(4)(C) (2006) (providing a fifteen-year amortization period for patents and copyrights acquired in a transaction involving the acquisition of assets constituting a trade or business); see also id.
§ 167; Treas. Reg. §§ 1.167(a)-3 (as amended in 2004), 1.167(a)-14 (as amended in 2006) (providing alternative depreciation rules for patents and copyrights acquired separately).
61
See I.R.C. §§ 170(a), (e)(1)(B)(iii) (2006) (limiting initial charitable contribution tax deduction to adjusted basis in donated patents and copyrights).
62
See id.
§ 174(a) (allowing taxpayers to “treat research or experimental expenditures which are paid or incurred . . . during the taxable year in connection with . . . trade or business as expenses which are not chargeable to capital account”); id.
§ 263(a)(1)(B) (providing that the capitalization rules under section 263(a) do not apply to “research and experimental expenditures deductible under section 174[a]”).
63
See id.
§ 263(a); Treas. Reg. § 1.263(a)-4(b)(1)(iii), -4(b)(3), -4(d)(5) (2004)
(requiring capitalization of costs of obtaining rights from a governmental agency, as well as costs of creating any “separate and distinct intangible asset”); see also I.R.C.
§ 263A(a)-(b) (2006) (requiring capitalization of all direct and indirect expenditures incurred to produce creative properties, such as films, sound recordings, video tapes, books, and similar properties that embody the words, ideas, concepts, images, or sounds by the creators thereof). But see id.
§ 263A(h) (providing an exception from the capitalization requirement, permitting certain freelance writers, photographers, and artists to deduct any “qualified creative expense” that would otherwise be capitalized).
64
See I.R.C. § 1235 (2006) (providing statutory assurance to certain individual inventors that the sale of their patents will qualify for reduced capital-gains rates).
65
See id.
§§ 1221(a)(3) (excluding from the definition of capital asset a literary, musical, or artistic composition, or similar property held by the creator),

2010] EQUITY AND EFFICIENCY IN IP TAXATION 15
To be sure, there are distinctions between patents and copyrights.
66 But even if patent owners are different from copyright owners, based on tax equity principles, two patent owners that are similarly situated, or two copyright owners whose situations are similar, should be taxed in a similar fashion. Under the current intellectual property tax regime, however, this is not the case, raising serious equity concerns.
67
A. Inequities in the Tax Treatment of Intellectual Property
Development Costs
Since the inception of the modern federal income tax system, the Internal Revenue Code (the “Code”) has precluded a current deduction for so-called “capital expenditures,” historically defined as any expenditure that produces an asset lasting beyond the current tax period.
68 With respect to intellectual property development expenditures, though,
Congress has specifically legislated specific exceptions to asset capitalization, 69 and the Internal Revenue Service (the “IRS”) has administratively created additional exceptions.
70 These legislative and administrative exceptions to normative capitalization have inequitable results. The following example is illustrative.
1231(b)(1)(C). But see id.
§ 1221(b)(3) (providing an exception for sales of musical compositions and copyrights in musical works).
66 supra text accompanying notes 48-50.
67
Many of the inequities identified here in the tax treatment of intellectual property do not exist in the tax treatment of tangible real or personal property.
68
Revenue Act of 1913, ch. 16, § II(B), 38 Stat. 114, 167 (providing “[t]hat no deduction shall be allowed for any amount paid out for new buildings, permanent improvements, or betterments, made to increase the value of any property”). For the current disallowance provisions, see I.R.C. §§ 263, 263A (2006). The reason capitalized expenditures are not currently deductible is that the property created or acquired is not consumed or used up within the year, but rather continues to contribute to income over a period of years. If the costs incurred in the creation or acquisition of such property were deductible in full in the current year, there would be a mismatch of income to expenses that produced that income; income would be understated in the year of creation or acquisition and overstated in later years. By prohibiting the immediate deduction of capital expenditures, this problem is avoided.
69
See I.R.C. §§ 174 (allowing a deduction for research and experimental expenditures that would otherwise be capitalized), 263A(h) (allowing a deduction for qualified creative expenses incurred by freelance authors, writers, and photographers that would otherwise be capitalized) (2006).
70
See Treas. Reg. §§ 1.263(a)-4(b)(1)(iii), -4(b)(3)(v) (2004) (allowing a deduction for graphic and package design costs even though long-term trademark and copyright protections are obtained on such designs); Rev. Proc. 69-21, 1969-2 C.B. 303, updated by Rev. Proc. 2000-50, 2000-2 C.B. 601, modified and superseded by Rev. Proc.
2007-16, 2007-1 C.B. 358 (allowing a current deduction for software development costs regardless of method length of intellectual property protection).

16 BROOKLYN LAW REVIEW [Vol. 76:1
Consider two novice inventors, Inventor A and Inventor
B . Each spends $100,000 to develop her first patented invention. Inventor A plans to enter a future business of her own with her developed technology, marketing the technology herself. Inventor B , however, plans to license his developed technology to a company that will market the developed technology to its customers. Inventor A and Inventor B appear similarly situated; each spends $100,000, and each obtains patent protections for similar technologies that will be exploited in the commercial marketplace. Nevertheless, under the present tax system, Inventor A and Inventor B are not treated equally. Inventor A may currently deduct $100,000 in research costs, but Inventor B may not. This disparate treatment stems from Section 174 71 of the Code, which allows a current deduction only for research expenditures incurred “in connection with” the inventor’s trade or business.
72 While a taxpayer need not be currently conducting a business (i.e., producing or selling any product) for research or experimental expenditures to meet Section 174’s “in connection with a trade or business” requirement, 73 courts have required that a taxpayer show a realistic prospect of entering into a trade or business in the future that will exploit the technology under development.
74 To do so, the taxpayer must demonstrate both an objective intent to enter into the trade or business, and the ability to perform the business.
75
71
I.R.C. § 174(a) (2006).
72
Id .
73
Prior to 1974, the IRS and the courts took the position that to qualify for
Section 174 treatment, a taxpayer must already have engaged in a trade or business.
See Best Universal Lock Co. v. Comm’r, 45 T.C. 1 (1965), acq.
, 1966-2 C.B. 4 (1966);
Koons v. Comm’r, 35 T.C. 1092, 1098, 1100 (1961). The U.S. Supreme Court rejected this narrow approach and held that pre-operational research or experimental expenditures could qualify for the Section 174 deduction. Snow v. Comm’r, 416 U.S.
500, 503-04 (1974).
74
Kantor v. Comm’r, 998 F.2d 1514, 1518 (9th Cir. 1993) (“[T]he taxpayer must demonstrate a ‘realistic prospect’ of subsequently entering its own business in connection with the fruits of the research, assuming that the research is successful.”); see also Zink v.
United States, 929 F.2d 1015, 1023 (5th Cir. 1991); Spellman v. Comm’r, 845 F.2d 148,
149-50 (7th Cir. 1988); Stauber v. Comm’r, 63 T.C.M. (CCH) 2258 (1992); Diamond v.
Comm’r, 92 T.C. 423, 439 (1989), aff’d , 930 F.2d 372 (4th Cir. 1991).
75
See Kantor , 998 F.2d at 1518-19 (holding that the partnership possessed neither “the objective intent nor the capacity of entering such a business” at the time it incurred research expenditures); Diamond , 930 F.2d at 375 (“The question is not whether it is possible in principle, or by further contract, for [the taxpayer] to engage in a trade or business, but whether, in reality, the [taxpayer] possessed the capability in the years before the court to enter into a new trade or business in connection with the
[products being developed].”); Glassley v. Comm’r, 71 T.C.M. (CCH) 2898 (1996)

2010] EQUITY AND EFFICIENCY IN IP TAXATION 17
As a general rule, the receipt of royalties alone does not constitute a trade or business.
76 In one recent case, the Ninth
Circuit affirmed a Tax Court decision that denied current deductions to a computer software developer who did not market the developed technology himself, but instead licensed the technology to another company for use in that company’s trade or business.
77 The court concluded that mere licensing of the developed technology did not meet the requisite trade or business standard in the statute. A few Tax Court decisions have held that research activities, and exploitation of the resulting inventions by sale or license, may constitute a trade or business.
78 But these cases involved inventors who had developed a series of inventions.
79 Thus, in practice, Section 174 fails to recognize the important role of technology licensing and favors only inventive activities of a sufficiently sustained character.
As with patent development activity, not all economically equivalent copyright creation activities are treated equally for tax purposes. As crafted, the legislative and administrative exceptions to the asset-capitalization rule produce different tax results depending on the status of the copyright creator—as an individual versus a corporation—and, in some cases, on the nature of the property embodying the copyright.
80 In general, costs incurred in creating works that are subject to copyright protection are not currently
(denying Section 174 deductions for expenditures to develop jojoba plants and seeds because taxpayer had neither intent nor capability to enter jojoba farming business).
76
See H.R. R EP .
N O . 97-201, at 113 (1981) (laying out rules for the application of Section 174, but not explicitly naming licensing as a trade or business that entitles taxpayers to relief under that provision).
77
Saykally v. Comm’r, 85 T.C.M. (CCH) 1401 (2003), aff’d , 247 F. App’x 914
(9th Cir. 2007).
78
See Kilroy v. Comm’r, 41 T.C.M. (CCH) 292, 295 (1980) (permitting deductions where actions, over a period of years, relating to inventing activities suggested taxpayers were engaged in the trade or business of inventing); Louw v.
Comm’r, 30 T.C.M. (CCH) 1421, 1422-23 (1971) (permitting deductions since taxpayer’s freelance inventive activities were of sufficiently sustained character to qualify as engaging in a trade or business of an inventor); Avery v. Comm’r, 47 B.T.A. 538, 542
(1942) (permitting business deductions where taxpayer “held the patents [to his inventions] for sale or license to others for profit”).
79
See Kilroy , 41 T.C.M. (CCH) at 295 (“numerous patents”); Avery , 47 B.T.A. at 540 (“about a dozen patents”). But see Cleveland v. Comm’r, 297 F.2d 169, 173 (4th
Cir. 1961) (deeming a single invention held by a joint venture to be sufficient).
80
The nature of the copyright creator (individual versus entity) can produce different tax results. See infra notes 81-82 and accompanying text. The nature of the property embodying the copyright can also produce different tax results. See supra notes 83-86 and accompanying text.

18 BROOKLYN LAW REVIEW [Vol. 76:1 deductible, 81 but Congress has carved out a narrow exception for certain costs incurred by individual writers, photographers, and artists when engaged in their respective trades.
82 As a result, expenses incurred by an individual author in writing a book are currently deductible, but similar creative costs incurred by a book publishing company (costs of writing, editing, and designing) must be capitalized.
Although corporate taxpayers must generally capitalize copyright creation costs, capitalization is not required if the subject of copyright protection is computer software 83 or certain advertising materials.
84 As a result, a corporation may not deduct the costs of developing copyrighted books, films, or songs, but it may deduct the costs of developing copyrighted software, graphic designs, and package designs used in advertising. Ironically, the value produced in each case lies not in the different tangibles embodying the copyright, but in the
81
Section 174 does not apply to copyright creation expenses because such expenses do not constitute “research and experimental expenditures” within the meaning of Section 174. See Treas. Reg. § 1.174-2(a)(1)-(2) (as amended in 1994).
Section 162 generally does not apply to copyright creation costs as the Code requires such costs to be capitalized. See I.R.C. § 263(a) (2006); Treas. Reg. § 1.263(a)-4 (2004)
(requiring capitalization of costs of obtaining rights from a governmental agency, as well as costs of creating any “separate and distinct intangible asset”); see also I.R.C.
§ 263A(a)-(b) (2006) (requiring capitalization of all direct and indirect expenditures incurred to produce creative properties, such as films, sound recordings, video tapes, books, and similar properties that embody the words, ideas, concepts, images, or sounds by the creators thereof).
82
I.R.C. § 263A(h) (2006) (providing an exception from the capitalization requirement, permitting certain freelance writers, photographers, and artists to deduct
“qualified creative expenses” that would otherwise have to be capitalized).
83
Under a longstanding administrative ruling, software development costs are treated the same (i.e., currently deductible) regardless of whether the software is protected by patent, copyright, or trade secret. See Rev. Proc. 69-21, 1969-2 C.B. 303, updated by Rev. Proc. 2000-50, 2000-2 C.B. 601, modified and superseded by Rev. Proc.
2007-16, 2007-1 C.B. 358.
84
As a general rule, the government allows taxpayers to currently deduct advertising costs notwithstanding the fact that advertising often produces benefits that continue well beyond the current taxable year. See Rev. Rul. 92-80, 1992-2 C.B. 57.
Only in unusual circumstances must the costs be capitalized, such as where advertising is directed toward obtaining future benefits significantly beyond those traditionally associated with ordinary product, institutional, or goodwill advertising.
Id.
Advertising expenditures often encompass the costs of creating materials that are copyrighted. An interesting question is whether the long-term intangible benefits provided by copyright protection should serve as the basis for requiring capitalization of advertising campaign expenditures. Or, should such costs be deductible because they resulted from “advertising” activities? In one case, the Tax Court allowed trade dress and copyright development costs to be deducted, even though such costs in a nonadvertising context most likely would have to be capitalized. R.J.R. Nabisco Inc. v.
Comm’r, 76 T.C.M. (CCH) 71 (1998).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 19 intangible copyright protections themselves.
85 Even if the copyright protections are identical in each case, the tax consequences to the corporate creators differ significantly.
86
B. Inequities in the Tax Treatment of Intellectual Property
Acquisition Costs
Inequities in the tax treatment of intellectual property acquisition costs are also prevalent. Under the current tax system, the costs of acquiring intellectual property must first be capitalized 87 and then are subject to a host of irrational tax depreciation rules.
88 The methods 89 and periods 90 for recovering
85
Holders of copyrights enjoy the exclusive rights to reproduce, distribute, display, perform, and prepare derivatives of the works of authorship. That means holders of copyrights have more rights than mere ownership of the physical copy of the works of authorship. Michael J. Madison, Notes on a Geography of Knowledge , 77
F ORDHAM L.
R EV . 2039, 2071 (2009) (“[T]he physical ‘copy’ is excluded from the scope of copyright and the intangible ‘work’ or ‘work of authorship’ is regarded as the fruit of the author’s creative labors. The authority of the copyright itself, therefore, inheres in something other than the material form of the product. . . . A copyright in a novel covers the full text of the book, but it may also extend separately to its plot or even to a particular character.”); Gary Pulsinelli, Harry Potter and the (Re)Order of the Artists:
Are We Muggles or Goblins?
, 87 O R .
L.
R EV . 1101, 1107 (2008) (“Copyright law is concerned only with rights in the artistic design of an object, not with the right to the physical possession of a tangible object embodying that design.”); Ned Snow, Copytraps ,
84 I ND .
L.J. 285, 296 (2009) (noting that copyright holders exercise their reproduction and distribution rights under copyright law when they sell physical copies of their copyrighted works to consumers).
86
For a discussion of copyright protections, see supra notes 31-47 and accompanying text.
87
I.R.C. § 263 (2006); Treas. Reg. §§ 1.263(a)-4(b)(1)(i), -4(c)(1) (2004) (“A taxpayer must capitalize amounts paid to another party to acquire any intangible
[property] from that party in a purchase or similar transaction.”).
88
In an economic sense, depreciation is the decline in value of an asset due to wear and tear and obsolescence. For tax purposes, depreciation is a deduction from income, permitting the taxpayer to recover the capitalized cost of that asset.
Depreciation methods are sometimes called cost recovery systems. So, for example, if an asset used in business for five years costs a taxpayer $5000, the taxpayer might take a $1000 deduction each year on her taxes for five years to reflect the decline in value of that asset and to reflect its contribution to the production of taxable income.
The entire cost of the asset is not deducted all at once because the asset helped produce income over five years. To match the taxpayer’s expenses against the revenues they helped produce, the taxpayer must spread out the deduction over the useful life of the asset. See generally M ILLER & M AINE , supra note 11, at 118-22.
89
Capitalized intellectual property costs are depreciated using either the straight-line method or the income-forecast method depending on a number of factors. See
I.R.C. §§ 197(a), (e)(3)-(4) (2006) (requiring straight-line method for intellectual property acquired in connection with the acquisition of assets that constitute a trade or business) ; see also id.
§§ 167(a), (g)(8); Treas. Reg. §§ 1.167(a)-3 (as amended in 2004), -14 (as amended in 2006), (b)-1 (as amended in 1960) (allowing either the straight-line method or the income-forecast method for intellectual property acquired separately). Accelerated or
“bonus” depreciation methods that are available for depreciable tangible property are not available for intangible property. See I.R.C. § 168(b) (2006). But see I.R.C. §§ 197(e)(3),

20 BROOKLYN LAW REVIEW [Vol. 76:1 capitalized intellectual property acquisition costs vary by the type of intellectual property acquired, 91 the manner of procurement, 92 and even the method of payment.
93 Prescribed recovery periods, for example, range from three to fifteen years,
179(a), (d)(1)(A)(ii) (2006) (permitting taxpayers to elect to deduct the cost of purchasing off-the-shelf computer software).
Under the straight-line method, acquisition costs are deducted ratably over the asset’s useful life or over a statutorily prescribed recovery period. Under the income-forecast method, acquisition costs are recovered as income is earned from exploitation of the patent. Rev. Rul. 60-358, 1960-2 C.B. 68, supplemented by Rev. Rul.
64-273, 1964-2 C.B. 62, supplemented by Rev. Rul. 79-285, 1979-2 C.B. 91. The depreciation allowance in any given year is computed by multiplying the original acquisition cost by a fraction, the numerator of which is income from the intellectual property for the taxable year and the denominator of which is forecasted or estimated total income to be earned in connection with the intellectual property during its useful life. Id.
Consider the following example. In Year 1, Taxpayer purchases a patent for
$100 and estimates that forecasted total income from the patent will be $200. In
Year 1, the patent generates income of $80. The depreciation allowance for Year 1 is
$40, computed by multiplying the acquisition cost of $100 by the fraction obtained by dividing current year income of $80 by forecasted total income of $200. Under this approach, 40% of forecasted income was earned in Year 1, so 40% of the total purchase cost was deducted in Year 1. See Prop. Treas. Reg. § 1.167(n)-4(b).
90
Some types of intellectual property are depreciated over an arbitrary fifteen-year period regardless of the intellectual property’s legal or useful life. See
I.R.C. §§ 197(a)-(b), (d)(1)(C)(iii), (d)(1)(F) (2006). Other types are depreciated ratably over their useful life (i.e., under the straight-line method). Id.
§§ 167(a), 197(e)(3)-(4);
Treas. Reg. §§ 1.167(a)-3 (as amended in 2004), (a)-14 (as amended in 2006), (b)-1 (as amended in 1960). Others are depreciated only as the intellectual property generates income (i.e., under the income-forecast method). I.R.C. § 167(g)(8) (2006); Treas. Reg.
§ 1.167(a)-14 (as amended in 2006). As with the appropriate depreciation method, the appropriate recovery period depends on a number of factors.
91
For example, trademarks, trade names, trade secrets, and know-how are depreciated over fifteen years. I.R.C. §§ 197(a)-(b), (d)(1)(C)(iii), (d)(1)(F) (2006). Patents and copyrights acquired separately are depreciated over their useful lives under either the straight-line method or income-forecast method. Id. §§ 167(a), (g)(8); Treas. Reg.
§§ 1.167(a)-3 (as amended in 2004), -14(a) (as amended in 2008). Computer software acquired separately is generally deprecated over three years. I.R.C. § 167(f) (2006).
92
Intellectual property may be acquired in a transaction involving the acquisition of a trade or business or may be acquired separately or with a group of assets that collectively do not constitute a trade or business. For many types of intellectual property, such as patents, patent applications, and computer software, depreciation rules differ depending on the method of procurement (i.e., Section 197 applies only if these assets are acquired with a business). See I.R.C. § 197(e)(3)-(4)
(2006). For other types, such as trademarks, trade names, trade secrets and know-how, method of procurement is irrelevant (i.e., Section 197 applies regardless of whether these assets are acquired separately or with a business). See id.
93
As consideration, intellectual property transferees may make up-front principal payments, installment payments of a fixed amount, payments contingent on exploitation of the intellectual property, or use any combination of these methods.
When contingent payments are made, depreciation rules differ depending on whether the intellectual property is acquired separately or acquired with a trade or business.
For example, if a contingent payment is made for a patent acquired with a business, the contingent amount is written off over a fifteen-year period. Treas. Reg. § 1.197-
2(f)(2)(i) (as amended in 2008). If a contingent payment is made for a patent acquired separately, then the contingent amount is fully deductible in the year paid. Id.
§ 1.167(a)-14(c)(4) (as amended in 2006).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 21 depending on the type of intellectual property acquired and the manner of procurement: fifteen years for all acquired trade secrets, trademarks, and trade names; 94 fifteen years for patents, copyrights, and computer software acquired with a trade or business; 95 five years for separately acquired musical copyrights; 96 and three years for separately acquired computer software.
97 A fixed recovery period is not prescribed for patents and copyrights acquired separately. Instead, the capitalized costs of these assets are recovered under one of two approaches: (1) over their estimated useful lives under the
“straight-line method” or (2) as income is actually earned under the “income-forecast method” (which has a maximum write-off period of eleven years).
98
The consequences of this approach raise policy concerns regarding depreciation. For example, a patent acquired as part of a business acquisition is subject to ratable fifteen-year amortization (which may be shorter or longer than the actual useful life of the patent), but a patent acquired separately benefits from more rapid depreciation allowances (shorter useful life under the straight-line method or accelerated allowances under the income-forecast method).
99 Is it logical that all patents—regardless of type or remaining legal life— acquired along with a business are grouped into a single category with a single recovery method and period, while patents acquired separately are depreciated using an asset-by-
2008).
94
I.R.C. §§ 197(a), (d)(1)(F) (2006); Treas. Reg. § 1.197-2(b)(5) (as amended in 2008).
95
I.R.C. §§ 197(a), (d)(1)(C)(iii) (2006); Treas. Reg. § 1.197-2(b)(5) (as amended in
96
I.R.C. § 167(g)(8)(A) (2006), amended by Tax Increase Prevention and
Reconciliation Act of 2005, Pub. L. No. 109-222 (providing that a taxpayer may elect to ratably deduct the costs of acquiring any musical composition or any copyright with respect to musical composition property over a five-year period instead of using the income forecast method).
97
I.R.C.
98
For patents and copyrights acquired outside the context of a business acquisition, tax depreciation rules that were applicable prior to 1993 generally continue to apply. Treas. Reg. §§ 1.167(a)-3(a) (as amended in 2004), -14(e) (as amended in 2006). In 1997, Congress codified the income-forecast method of depreciation in Section 167(g) of the Code, providing a maximum recovery period of eleven years for income forecast property. I.R.C. § 167(g) (2006), amended by Small
Business Job Protection Act of 1996, Pub. L. No. 104-188; see also H.R. R EP .
N O . 105-
148, at 514, reprinted in 1997 U.S.C.C.A.N. 908. Forecasted total income includes all income the taxpayer reasonably believes will be earned during the eleven-year period beginning with the year the property is placed in service. I.R.C. §§ 167(g)(1)(A),
(g)(5)(C) (2006). In the eleventh year, a taxpayer may deduct any unrecovered costs left in the property. Id. § 167(g)(1)(C).
99
See supra notes 94-98 and accompanying text.

22 BROOKLYN LAW REVIEW [Vol. 76:1 asset approach? If patents derived their value from their relationship to a product, service, or goodwill of a business, as do trademarks or trade names, it might be justifiable to provide an arbitrary recovery period to avoid messy valuation and intangible asset allocation problems. However, the value of a patent acquired as part of the purchase of a trade or business is not necessarily tied to the goodwill of the acquired trade or business.
100 Rather, patents can be freely sold, assigned, or transferred without associated goodwill or other business assets.
101 The same is true of copyrights and computer-software
(which is subject to different intellectual property protections).
102
As a result, the depreciation schedule for patents, copyrights, and software need not necessarily parallel the arbitrary depreciation schedule applicable to intangibles acquired in a business acquisition, which lack inherent value
(such as trademarks and trade names). Indeed, an argument could be made that, if two patents or two copyrights or two types of computer software are capable of reasonable valuation, and have relatively similar commercial lives, they should be subject to similar tax rules no matter how acquired.
103
100
Trademarks, in part, derive their value from goodwill. See 1 M C C ARTHY , supra note 31, §§ 2:18-19 (citing Mut. Life Ins. Co. v. Menin, 115 F.2d 975 (2d Cir.
1940)). The value of patents, however, stems from the owner’s ability to “exclude others from making, using, selling, or offering for sale the invention within the United States” for a set number of years. 5 D ONALD S.
C HISUM , C HISUM ON P ATENTS § 16.01 (2010).
101
35 U.S.C. § 261 (2006) (“Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing. The applicant, patentee, or his assigns or legal representatives may in like manner grant and convey an exclusive right under his application for patent, or patents, to the whole or any specified part of the
United States.”); see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,
135-36 (1969) (citing Waterman v. Mackenzie, 138 U.S. 252, 255 (1891)) (“The law . . . recognizes that [the patent holder] may assign to another his patent, in whole or in part, and may license others to practice his invention.”).
102
A copyright can be transferred separately. See 17 U.S.C. § 201(d) (stating that “[t]he ownership of a copyright may be transferred in whole or in party by any means of conveyance or by operation of law” and that “[a]ny of the exclusive rights comprised in a copyright . . . may be transferred . . . and owned separately”)
Trademarks, in contrast, are accompanied by the business goodwill they represent. See
Susan M. Richey, The Second Kind of Sin: Making the Case for a Duty to Disclose Facts
Related to Genericism and Functionality in the Trademark Office , 67 W ASH .
& L EE L.
R EV . 137, 167 n.146 (2010) (“The Lanham Act prohibits assignments in gross, requiring that purchase of a trademark be accompanied by the business goodwill that it represents, and, in the event that a transfer violates the rule, the assignment is void.”).
103
Tax inequities with respect to software purchases are even more evident in light of the artificially short recovery period for separately acquired software. While software acquired as part of the acquisition of a business is depreciated over fifteen years, software acquired separately is depreciated over three years—a substantial tax benefit to those taxpayers who can navigate the system and negotiate for separate

2010] EQUITY AND EFFICIENCY IN IP TAXATION 23
Another example of tax inequity under depreciation rules for intellectual property acquisitions relates to the treatment of contingent payments. Contingent payments made for patents and copyrights acquired with a business are treated differently from contingent payments made for patents and copyrights acquired separately . If a contingent payment is made for a patent acquired with a business, the contingent amount is written off over a fifteen-year period.
104 If, on the other hand, a contingent payment is made for a patent acquired separately, the contingent amount is fully deductible in the year paid.
105 The apparent rationale behind permitting this immediate deduction for separately acquired patents is that each payment reflects the annual cost of the patent and that a current deduction properly matches expenses with income.
106 However, the same policy can support current deductions for all contingent payments, regardless of whether the patent is acquired separately or with a trade or business.
Any concerns about valuing intangibles acquired in a business acquisition or about allocating the purchase price among acquired intangibles should be nonexistent when contingent payments are involved. purchases of software. Compare I.R.C. §§ 197(a)-(b), (e)(3) (2006) (providing fifteen-year recovery period) with id.
§ 167(f)(1) (providing three-year recovery period).
104
Treas. Reg. § 1.197-2(f)(2)(i) (as amended in 2008). According to the legislative history:
[I]f a portion of the cost of acquiring an amortizable section 197 intangible is contingent, the adjusted basis of the section 197 intangible is to be increased as of the beginning of the month that the contingent amount is paid or incurred. This additional amount is to be amortized ratably over the remaining months in the . . . amortization period that applies to the intangible as of the beginning of the month that the contingent amount is paid or incurred.
H.R. R EP .
N O . 103-213, at 685 (1993), reprinted in 1993 U.S.C.C.A.N. 1088, 1374.
105
Under this approach, known as the “variable contingent payment” method of depreciation, a taxpayer adds the amount of the contingent payments to the basis of the patent and then immediately takes a depreciation deduction for an equal amount.
The government has sanctioned the variable contingent payment method. See Treas.
Reg. § 1.167(a)-14(c)(4) (as amended in 2006); see also Associated Patentees, Inc. v.
Comm’r, 4 T.C. 979, 985-87 (1945), acq.
, 1959-2 C.B. 3 (sanctioning deduction for variable contingent payments); Allied Tube & Conduit Corp. v. Comm’r, 34 T.C.M.
(CCH) 1218 (1975) (recognizing that deducting yearly payments on a patent is a reasonable method of depreciation); Rev. Rul. 67-136, 1967-1 C.B. 58 (following the
Associated Patentees decision).
106
Patentees , 4 T.C. at 986 (concluding that a current deduction for the entire contingent payment gives the taxpayer “a reasonable, and not more than a reasonable,” depreciation allowance, whereas permitting as depreciation only a proportionate part of the payment “might deny petitioner the recovery of its cost and would unquestionably result in a distortion of income”).

24 BROOKLYN LAW REVIEW [Vol. 76:1
C. Inequities in the Tax Treatment of Intellectual Property
Transfers
Like the tax treatment of acquisition costs, the tax treatment of intellectual property transfers raises a number of equity concerns. Consider the following example involving the assignment of two patents. Individual A , a freelance inventor, sells one of his many developed patents to a third party for
$100,000. XYZ, Inc., a small research company whose employees conduct research, sells one of its many developed patents to a third party for $100,000. Although one would expect the tax system to treat Individual A and XYZ, Inc. similarly, that is not the case. Individual A ’s gain will be treated as capital gain under the Code’s safe-harbor provision in Section 1235; 107 XYZ, Inc.’s gain, on the other hand, will be treated as ordinary income under the Code’s general provisions.
108 Section 1235 requires that the transferor is a statutorily defined “holder” of the patent—i.e., any individual whose personal efforts created the patent property—to be guaranteed capital-gains treatment.
109 So, here, Individual A can qualify for capital-gains treatment under Section 1235 even though the subject of the sale (i.e., the inventory being sold) is not considered a capital asset under general characterization principles.
110 XYZ, Inc.’s assignment, however, will not qualify for Section-1235 treatment, but will instead be treated as a sale of a noncapital asset yielding ordinary income.
111
107
I.R.C. § 1235 (2006).
108
Id. §§ 1222 (requiring the sale or exchange of a “capital asset” for preferential capital-gains treatment), 1221(a)(1) (excluding inventory from the capital asset definition), 1231(b) (excluding inventory from the quasi-capital asset definition).
109
Id. §§ 1235(a), (b)(1); Treas. Reg. § 1.1235-2(d)(1)(i) (as amended in 1980).
More specifically, the regulations provide that a holder is any individual whose efforts created the patented property and who would qualify as the “original and first” inventor, or joint inventor, under the patent laws. Treas. Reg. § 1.1235-2(d)(1)(i)
(referring to Title 35 of the U.S. Code). An inventor’s employer would not qualify as a holder “even though he may be the equitable owner of the patent by virtue of an employment relationship with the inventor.” S. R EP .
N O . 83-1622, at 423 (1954)
(Comm. Rep.), reprinted in 1954 U.S.C.C.A.N. 4621, 50883.
110
I.R.C. § 1221(a)(1) (2006) (excluding from capital asset definition inventory and inventory-like property).
111
Although corporations do not get lower rates on their capital gains, capital gains can be used by a corporation to absorb capital losses the corporation may have.
See id. § 1211(a) (providing that a corporation’s capital losses are allowed only to the extent of the corporation’s capital gains).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 25
Similar distinctions apply to copyright assignments. For example, songwriters are subject to capital-gains tax rates on the sales of their songs rather than higher personal income tax rates as a result of a special Code provision enacted in 2006 governing musical compositions and the copyrights thereon.
112
Peculiarly, capital-gains treatment is not available to other individual artists, such as novelists, painters, sculptors, and designers.
113 Moreover, although individual copyright creators have ordinary gain on the sale of their works (with the exception of musical copyrights, as noted), corporate copyright creators are eligible for capital gains on the sale of works created by their employees and individual contractors.
114 This additional distinction results from the fact that the capitalasset exception for self-created property does not apply to nonindividual creators, such as corporations, whose employees or independent contractors created the copyrights.
115 These distinctions lack any theoretical justification.
Current charitable deduction rules for intellectual property donations also raise equity concerns. These deduction rules favor income-generating intellectual property over nonincome-generating intellectual property.
116 Moreover, they favor donors that give income-generating intellectual property to commercially-driven charities over donors that give similar property to non-commercially-driven charities.
117 Consider two corporations planning to donate similar technologies with equal values. ABC Company makes a donation to a large university that will use the intellectual property in ways that directly generate income. XYZ Company, however, makes its donation to a small college that emphasizes education and basic research. Prior to 2004, the Code granted both companies an initial tax deduction for the same amount—the fair-market
112
Id. § 1221(b)(3).
113
Section 1221(b)(3) applies only to musical compositions and copyrights thereon. Id.
Individual artists, such as novelists, painters, sculptors, and designers are subject to the general capital-gains provisions. See id. §§ 1221(a)(3) (excluding from capital asset definition self-created copyrighted works), 1231(b)(1)(C) (excluding from the definition of Section 1231 property self-created copyrighted works).
114
Id. §§ 1221-1222.
115
See Rev. Rul. 55-706, 1955-2 C.B. 300, superseded by Rev. Rul. 62-141,
1962-2 C.B. 181 (applying inventory exclusion, but not copyright exclusion, suggesting that the copyright exclusion does not apply to works-for-hire creations); see also Desilu
Prods., Inc. v. Comm’r, 24 T.C.M. (CCH) 1695 (1965) (same).
116
For discussion of these charitable deduction rules, see infra notes 119-20 and accompanying text.
117
See infra notes 119-20 and accompanying text.

26 BROOKLYN LAW REVIEW [Vol. 76:1 value of the donated property.
118 As amended, the Code does not grant either company a fair-market value deduction in the year of the gift.
119 The Code, however, does give ABC Company future charitable tax deductions equal to a certain percentage of the royalty income earned by its chosen donee, the commercially driven university.
120 Because the small college’s utilization of XYZ Company’s donated intellectual property will not directly generate income, XYZ receives no tax benefit for its charitable giving. In practice, then, charitable deduction rules favor intellectual property used in applied research over that used for fundamental or purely scientific research, and favor donors who give to donees with the physical facilities, financial resources, and personnel capability to exploit intellectual
118
Since 1917, the government has provided a financial incentive for taxpayers to transfer property to charities by giving taxpayers an immediate tax deduction for their donations. See War Revenue Act of 1917, Pub. L. No. 65-50,
§ 1201(2), 40 Stat. 300, 330 (allowing a charitable tax deduction for contributions by individuals); Revenue Act of 1935, Pub. L. No. 74-407, § 102(c), 49 Stat. 1014, 1016
(codified as amended at I.R.C. § 170 (2006)) (allowing a charitable tax deduction for contributions by corporations).
Historically, the amount of the taxpayer’s charitable contribution deduction was the fair market value of the property contributed. See, e.g.
, Rev. Rul. 58-
260, 1958-1 C.B. 126 (“The fair market value of an undivided present interest in a patent, which is contributed by the owner of the patent to an organization described in
Section 170(c) . . . constitutes an allowable deduction as a charitable contribution, to the extent provided in Section 170, in the taxable year in which such property was contributed.”); H.R. R EP . No. 91-413, at 53 (1969), reprinted in 1969 U.S.C.C.A.N. 1645,
1699 (providing that taxpayer who contributed appreciated property to charity was allowed deduction for fair market value of property); Treas. Reg. § 1.170A-1(c) (as amended in 2008) (“If a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution reduced as provided in section 170(e)(1) . . . .”). The government defined “fair market value” as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.” Treas. Reg. articulated or formalized a standard or approach for determining the fair market value of donated intellectual property.
119
In 2004, in a drastic and hasty move, Congress amended the charitable deduction provision by eliminating the fair market value standard for contributions of most all forms of intellectual property, reducing the initial amount a donor may deduct.
See I.R.C. § 170(e)(1)(B)(iii) (2006), amended by American Jobs Creation Act of 2004,
Pub. L. No. 108-357, 118 Stat. 1418. The 2004 legislation limits the initial charitable deduction of any type of intellectual property to the property’s tax basis. Often, the donor’s tax basis in intellectual property is very small; in many cases, the donor’s basis is zero because developments costs are often deducted when incurred.
120
To encourage charitable giving of intellectual property, Congress deemed it appropriate to grant donors of intellectual property future charitable deductions based on the income received by the donee charity. I.R.C. § 170(m)(3) (2006). Specifically, the donor can take a deduction for up to ten years for gifts of royalty-producing intellectual property to public charities. The amount of the charitable deduction is a percentage of the royalty income earned by the donee. The percentage declines over time. Id. §§ 170(m)(1), (7).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 27 property solely for direct financial results—a result that violates notions of fairness.
121
In sum, numerous tax inequities exist for intellectual property developers, acquirers, and transferors. Many of these inequities encourage taxpayers to plan transactions that minimize taxes. If a taxpayer identifies a business’s patent that it would like to purchase for contingent payments, the taxpayer receives greater immediate tax deductions if it can negotiate the purchase of the patent separately from the seller’s other business assets.
122 A taxpayer planning to donate incomegenerating intellectual property to a charity will receive larger tax deductions if it donates the property to a donee that can use the intellectual property in ways that will directly generate income, rather than a non-commercially-driven donee.
123 These decisions should be tax-neutral. But under the present tax regime, they are not.
124
III.
E XPLORING E FFICIENCY IN THE I NTELLECTUAL
P ROPERTY T AX S YSTEM
In addition to fairness concerns, an income tax system governing intellectual property should embrace the principle of efficiency.
125 In tax theory, efficiency means various things in various contexts.
126 A tax system can be evaluated in terms of the extent to which it promotes or hinders economic growth; it is efficient when it promotes economic growth and inefficient when it stifles beneficial economic behavior.
127 In addition to promoting economic efficiency, a tax system can also be judged in terms of administrative efficiency—namely, the extent to which it minimizes taxpayer compliance and government enforcement costs.
128 Thus, the current intellectual property
121
See generally Xuan-Thao Nguyen & Jeffrey A. Maine, Giving Intellectual
Property , 39 U.C.
D AVIS L.
R EV . 1721 (2006).
122
As previously noted, the treatment of contingent payments for patents acquired separately (current deduction) is more generous than the treatment of contingent payments for patents that are acquired with a trade or business (deferral and amortization over fifteen years). See supra notes 104-06 and accompanying text.
123
Charitable tax deductions (beginning with the donation year) equal a percentage of income generated by the donated intellectual property. See supra note 120.
124 supra notes 104-06, 116-21 and accompanying text.
125
See
126 supra note 16 and accompanying text.
127 supra notes 17-21 and accompanying text.
128
See Edward Yorio, Equity, Efficiency, and the Tax Reform Act of 1986 , 55
F ORDHAM L.
R EV . 395 (1987); Yorio, supra note 18, at 1256-57.

28 BROOKLYN LAW REVIEW [Vol. 76:1 taxation system should be analyzed in terms of both economic and administrative efficiency. The current taxation policies applicable to the development and transfer of new technology provide an excellent example of the inefficiencies in the existing regime.
A. Limits of Current Incentives for Technology Development
The Internal Revenue Code contains certain provisions designed to promote economic growth and improve the competiveness of U.S. businesses by encouraging research and development.
129 These provisions provide a tax deduction and a tax credit for certain technology development costs.
130 They are also intended to reduce uncertainty and complexity encountered when applying general tax rules to intellectual property transactions. In practice, however, these tax incentives have been an inadequate method of realizing their underlying goals.
Section 174 131 provides a deduction for research expenditures.
132 Since this deduction applies only to inventors who use, or intend to use, their research results in a trade or
129
For a discussion and critique of these Code provisions, see infra notes 131-
47 and accompanying text.
130
Section 174 was enacted to encourage research activity and stimulate economic growth and technological development. H.R. R EP .
N O . 83-1337 (1954), reprinted in 1954 U.S.C.C.A.N. 4017, 4053; 100 C ONG .
R EC . 3425 (1954) (statement of
Chairman Reed: “This provision will greatly stimulate the search for new products and new inventions upon which the future economics and military strength of our Nation depends. It will be particularly valuable to small and growing businesses.”); see also
Donald C. Alexander, Research and Experimental Expenditures Under the 1954 Code ,
10 T AX L.
R EV . 549 (1955) (noting that a primary reason for enacting Section 174 was to create an incentive for new products and inventions through federal subsidy of research and development startups); William Natbony, The Tax Incentives for Research and Development: An Analysis and a Proposal , 76 G EO .
L.J. 347, 349 (1987) (explaining that Congress decided “to provide taxpayers with the option of an immediate deduction” in order “to encourage new [research and development]”); Richard L.
Parker, The Innocent Civilians in the War Against NOL Trafficking: Section 382 and
High-Tech Start-Up Companies , 9 V A .
T AX R EV . 625, 694 (1990) (“The deduction election under section 174(a) is intended to encourage research and development activities by allowing the cost of such activities to be used to offset the income earned in the business at the earliest possible date.”).
Section 41 was enacted to encourage firms to increase their research expenditures over time. Economic Recovery Tax Act of 1981, Pub. L. No. 97-34,
§ 221(a), 95 Stat. 172, 241 (codified as amended at I.R.C. § 41 (2006)). The credit is incremental in that it is equal to a certain percentage of qualified research spending above a base amount, id.
, which can be thought of as a firm’s normal level of research and development investment.
131
I.R.C. § 174 (2006).
132
Id.

2010] EQUITY AND EFFICIENCY IN IP TAXATION 29 business, 133 it probably does not cover the inventor who merely intends to license the results of her inventive activities for taxable income.
134 In today’s innovation marketplace, however, very few individual inventors, startup companies, and young research entities develop their innovations into end products or services for commercial exploitation.
135 Instead, most plan to sell or license their innovations to larger companies looking to acquire innovations to supplement their own research or build promising intellectual property portfolios.
136 To achieve optimal research outcomes and their concomitant economic benefits, then, tax law should recognize and adequately incentivize efforts by individual inventors, startups, and the like— regardless of whether their motives are to use research results in a trade or business, or simply to license research results.
Parallel to Section 174’s research deduction, the Code provides a 20% research credit under Section 41.
137 The Section
41 credit, like the deduction, is inadequate. The credit applies only to qualified research expenditures in excess of a base amount that is a “fixed-base percentage” of the taxpayer’s
“average annual gross receipts” for the four preceding tax years.
138 For established firms, the fixed-base percentage is the ratio of the taxpayer’s qualified research expenses to its gross receipts for years 1984 to 1988, capped at 16%.
139 For startup firms, the fixed-base percentage is set at 3% during the firm’s first five tax years, with spending on qualified research and gross receipts; thereafter, the percentage is gradually adjusted to reflect the firm’s actual experience, so that by its eleventh
133 supra notes 72-75 and accompanying text.
134
A few courts, however, have found a trade or business of inventing and permitted deductions. See supra notes 76-79 and accompanying text.
135
Reasons for not fully developing innovations may include cost, expertise, facility restrictions, business environment, and personnel concerns. See, e.g.
, Jonathan
Thaw, Writely Puts Google in Word-Processing Business , S EATTLE P OST -I NTELLIGENCER
(Mar. 10, 2006), http://seattlepi.nwsource.com/business/262443_googlewritely10.html
(reporting the acquisition of a software startup company by Google).
136
If an inventor cannot self-develop certain innovations, it looks to others to acquire the innovations. Generally, companies acquire innovations for purposes of further development and production of products and services with the desire to expand or to capture additional market shares. See, e.g.
, Ben Elgin, Google Buys Android for
Its Mobile Arsenal , B US .
W K .
(Aug. 17, 2005), http://www.businessweek.com/ technology/content/aug2005/tc20050817_0949_tc024.htm (stating that Google acquired the twenty-two-month-old startup for its “talented engineers and great technology” with “tremendous potential in developing smarter mobile devices that are more aware of its owner’s location and preferences”).
137
I.R.C. § 41 (2006).
138
Id.
§§ 41(a), (c)(1).
139
Id.
§§ 41(c)(3)(A), (C).

30 BROOKLYN LAW REVIEW [Vol. 76:1 year, the percentage equals the firm’s total qualified research expenses relative to its total receipts for the fifth through tenth tax years.
140 The base amount may not be less than 50% of the qualified research expenses for the credit year.
141
Although Section 41 was designed to encourage additional private sector investment in research and development, 142 as structured, the Section 41 credit fails to achieve optimal technology results for a number of reasons.
First, the credit’s reformulation over the years has limited the types of research for which the credit is available. Indeed, not all expenditures that qualify for the research deduction under
Section 174 qualify for the research credit under Section 41, due to the latter’s special requirements and exceptions. For example, to meet the definitional requirements of “qualified research,” substantially all research activities must constitute elements of a “process of experimentation” related to a qualified purpose.
143 The “process of experimentation” requirement narrows the definition of the term “qualified research”; indeed, the requirements for a process of experimentation under Section 41 continue to be more stringent than the requirements for research and development in the experimental or laboratory sense under Section 174.
144
140
Id.
§ 41(c)(3)(B). For illustrations of the credit computation, see G ARY
G UENTHER , C ONG .
R ESEARCH S ER ., RL31181, R ESEARCH T AX C REDIT : C URRENT S TATUS
AND S ELECTED I SSUES FOR C ONGRESS 6-17 (2008).
141
I.R.C. § 41(c)(2). Taxpayers may, at their election, compute the research credit under another method—the alternative simplified credit method. Tax Relief and
Health Care Act of 2006 § 104, I.R.C. § 41(c)(5) (2006). The alternative simplified credit method is an amount equal to 14 percent of the amount by which “the qualified research expenses . . . exceed[] 50 percent of the average qualified research expenses for the [three preceding] taxable years . . . .” I.R.C. § 41(c)(5)(A) (2006). For taxpayers with no qualified research expenses for the three preceding years, the amount of the alternative simplified credit is “equal to 6 percent of the qualified research expenses for the [current] taxable year.” Id.
§ 41(c)(5)(B).
142
Studies have shown that the credit has led to increased research spending.
See, e.g.
, C ONG .
B UDGET O FFICE , F EDERAL S UPPORT FOR R ESEARCH AND D EVELOPMENT
(2007); G EN .
A CCOUNTING O FFICE , GAO/GGD-89-114, T HE R ESEARCH T AX C REDIT H AS
S TIMULATED S OME A DDITIONAL R ESEARCH S PENDING (1989).
143
I.R.C. § 41(d)(1) (2006).
144
See 69 Fed. Reg. 22, 24 (Jan. 2, 2004) (“[M]erely demonstrating that uncertainty has been eliminated . . . is insufficient to satisfy the process of experimentation requirement. A taxpayer bears the burden of demonstrating that its research activities additionally satisfy the process of experimentation requirement.”); see also Treas. Reg. § 1.41-4(a)(5)(i) (as amended in 2004) (“[A] process of experimentation is a process designed to evaluate one or more alternatives to achieve a result where the capability or the method of achieving that result, or the appropriate design of that result, is uncertain as of the beginning of the taxpayer’s research activities.”).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 31
Second, the incremental nature of the credit means that many businesses cannot utilize it at all. This could be the case, for example, if a company’s gross sales grew faster than its qualified research spending. Calculating today’s credit based on research spending relative to receipts in the years 1984 to
1988 does not reflect realities of today’s economic and technological world, and it could penalize a company that had high research spending levels during the 1984 to 1988 base period (unless the alternative formula provided a benefit).
145
Third, the nonpermanent nature of the credit makes it difficult for firms to plan ahead for research activities. The credit is only temporary and has been extended numerous times by Congress. In fact, since its enactment in 1981, the credit has been extended more than a dozen times, sometimes retroactively after expiration.
146 Efforts to make the credit permanent have failed due to revenue concerns.
147 So, every credit renewal year, the government must balance its desire to maximize tax revenue without stifling beneficial research and development activity.
B. Limits of Current Incentives for Technology Transfers
Under the current system, tax incentives for research are limited to the innovation-development market.
148 In recent years, however, there has been a major shift in the innovationdevelopment market toward a segmentation model. Small companies and research universities now serve as epicenters of ideas, complementing and maximizing the innovations of large established firms with strong marketing and distribution forces.
149 The desirable transfers of innovation between segments can be either supported or hindered by the income
145 supra note 141 (describing the alternative simplified credit method).
146 e.g.
, I.R.C. § 41(h)(1)(B) (2006).
147
A one-year extension of the credit, for example, was estimated to cost the government almost $9 billion over ten years. S TAFF OF J.
C OMM .
ON T AXATION , 110 TH
C ONG ., E STIMATED R EVENUE E FFECTS OF H.R.
6049, at 4 (Comm. Print 2008), available at http://www.jct.gov/publications.html?func=startdown&id=1293.
148
See I.R.C. §§ 41 (providing limited tax credit for qualified research expenses), 174 (providing current tax deduction for research and experimental expenditures), 1235 (guaranteeing preferential capital-gains rate treatment for certain inventors).
149
See generally Michael J. Kennedy, Technology and Emerging Growth
Acquisitions: The Private Perspective , in H ANDLING H IGH -T ECH M&A S IN A C OOLING
M ARKET : E NSURING T HAT Y OU G ET V ALUE 921, 923-25 (Practising Law Institute, 2001)
(discussing the flexibility associated with deals between private and public companies).

32 BROOKLYN LAW REVIEW [Vol. 76:1 tax system. Favorable tax rules governing assignments to private market acquirers and donations to public charities could serve to encourage transfers to the right acquirers for further research, product development, or licensing—thereby increasing economic growth.
150 Here, again, the tax rules could also facilitate administrative efficiency by removing unnecessary complexity in their application. This type of tax scheme would support the business and technology realities of today’s innovation segmentation, allow new ideas to develop at a faster pace, and foster strong competition. The current tax system, however, is not designed as such. Currently, there are inefficiencies in the tax scheme covering both private market transactions and charitable donations of technology.
1.
Private-Market Transactions
With respect to private-market transactions, the income tax system could be used to create incentives for transferors or transferees—or both. Presently, few transferors are guaranteed preferential capital-gains treatment on the assignment of their inventions.
151 Section 1235 of the Code guarantees capital-gains treatment only to individuals—i.e., the original inventors that assign all substantial rights to their inventions; 152 it does not apply to the more common startup companies and small research entities whose employees conduct their research.
153 As a result, these developers must apply general tax rules to determine the character of their gains, and these gains are often characterized as ordinary income, especially if the firm has sold a number of inventions over the years.
154
150
For an argument that greater tax incentives for purchasers of intellectual property may encourage desirable transfers of intellectual property, see infra notes
155-78 and accompanying text. For an argument that revised charitable deduction rules may encourage desirable donations of intellectual property, see infra notes 179-84 and accompanying text.
151
See I.R.C. § 1235 (2006).
152
Section 1235 guarantees capital-gains rates, as opposed to higher ordinary income tax rates, for any transfer of all substantial rights to a patent by certain holders to unrelated parties. Id.
§ 1235(a). “[A]ny individual whose efforts created such property” qualifies as a “holder” for purposes of Section 1235. Id.
§ 1235(b)(1).
153
Although Section 1235 does not apply to companies, “each member of a partnership who is an individual[, however,] may qualify as a holder as to his [prorata] share of a patent owned by the partnership.” Treas. Reg. § 1.1235-2(d)(2) (as amended in 1980).
154
I.R.C. §§ 1221(a)(1), 1231(b)(1)(A)-(B) (2006) (precluding inventory and inventory-type property from qualifying for capital-gains treatment). Although corporations do not enjoy lower rates on capital gains, capital gains can be used to offset capital losses the corporation may have. Id.
§ 1211(a) (“In the case of a

2010] EQUITY AND EFFICIENCY IN IP TAXATION 33
Likewise, transferees of high technology receive few breaks for their acquisition costs under the current regime.
Without exception, purchasers of technology are subject to the general asset-capitalization rule, which requires them to capitalize all costs of acquiring technology.
155 This rule, of course, raises the costs of products that have a high technology content. To remedy this effect, the government could depart from the asset-capitalization principle and instead allow limited expensing of innovation purchase costs. Although the government has never considered doing so, it has, since 1981, permitted small business taxpayers to elect to immediately deduct the cost of purchasing certain tangible property that would otherwise have to be capitalized (e.g., business machines and equipment, transportation equipment, and communications equipment).
156 The extension of this expense allowance to certain innovation acquisition costs would represent a significant tax subsidy for innovation investment and achieve other important goals. Chiefly, it would lower the cost of capital for innovations used in an active trade or business, which, in turn, would reduce the tax burden on innovation acquirers, and stimulate business investment and the economy as a whole. Policymakers had these goals in mind when they enacted special expensing provisions for tangible property.
157 These objectives are equally applicable to intangible innovations.
Moreover, expanding the expense allowance for limited acquisition costs would eliminate high administrative costs and reduce the harm caused by current irrational tax depreciation rules. Some commentators have argued that the capitalization of costs is warranted only if followed by rational depreciation corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges.”).
155
Id.
§ 263 (2006); Treas. Reg. §§ 1.263(a)-4(b)(1)(i), -4(c) (2004) (“[A] taxpayer must capitalize amounts paid to another party to acquire any intangible from that party in a purchase or similar transaction.”).
156
I.R.C. § 179 (2006). The type of property to which the election applies is
“section 179 property,” defined generally as tangible, depreciable, personal property— as opposed to real property—that is acquired for use in the active conduct of a trade or business. Id.
§ 179(d)(1). As a result of the Jobs and Growth Tax Relief and
Reconciliation Act of 2003 § 202(c), Pub. L. No. 108-27, 117 Stat. 752, off-the-shelf computer software was added to the list of Section 179 property.
157
See G ARY G UENTHER , C ONG .
R ESEARCH S ERV ., RL 31852, S MALL B USINESS
E XPENSING A LLOWANCE : C URRENT S TATUS , L EGISLATIVE P ROPOSALS , AND E CONOMIC
E FFECTS 3-5 (2005) (weighing the costs and benefits of expensing for small businesses).

34 BROOKLYN LAW REVIEW [Vol. 76:1 rules.
158 But the current system is far from rational, supporting the argument that capitalization is not necessarily justified for all intellectual property acquisition costs. As the authors have argued elsewhere, any immediate incentive for acquisition costs, such as the expensing option discussed here, should be limited to innovations acquired for future development or licensing.
159 This incentive should not extend to innovations acquired for offensive-use purposes because the use of patent portfolios to threaten others through litigation actually hinders, rather than promotes, innovation.
160
As an alternative to allowing an expense option for certain innovation acquisitions, the government could design more rational tax depreciation rules that would incentivize desirable innovation acquisitions. When designing new ex ante depreciation rules, a decision would have to be made about whether to establish a grouping system for innovations (the current approach for all tangible property 161 and intangible property acquired with a business 162 ) or an asset-by-asset system (the current approach for intangible property acquired separately) 163 . A grouping system would achieve greater administrative efficiency than an asset-by-asset depreciation system and, if designed properly, could also support a strong acquisition market. Under a grouping system, intellectual property could be grouped into classes with arbitrary recovery periods for each class. This approach would alleviate some of the problems caused by both the asset-by-asset approach— namely, the burden of having to determine the useful life of separately acquired intellectual property—and the incomeforecast method.
In selecting an appropriate recovery period for various classes of intellectual property, the government could make an effort to achieve some correlation between the prescribed groupings and the actual economic useful lives of intellectual
158
See Ethan Yale, When Are Capitalization Exceptions Justified?
, 57 T AX L.
R EV . 549, 557-64 (2004) (arguing that flawed depreciation schedules may justify departure from normative capitalization but only in limited cases; otherwise, expensing may be a preferable neutrality-enhancing policy choice).
159
Nguyen & Maine, Acquiring Innovation , supra note 4, at 787-92.
160
Id.
161
I.R.C. § 168(b) (2006) (listing various depreciation methods according to type of property).
162
Id. § 197; see supra notes 94-95 and accompanying text.
163
I.R.C. § 167; Treas. Reg. § 1.167(a)-3 (as amended in 2004), -14 (as amended in 2006); see supra notes 96-98 and accompanying text.

2010] EQUITY AND EFFICIENCY IN IP TAXATION 35 property. The correlation between tax depreciation and economic depreciation would not have to be exact. Indeed, the government could design a system that is “accelerated”; many of the recovery periods for intellectual property could be shorter for tax purposes than for economic purposes. Under an accelerated approach, purchasers of intellectual property could recover their costs more quickly tax-wise than economic reality would dictate.
It might be tempting to adhere to a fifteen-year recovery period—the recovery period for many intangible assets under the current scheme (which determines the applicable recovery period based on how the intellectual property was acquired).
164
For many intangibles acquired in a business acquisition, the recovery period is fifteen years. By contrast, an asset-specific approach is used for separately acquired intangibles.
165
Although fifteen years is a short period compared to the unlimited lives of trade secrets, trademarks, and trade names, it is much longer than the useful lives of many acquired patents. The government selected a fifteen-year recovery period so that the new legislation would be approximately revenueneutral over the first five years.
166 While much can be said for this current revenue-neutral approach, it is not an ideal method of encouraging desirable innovation acquisitions.
The government should consider creating exemptions from the current fifteen-year period for patents, patent applications, software, and other high technology intellectual property purchased in the acquisition of a trade or business.
Property of this nature is capable of reasonable valuation and has a relatively short commercial life, no matter how it was acquired. If technology derived its value from its relationship to a product, service, or goodwill of a business (as a trademark or trade names does), it might make sense to provide an arbitrary fifteen-year recovery period to avoid messy valuation and intangible asset-allocation problems. However, high technology acquired as part of the purchase of a company does not
164 supra notes 94-95 and accompanying text.
165
See supra notes 96-98 and accompanying text.
166
See S TAFF OF J.
C OMM .
ON T AXATION , 103 D C ONG ., T ECHNICAL
E XPLANATION OF T AX S IMPLIFICATION A CT OF 1993, at 147 (Comm. Print 1993)
[hereinafter T ECHNICAL E XPLANATION ], available at http://www.jct.gov/publications. html?func=startdown&id=2915 (acknowledging that the asset’s useful life may either fall short or exceed the amortization period, but nevertheless establishing such amortization period based on the goal of revenue neutrality over the subsequent five fiscal years).

36 BROOKLYN LAW REVIEW [Vol. 76:1 necessarily derive its value from the goodwill and reputation of the business with which it is associated. High technology can be freely sold, assigned, or transferred without associated goodwill or other business assets.
167 Hence, the depreciation schedule for technology need not parallel the arbitrary fifteenyear schedule application to all intangibles acquired in a business acquisition, such as trademarks and trade names, which lack inherent value.
With regard to technology—whether acquired separately or with a business—short recovery periods, such as three or five years, would incentivize investment in innovation capital. Short recovery periods would also recognize the relatively risky nature of high technology compared to other intangible assets. Risk, such as retirement risk and revenue risk, “can have a significant impact on the optimal design of depreciation rules.” 168 As some economists have argued,
“depreciation schedules for relatively risky assets should be accelerated to compensate the owners of such assets for bearing a disproportionably large share of the capital price risk.” 169 It is often difficult to determine whether certain acquired technologies will produce benefits and, if they do, how long benefits will last. For example, if a purchaser acquires technology at an early stage while patent applications for the technology are pending, the purchaser cannot be certain that all of the patent applications will mature to patents. In addition, even after the purchaser receives the patents, there is always a fear that the patents may be subsequently invalidated by a third party.
170
The government has already provided an artificially low recovery period for separately acquired computer software. In
167
See supra notes 101-02.
168
Jeff Strnad, Tax Depreciation and Risk , 52 SMU L.
R EV . 547, 547 (1999); see also id.
at 547-48 (“[R]etirement risk must be taken into account in designing an accelerated schedule that does not favor some assets over others.”).
169
Yale, supra note 158, at 572 (citing Jeremy I. Bulow & Lawrence H.
Summers, The Taxation of Risky Assets , 92 J.
P OL .
E CON . 20, 37-38 (1984); Roger H.
Gordon & John Douglas Wilson, Measuring the Efficiency Cost of Taxing Risky Capital
Income , 79 A M .
E CON .
R EV . 427, 438 (1989)).
170
See 35 U.S.C. § 282 (2006) (“A patent shall be presumed valid. . . . The burden of establishing invalidity of a patent or any claim thereof shall rest on the party asserting such invalidity.”); Am. Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350,
1360 (Fed. Cir. 1984) (holding that the presumption of validity must be overcome by clear and convincing evidence); William Alsup, A District Judge’s Proposal for Patent Reform:
Revisiting the Clear and Convincing Standard and Calibrating Deference to the Strength of the Examination , 24 B ERKELEY T ECH .
L.J. 1647, 1648 (2009) (“[A]t least one-third of patent claims asserted in litigation should never have issued.”).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 37
1993, Congress created an arbitrary three-year depreciation period for capitalized costs of separately acquired software (i.e., software that is not acquired as part of the purchase of a trade or business).
171 This recovery period reduces the cost of, and encourages investment in, computer software, allowing U.S. firms to compete in the world marketplace. The government could extend the three-year recovery period for computer software to similar high technology intellectual property, for example, advanced formulae, processes, or design patterns.
172
Admittedly, short write-off periods, such as those proposed here, run counter to the basic goal of tax depreciation—i.e., to measure the decline in the value of property due to wear, tear, and obsolescence, and to match the cost recovery of the property with the income stream produced by the property.
173 But this matching goal is difficult to achieve and, in recent years, has given way to the desire for tax simplification and economic growth.
174 In the 1980s, Congress created artificially low recovery periods for depreciable tangible property (three, five, and seven years in most cases).
175 And recently, courts have permitted rapid write offs of antique tangible property used in a trade or business, even though antiques do not have a determinable useful life and usually increase in value.
176 In 1993, Congress created a fifteen-year recovery period for many intangibles, some of which have unlimited lives and were before then considered ineligible for depreciation allowances.
177 These rules increase tax revenue loss for the government, but the resulting losses are considered outweighed by the benefits of lower efficiency costs and the
171 supra note 97 and accompanying text.
172
Tax Treatment of Intangible Assets: Hearing on S. 1245, H.R. 3035 & H.R.
4210 Before the Comm. on Fin.
, 102d Cong. 160-61 (1992) (statement of the Elec. Indus.
Ass’n) (arguing a shorter recovery period is warranted for high technology intellectual property since such property is very similar to computer software).
173
U.S.C.C.A.N.
908.
174
The tax expensing and tax depreciation rules for tangible property are prime examples. See, e.g.
, I.R.C. § 168 (2006) (providing arbitrarily short recovery periods for most depreciable tangible personal property); id.
§ 179 (providing limited expensing of the cost of purchasing depreciable tangible personal property).
175
Id.
§§ 168(c), (e).
176
See, e.g.
, Simon v. Comm’r, 68 F.3d 41 (2d Cir. 1995) (allowing tax depreciation for antique violin bows even though the taxpayers could not demonstrate that the bows had a determinable useful life).
177
Revenue Reconciliation Act of 1993, Pub. L. No. 103-66, § 13261, 107 Stat.
312 (codified as amended at I.R.C. § 197 (2006)); see supra notes 94-95 and accompanying text.

38 BROOKLYN LAW REVIEW [Vol. 76:1 potential competitive advantages to be gained by U.S. businesses.
178
2.
Public Charitable Transfers
In the current innovation development segmentation market, many universities and other not-for-profit organizations engage in valuable research activities. An efficient tax system should encourage transfers of undeveloped innovation to such charitable donees. Historically, the charitable tax deduction was a vital tool for transferring technology from research corporations to universities and other nonprofit donees that could properly exploit the technology.
179
As a result of 2004 legislation aimed at reducing the number of negligent and intentional overvaluations of intellectual property donations, there is now very little immediate economic incentive for charitable donations of any type of intellectual property.
180 Presently, few technology donors receive any immediate tax benefit for their contributions.
181
Donors can take future deductions if the donated intellectual property generates income for the charitable donee.
182 But providing donors with uncertain and declining future economic incentives does not adequately encourage intellectual property donations. Even if a charitable donee licenses the donated
178
For early arguments for and against depreciation deductions for trademarks and trade names, see Michael J. Dunne & Elizabeth A. Barba, The Tax
Treatment of Trademarks Gets Renewed Attention in Congress , N AT ’ L L.J., May 11,
1992, at S15.
179
Large corporations with research and development facilities often develop patents that later become “not consistent with [their] core technologies or mission,” that are “not appropriate for licensing to third parties,” or that have “no value for defensive purposes in competitive markets.” R ON L AYTON & P ETER B LOCK , I NT ’ L I NTELLECTUAL
P ROP .
I NST ., IP D ONATIONS : A P OLICY R EVIEW 5 (2004), available at http://s251835929. onlinehome.us/reports/IP_Donations_Policy_Review.pdf. For example, Dow Chemical reportedly donated 10,000 patents to qualified charitable organizations over a five-year period. Id. at 6.
180 supra notes 118-21 and accompanying text.
181
Presently, the initial charitable deduction amount is the lesser of the taxpayer’s tax basis in the donated intellectual property or the fair market value of the intellectual property at the time of contribution. I.R.C. § 170(e)(1)(B) (2006). In most cases, where intellectual property appreciates in value, the lesser amount is the donor’s tax basis. Often the donor’s tax basis in intellectual property is very small; in many cases, the donor’s basis is zero because intellectual property development costs are often deducted when incurred. See, e.g.
, id.
§ 174.
182
More specifically, a donor is allowed deductions for a limited number of years based on a specified percentage of the qualified donee income “received by or accrued to” the charity from the donated property itself, rather than income stemming from the activity in which the donated property is used. Id.
§ 170(m).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 39 intellectual property, the potential future deduction will not be substantial enough. It may take the charity several years before it receives any financial return on its donated intellectual property. While the intellectual property may begin generating royalty revenues immediately, under the new law, the amount of future charitable deductions declines annually on a sliding scale.
183 Indeed, in the tenth post-contribution year, the donor may deduct only 20% of the income.
184
C. Administrative Inefficiencies Under Current Intellectual
Property Tax Regime
In addition to promoting economic efficiency, the general rule is that a good tax system should also be administratively efficient; it should provide certainty and clarity to minimize costs of compliance and administration.
Many of the special rules governing intellectual property were enacted to reduce uncertainty and complexity encountered when applying general tax rules to intellectual property transactions. For example, Section 174 reduced uncertainties in the application of the asset-capitalization rule to research and development expenditures.
185 Likewise, Section 1235 clarified the tax treatment of patent transfers, 186 and Section
183
Id.
§§ 170(m)(1), (7).
184
Id.
§ 170(m)(7).
185
While one justification for Section 174 was to encourage new research and development activity and stimulate economic growth and technological development, another justification was “to reduce uncertainty caused by the application of the assetcapitalization rules to” research and development activities. George Mundstock,
Taxation of Business Intangible Capital , 135 U.
P A .
L.
R EV . 1179, 1258-59 (1987); see also David S. Hudson, The Tax Concept of Research or Experimentation , 45 T AX L AW .
85, 88-89 (1991) (explaining that the old capitalization rule was difficult to apply to research and development costs).
186
While Section 1235 was intended to encourage research and development that potentially lead to patentable inventions, it also resulted in reduced uncertainty and minimized disputes over the application of general tax principles to patent transfers. For example, when applicable, Section 1235 provides statutory assurance that a patent transfer will not be deemed a license merely because of the existence of contingent payments. I.R.C. § 1235(a) (2006) (providing that Section 1235 applies regardless of whether the payments received are “(1) payable periodically over a period generally coterminous with the transferee’s use of the patent, or (2) contingent on the productivity, use, or disposition of the property transferred”); see also S. R EP .
N O . 83-
1622, at 422 (1954) (Comm. Rep.), reprinted in 1954 U.S.C.C.A.N. 4621, 5082 (stating that Section 1235 was intended “to give statutory assurance to certain patent holders that the sale of a patent (whether as an ‘assignment’ or ‘exclusive license’) shall not be deemed not to constitute a ‘sale or exchange’ for tax purposes solely on account of the mode of payment”).
Section 1235 also eliminates uncertainty over whether a patent transferor is an amateur (who is eligible for capital-gains treatment under general tax principles)

40 BROOKLYN LAW REVIEW [Vol. 76:1
1253 alleviated uncertainties and much litigation regarding the tax treatment of trademark and trade name transfers.
187
Section 197, similarly, was enacted “to simplify the rules for depreciating intangibles and to reduce the number of controversies arising from the need to determine which intangibles are depreciable and what their recovery periods should be.” 188
The problem is that few of the special tax rules are conclusive; they contain many limitations, ambiguities, and exceptions. The consequence is that the tax outcome for many intellectual property assets and transactions is determined under the general tax rules—the same rules that were the initial source of complexity. For example, if Section 174 does or a professional inventor (who is not eligible for capital-gains treatment under general tax principles). H.R. R EP .
N O . 83-1337, at 85 (1954) (Comm. Rep.), reprinted in 1954
U.S.C.C.A.N. 4017, 4108; S. R EP .
N O . 83-1622, at 112 (1954) (Comm. Rep.), reprinted in
1954 U.S.C.C.A.N. 4621, 4747.
Section 1235 also eliminates the need to ascertain the holding period of an invention for purposes of meeting the requisite one-year holding period under the general capital-gains provisions. I.R.C. § 1222(3) (2006) (“‘[L]ong-term capital gain’ means gain from the sale or exchange of a capital asset held for more than 1 year . . . .”).
If the requirements of Section 1235 are met (i.e., there exists a transfer of
“all substantial rights” by a “holder” to an “unrelated party,” as those terms are defined for purposes of section 1235), then a patent transferor is assured capital-gains treatment. Id.
§ 1235(a). Determinations of what constitutes a “sale” or a “capital asset” are made under general sale or exchange principles. See id.
§§ 1221, 1222, 1231
(general capital-gains provisions).
187
Prior to the enactment of Section 1253 in 1969, there was confusion over the proper tax consequences of trademark and trade name dispositions. In particular, there was considerable diversity of opinion among courts over what sorts of interests retained by transferors should preclude capital-gains treatment and uncertainty over the impact of contingent payments in trademark and trade-name transfers. Congress enacted the Tax Reform Act of 1969 § 516, I.R.C. § 1235 (2006), to bring clarity to this area of the law. See S. R EP .
N O . 91-552, at 198 (1969) (Comm. Rep.), reprinted in 1969
U.S.C.C.A.N. 2027, 2242-43; H.R. R EP .
N O . 91-413, at 1815-16 (1964) (Comm. Rep.), reprinted in 1969 U.S.C.C.A.N. 1645, 1815-16.
Section 1253 mandates ordinary income treatment on all payments that are
“ contingent on the productivity, use, or disposition” of a trademark or trade name. I.R.C.
§ 1253(c) (2006) (emphasis added). Section 1253 imposes ordinary income treatment on noncontingent payments (whether up-front or installment payments) received for the transfer of a trademark or trade name “if the transferor retains any significant power, right, or continuing interest with respect to the subject matter” of the mark or name. Id.
§ 1253(a). The Code sets forth six potentially significant powers, any one of which, if retained, would require ordinary income treatment. Id. § 1253(b)(2). This list of retained powers is not exhaustive; rather, consideration is given to all the facts and circumstances existing at the time of a transfer to determine whether an unenumerated power constitutes a significant power. For example, the duration of the relevant restriction is important in determining whether the restriction is significant. Stokely USA, Inc. v.
Comm’r, 100 T.C. 439, 453, 456-57 (1993) (finding that a five-year right to disapprove a transfer was insignificant, while a twenty-year restriction preventing the transferee from using the trademark on certain products was significant).
188
LaFrance, of Copyrights, Patents, and Related Property , 24 H OFSTRA L.
R EV . 317, 320 (1995).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 41 not apply, a taxpayer must capitalize the research costs.
189
However, complex questions arise in applying the assetcapitalization principle to research costs. For example, when do research activities result in an identifiable asset? How does one apportion the costs if a particular project partly succeeds and partly fails, or if different and simultaneous research activities contribute in varying degrees to the development of an asset or more than one asset?
Similarly, if Section 1235 does not apply to patent assignments, the general sale or exchange principle must be applied to determine the tax treatment of a particular transfer.
190 But difficult-to-answer questions with respect to technology—questions that justified adoption of the special rule—must be addressed: Does the transfer constitute a sale?
Is the subject of transfer a capital asset? What is the holding period?
Likewise, if Section 197 does not apply to an intellectual property acquisition, tax depreciation allowances are determined under the asset-specific approach that applied before enactment of the special provision—under the straightline or income-forecast method.
191 This approach sets up unnecessary rule, compliance, and transactional complexity— raising the question of why there are different depreciation methods and different write-off periods for the same type of technology that depend solely on the method of technology transfer.
192
The new charitable deduction rules applicable to technology contributions are a classic example of a recent tax law change that was designed to enhance administrative efficiency but only increased inefficiency. The new law’s focus on future tax deductions imposes heavy administrative
189
The Section 174 deduction is an exception to the general assetcapitalization principle of Section 263. I.R.C. § 263(a)(1)(B) (2006). If Section 174 does not apply, the research and development costs must be capitalized. See id.
190
Section 1235 is a safe-harbor provision providing all the elements necessary for capital-gains treatment. Id.
§ 1235(a) (providing that a transfer “shall be considered the sale or exchange of a capital asset held for more than 1 year”). If Section
1235 does not apply (e.g., the transfer does not consist of all substantial rights to a patent by a holder), the general capital-gains provisions apply (i.e., capital-gains treatment is only available if the transfer constitutes a “sale or exchange of a capital asset”). See id.
191
When applicable, Section 197 is used to determine cost recovery deductions. Id. § 197(b). When inapplicable, general depreciation principles apply.
Treas. Reg. § 1.167(a)-14 (as amended in 2006).
192
Tax Treatment of Intangible Assets: Hearing on S. 1245, H.R. 3035 & H.R. 4210
Before the Comm. on Fin.
, 102d Cong. 52 (1992) (statement of William P. Benac).

42 BROOKLYN LAW REVIEW [Vol. 76:1 burdens, including modified and expanded record-keeping requirements, on both intellectual property donors and charitable donees.
193 Because the new law allows donors to take deductions over a period of years determined based upon the income derived from the donated property, the donor and the donee organization must communicate with one another and with the IRS for several years following a qualified contribution.
194 By allowing future deductions to be based on income received or accrued by the charity from the donated property itself, rather than from income stemming from the activity in which the donated property is used, the new law places the difficult burden on charities of tracking their specific intellectual property assets. Moreover, with regard to considering future tax deductions at stake under the new law, donors will incur substantial monitoring costs.
IV.
D
EVELOPING A
L
EGAL
F
RAMEWORK FOR
I
NTELLECTUAL
P ROPERTY T AXATION
From an equity and efficiency standpoint, there are fundamental flaws in the current intellectual property tax regime. These defects can be attributed to the absence of an appropriate legal framework for intellectual property tax legislation.
195 The current regime evolved over time as particular concerns arose, but at no time was a framework of rational intellectual property and tax policy objectives used in developing rules to ensure a sound system.
196 The following
193
Donors must inform charitable donees of their intent to treat the contribution as a “qualified intellectual property contribution” and take additional deductions in subsequent years based on the income accrued from the donated property. I.R.C. § 170(m)(8)(B). Charitable donees must provide donors with written substantiations explaining the amount of income derived from the donated intellectual property during the tax year. Id.
§ 6050L(b)-(c). Further, charitable donees must file an annual information return reporting their qualified donee income and other specified information. Id.
194
See id.
§§ 170(m)(8)(B), 6050L(b)-(c); Treas. Reg. § 1.6050L-2 (2008).
195
The Code contains several special rules that govern different types of intellectual property. A few of the special provisions apply equally to a large group of intellectual property assets. See, e.g.
, I.R.C. §§ 167(g)(6), 170(e)(1)(B)(iii), 170(m), 197
(2006). Most, however, are mutually exclusive, governing specific forms of intellectual property. See, e.g.
, id.
§§ 41, 167(f)(1), 167(g)(8), 174, 1221(a)(3), 1221(b)(3), 1235, 1253.
Some of these special provisions encourage certain intellectual property activities; some close tax loopholes and remove perceived tax inequities; and some simplify rules and eliminate tax uncertainties that existed under general tax principles. None were enacted within a framework of rational intellectual property and tax policy objectives, as suggested later in this article.
196
See supra note 195.

2010] EQUITY AND EFFICIENCY IN IP TAXATION 43 questions illustrate some important considerations that could help shape an appropriate framework for intellectual property tax legislation. To what extent, if any, should the tax system support the intellectual property system? And to what extent, if any, should the tax system adopt distinctions among intellectual property rights? If tax distinctions are adopted, what is a rational basis for making coherent tax distinctions?
A. Establishing the Role of the Tax System in Supporting the Intellectual Property System
Inefficiencies in the intellectual property tax regime may or may not be justified, depending on one’s view of whether the tax system should support the intellectual property system. As discussed above, the special tax provisions designed to incentivize innovation 197 have, in practice, failed to achieve this goal.
198 In addition, these special tax rules apply only to the development of patents and patent-like property; they do not extend to other types of intellectual property creation, such as copyrights and trademarks.
199 This tax policy might be deemed efficient if one adopts a narrow view of the overall social and economic benefits derived from intellectual property, 200 but under a broader view of intellectual property’s positive effects, it might be deemed inefficient. To make this determination, an appropriate legal framework for intellectual property tax rules would consider the extent to which harmonization between the intellectual property and taxation schemes should be achieved. Specifically, what role should the tax system play, if any, in promoting the intellectual property system?
Few people would disagree that encouraging inventions and works of authorship is critical to U.S. economic growth.
When the Founding Fathers included the Patent and Copyright
Clause of the Constitution, 201 their words clearly conveyed the
197
See, e.g.
, I.R.C. §§ 41 (2006) (credit for limited research expenditures); id.
§ 174 (deduction for limited research expenditures); id.
§ 1235 (capital-gains treatment for limited assignments of innovations in the form of patents).
198 supra notes 131-47 and accompanying text.
199
See, e.g.
, infra notes 220-30 and accompanying text.
200
It might be deemed efficient if one accepts a meaning of tax efficiency other than the one used here. Indeed, some might argue that the “efficiency criterion requires that a tax interfere as little as possible with people’s economic behavior.”
G RAETZ & S CHENK , supra note 11, at 29 (summarizing several different meanings of tax efficiency); see also supra notes 20-25 and accompanying text.
201
U.S.
C ONST . art. I, § 8, cl. 8.

44 BROOKLYN LAW REVIEW [Vol. 76:1 objective of rewarding inventors with exclusive rights in their inventions.
202 The Founding Fathers believed that a rewardbased system would “promote the Progress of Science.” 203 At the same time, they also understood that unfettered rights would not aid scientific progress and therefore placed a time limit on the exclusivity for patents.
204 The patent statute and its subsequent amendments take a similar view.
205 For an invention to be granted a patent, it must be, among other
202
See Seymour v. Osborne, 78 U.S. (11 Wall.) 516, 533-34 (1871) (“Letters patent are not to be regarded as monopolies . . . but as public franchises granted to the inventors of new and useful improvements for the purpose of securing to them, as such inventors, for the limited term therein mentioned, the exclusive right and liberty to make and use and vend to others to be used their own inventions, as tending to promote the progress of science and the useful arts, and as matter of compensation to the inventors for their labor, toil, and expense in making the inventions, and reducing the same to practice for the public benefit, as contemplated by the Constitution and sanctioned by the laws of Congress.”).
203
U.S.
C ONST . art. I, § 8, cl. 8; see also Pfaff v. Wells Elecs., Inc., 525 U.S. 55,
63 (1998) (“The balance between the interest in motivating innovation and enlightenment by rewarding invention with patent protection on the one hand, and the interest in avoiding monopolies that unnecessarily stifle competition on the other, has been a feature of the federal patent laws since their inception.”).
204
Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146
(1989) (“The Patent Clause itself reflects a balance between the need to encourage innovation and the avoidance of monopolies which stifle competition without any concomitant advance in the ‘Progress of Science and useful Arts.’”); Sears, Roebuck &
Co. v. Stiffel Co., 376 U.S. 225, 229 (1964) (“Patents are not given as favors . . . but are meant to encourage invention by rewarding the inventor with the right, limited to a term of years fixed by the patent, to exclude others from the use of his invention.”).
As demonstrated in Thomas Jefferson’s writings—which played an influential role in shaping modern patent law—patent grants should only be issued by the government to truly warranted inventions.
Graham v. John Deere Co. of Kansas
City, 383 U.S. 1, 9 (1966) (After a review of Thomas Jefferson’s writings and his influences on shaping the patent system, the Court concluded, “Jefferson did not believe in granting patents for small details, obvious improvements, or frivolous devices. His writings evidence his insistence upon a high level of patentability.”); see also Bonito Boats , 489 U.S. at 148 (“Today’s patent statute is remarkably similar to the law as known to Jefferson in 1793. Protection is offered to ‘whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.’” (quoting 35 U.S.C. § 101 (2006))).
205
See 35 U.S.C. § 101 (defining the categories of patentable invention broadly to include “any new and useful process, machine, manufacture, or composition of matter, or . . . improvement thereof”); id.
§ 103(a) (“A patent may not be obtained . . . , if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art . . . .”).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 45 things, novel and nonobvious; 206 in other words, patents are granted for innovation.
207
Similarly, trade secret law was designed to foster innovation and promote responsible business conduct.
208 To that end, trade secrets are treated as property, and courts have thus held that regulations forcing trade secret disclosure amount to a governmental taking of property for which the trade secret owner must be justly compensated.
209 Moreover, the law
206
See KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 419 (2007) (“Granting patent protection to advances that would occur in the ordinary course without real innovation retards progress and may, for patents combining previously known elements, deprive prior inventions of their value or utility.”).
207
Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 164 (1995) (“It is the province of patent law, not trademark law, to encourage invention by granting inventors a monopoly over new product designs or functions for a limited time, 35
U.S.C. §§ 154, 173, after which competitors are free to use the innovation.”); Bonito
Boats , 489 U.S. at 146 (“From their inception, the federal patent laws have embodied a careful balance between the need to promote innovation and the recognition that imitation and refinement through imitation are both necessary to invention itself and the very lifeblood of a competitive economy.”).
208
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481 (1974) (“The maintenance of standards of commercial ethics and the encouragement of invention are the broadly stated policies behind trade secret law.”). The Supreme Court has long recognized that, with respect to innovations not eligible for patent protection, “[t]rade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with the discovery and exploitation of his invention. Competition is fostered and the public is not deprived of the use of valuable, if not quite patentable, invention.” Id.
at 485. The Kewanee Oil Court also acknowledged “the importance of trade secret protection to the subsidization of research and development and to increased economic efficiency within large companies through the dispersion of responsibilities for creative developments.” Id.
at 482 (citing
Wexler v. Greenberg, 160 A.2d 430, 434-35 (Pa. 1960)); see also R ESTATEMENT (T HIRD )
OF U NFAIR C OMPETITION § 39 cmt. a (“[T]he protection of trade secrets has been justified as a means to encourage investment in research by providing an opportunity to capture the returns from successful innovations.”). Not surprisingly, commentators have had their disagreements on the justifications of trade secret protections. See, e.g.
,
Michael Abramowicz & John F. Duffy, Intellectual Property for Market
Experimentation , 83 N.Y.U.
L.
R EV . 337, 391 (2008) (asserting that “the goal of trade secret law is not to encourage the production of . . . information so much as the production of . . . business”); Mark Lemley, The Surprising Virtues of Treating Trade
Secrets as IP Rights , 61 S TAN .
L.
R EV . 311, 314 (2008) (“Understanding trade secrets . . . as imposing a consistent set of standards on claims that would otherwise be based on disparate legal theories and claims of entitlement or free riding—advances the goals of innovation and promotes responsible business conduct without limiting the vigorous competition on which a market economy is based.”); Michael Risch, Why Do
We Have Trade Secrets?
, 11 M ARQ .
I NTELL .
P ROP .
L.
R EV . 1, 26 (2007) (“[C]reating incentives to innovate is a very minor justification of trade secret law.”).
209
See, e.g.
, Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002-04 (1984);
Philip Morris, Inc. v. Reilly, 312 F.3d 24, 46 (1st Cir. 2002) (en banc) (holding that state regulation requiring disclosure of the content of cigarettes was a taking of trade secrets); E. I. du Pont de Nemours & Co. v. United States, 288 F.2d 904, 912 (Ct. Cl.
1961) (upholding takings claim); DVD Copy Control Ass’n v. Bunner, 75 P.3d 1, 14
(Cal. 2003) (holding that trade secrets represent a “constitutionally recognized property interest in [information]”); 1 R OGER M.
M ILGRIM & E RIC E.
B ENSEN , M ILGRIM ON T RADE

46 BROOKLYN LAW REVIEW [Vol. 76:1 prohibits the unauthorized use or disclosure of trade secrets by private parties; indeed, most states have statutes on the misappropriation of trade secrets.
210
Tracking the goals of intellectual property laws, the current tax regime governing patents and patent-like property was designed, although not optimally, to promote innovation through various tax incentives (i.e., a research tax credit, a current deduction for research expenditures, and reduced capital-gains tax on patent assignments).
211 The more complex question, however, is the extent to which tax laws should encourage other intellectual property activities. At first glance, it is arguable that the current tax regime does not adequately promote the goals of other types of intellectual property, such as copyrights and trademarks—that it actually hinders those goals. A closer look, however, reveals that most, if not all, intellectual property rights (not just patents) achieve the same objectives: innovation and/or efficiency. Patent and copyright laws in general—and, to a lesser extent, trade secret laws— focus on innovation.
212 Trademark laws target efficiency in the marketplace for both the producer and consumer of a trademarked product or service.
213 Given these similar objectives, the disparate tax treatment of different types of intellectual property is hard to justify.
The U.S. Constitution empowers Congress to promote the progress of both science and the useful arts, and as a consequence, Congress has granted significant protections for both patents and copyrights with “all that means for the social and economic benefits.” 214 The intellectual property system encourages innovation by rewarding both inventors and authors with exclusive rights in their inventions and works of authorship for a limited time.
215 Patentees and copyright owners
S ECRETS § 2.01[2], at 21 (2010) (“Practically all jurisdictions have recognized that a trade secret is property,” at least in certain senses.).
210
See David S. Almeling, Four Reasons to Enact a Federal Trade Secrets Act ,
19 F ORDHAM I NTELL .
P ROP .
M EDIA & E NT .
L.J. 769, 772-75 (2009) (discussing state statutes on trade secrets).
211
See supra notes 130-47, 151-54 and accompanying text.
212
See infra notes 214-19 and accompanying text.
213
See infra notes 225-26 and accompanying text.
214
Diamond v. Chakrabarty, 447 U.S. 303, 315 (1980) (“The subject-matter provisions of the patent law have been cast in broad terms to fulfill the constitutional and statutory goal of promoting ‘the Progress of Science and the useful Arts’ with all that means for the social and economic benefits envisioned by Jefferson.”).
215
Shaw v. Cooper, 32 U.S. (7 Pet.) 292, 320 (1833) (“The patent law was designed for the public benefit, as well as for the benefit of inventors. For a valuable

2010] EQUITY AND EFFICIENCY IN IP TAXATION 47 can exploit their intellectual property rights for economic gain.
216 The public benefits greatly from the innovations, as more inventors and authors create more programs and technologies that transform every industry, from biotechnology to communications and entertainment.
217 Furthermore, even after a patent or copyright expires, the patent or copyright becomes part of the public domain; at that point, the public is free to use the knowledge embodied in the expired patent or to copy and distribute the works.
218 With these similarities in goals and substantive protections, 219 one would expect the tax system to treat patents and copyrights similarly. This has never been the case.
Although substantive copyright laws serve to encourage creative genius and the release of the products of creative genius to the public, the current tax system is not aligned with this objective. A tax credit, while available for patent development costs, does not exist for copyright creation expenditures.
220 Tax deduction rules do not adequately incentivize creation activities, generally requiring the capitalization of copyright creation costs.
221 Moreover, tax rules governing copyright assignments are quite harsh. Indeed, since
1950, Congress has prevented individual copyright creators from receiving capital-gains treatment upon the sales of their copyrights.
222 Conversely, patent developers were not covered by invention, the public, on the inventor’s complying with certain conditions, give him, for a limited period, the profits arising from the sale of the thing invented. This holds out an inducement for the exercise of [genius] and skill in making discoveries which may be useful to society, and profitable to the discoverer.”); see also Bonito Boats, Inc. v.
Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989); Sears, Roebuck & Co. v. Stiffel
Co., 376 U.S. 225, 229 (1964).
216
Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 558 (1985)
(“By establishing a marketable right to the use of one’s expression, copyright supplies the economic incentive to create and disseminate ideas.”).
217
Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in ‘Science and useful Arts.’”).
218
Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975) (“The immediate effect of our copyright law is to secure a fair return for an ‘author’s’ creative labor. But the ultimate aim is, by this incentive, to stimulate [the creation of useful works] for the general public good.”).
219
See supra notes 35-47 and accompanying text.
220
The research tax credit applies only to expenses incurred in the experimental or laboratory sense, and it does not apply to research conducted in the
“social sciences, arts, or humanities.” I.R.C. § 41(d) (2006).
221 supra note 63 and accompanying text.
222
Revenue Act of 1950, ch. 994, § 210, 64 Stat. 906, 932-33 (codified as amended at I.R.C. § 1221(a)(3) (2006)).

48 BROOKLYN LAW REVIEW [Vol. 76:1 the 1950 legislation and, to this day, may be eligible for capitalgains treatment upon the sales of their patents.
223 Finally, although all intellectual property donors now receive an initial charitable deduction equal to the donor’s tax basis, between
1969 and 2004, patent donors (but not copyright donors) received an initial deduction equal to the property’s fair market value at the time of contribution.
224 An appropriate legal framework for intellectual property taxation would consider harmonization between the copyright system and the tax system.
In contrast to patent and copyright laws, the goal of trademark law is not to reward innovations of products or services, 225 but rather, to facilitate efficiency.
226 Ironically, however, the tax rules governing trademarks and trade names were not designed with these efficiency goals in mind.
Capitalized trademark and trade name costs were not depreciable or amortizable at all prior to 1956, nor between
1986 and 1993. During these periods, they could only be recovered upon the abandonment or sale of the mark or name, reflecting a government doubt that investment in trademark and trade names produced social benefits that market forces might adequately reflect.
227 The capitalized costs of patents, however, have always been eligible for depreciation allowances.
228 As another example, Congress enacted a special provision in 1969 mandating ordinary income treatment on contingent payments received in a trademark or trade name transfer, regardless of whether the transfer is, in substance, a
223
I.R.C. § 1235 (2006).
224
Tax Reform Act of 1969, Pub. L. No. 91-172, § 201(a), 83 Stat. 487, 549
(current version at I.R.C. § 170 (2006)) (targeting self-created copyrights but not selfdeveloped patents). In 2004, Congress amended the charitable deduction provision by eliminating the fair market value standard for contributions of most all forms of intellectual property, and reducing the initial amount a donor may deduct. American
Jobs Creation Act of 2004, Pub. L. No. 108-357, § 882, 118 Stat. 1418, 1627 (codified as amended in I.R.C. §§ 170(e)(1)(B)(iii), 170(m), 6050L (2006)).
225
See
226 notes 53-56 and accompanying text .
227
See S. R EP .
N O . 99-313 (1986) (Comm. Rep.). With the enactment of Section
197 in 1993, capitalized trademark and trade name costs became amortizable ratably over a fifteen-year period. I.R.C. §§ 197(a), (c)(1)(B) (2006).
228
An early Treasury regulation provided that if an acquired intangible asset could be shown to have a limited useful life, then the capitalized acquisition costs were recoverable over that asset’s useful lifetime. Treas. Reg. § 1.167(a)-3 (as amended in
2004). Under this rule, patents were eligible for depreciation due to the fact that they have limited useful lives (twenty years). See 35 U.S.C. §§ 154(a)(2), (d).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 49 sale or a license.
229 For patent transfers, in contrast, the nature of the payments (contingent or noncontingent) is irrelevant in determining tax consequences.
230
An appropriate legal framework for tax legislation governing intellectual property rights should consider the extent to which the tax system is harmonious with the intellectual property goals identified above. Admittedly, maintaining harmony with intellectual property goals can be challenging in a rapidly changing technology and business environment. For instance, special tax incentives for innovative developments were enacted more than fifty years ago.
231 Since then, there has been a major shift in the innovation market towards a segmentation model.
232 Desirable transfers of innovation between both segments can be either supported or hindered by the income tax system. An appropriate framework might consider the commercial and business realities of innovation segmentation, and suggest that tax incentives encouraging greater research activity and supporting economic growth should not be limited to the innovation development market alone. The result might be more favorable tax rules governing assignments to private market acquirers and governing donations to research universities—rules that achieve optimal innovation outcomes and enhance economic growth.
Another contemporary phenomenon has been the change in the use of patents in business strategy. In recent years, businesses have looked to patent acquisition for licensing purposes or offensive-use purposes (e.g., to threaten
229
I.R.C. § 1253(c) (2006).
230
Early on, the government and courts struggled with the issue of whether a patent assignment should be denied capital-gains treatment solely because the purchase price took the form of contingent payments. Some courts held that the receipt of contingent payments did not prevent a transfer from being considered a sale. See, e.g.
, Comm’r v. Celanese Corp. of Am., 140 F.2d 339 (D.C. Cir. 1944) (consideration in the form of future royalties); Comm’r v. Hopkinson, 126 F.2d 406 (2d Cir. 1942) (same).
Others held the receipt of contingent payments did preclude sale treatment. See, e.g.
,
Bloch v. United States, 200 F.2d 63 (2d Cir. 1952) (consideration in the form of future royalties). In 1958, the Service issued an administrative pronouncement, ruling that patent transferors could enjoy “sale” treatment (and, hence, capital-gains treatment) even though consideration received is measured by production, use, or sale of the patented article. Rev. Rul. 58-353, 1958-2 C.B. 408.
231
Sections 174 (deduction for limited research and experimental expenditures) and 1235 (safe harbor providing capital-gains treatment for limited assignments of patents) were enacted in 1954, while Section 41 (tax credit for limited research expenditures) was enacted much later in 1981. I.R.C. §§ 41, 174, 1235 (2006).
232 supra notes 148-49 and accompanying text.

50 BROOKLYN LAW REVIEW [Vol. 76:1 other companies with litigation), as opposed to manufacturing purposes. An appropriate framework would consider the extent to which the tax system should support or discourage this paradigm shift. The current tax system treats all innovation acquisitions alike.
233 But the innovation goals behind patent rights are tied to the strategic reasons for their acquisition. In particular, patent acquisition for offensive-use purposes frustrates innovation.
234 To promote scientific progress and other innovation goals, then, perhaps the tax system should support the licensing model and not the offensive-use model.
B. Establishing a Rational Basis for Coherent Tax
Distinctions Among Intellectual Property Rights
Inequities and administrative inefficiencies in the intellectual property tax system result largely from the modeling of tax distinctions on intellectual property law labels.
In many cases, special tax rules governing intellectual property adopt an asset-specific approach, applying to one or more specific types of intellectual property and specifically defined for tax purposes. For example, Section 1235 of the Code applies only to transfers of patents as specifically defined for tax purposes; 235 Section 1221(b)(3) applies only to transfers of copyrights in musical works; 236 and Section 1253 applies to transfers of trademarks and trade names, each of which is specifically defined for tax purposes.
237
Some Code provisions make no tax distinctions among the different types of intellectual property. These provisions adopt a “grouping approach,” attempting to affect a larger
233
See supra note 195.
234 supra note 160 and accompanying text.
235
I.R.C. § 1235(a) (2006) (guaranteeing capital-gains treatment for any transfer of all substantial rights to a patent by a statutorily defined holder to an unrelated party); Treas. Reg. § 1.1235-2(a) (as amended in 1980) (providing definition of patent for purposes of Section 1235).
236
I.R.C. § 1221(b)(3) (2006) (providing that, at the election of a taxpayer, the
Section 1221(a)(1) and (a)(3) exclusions from capital asset status do not apply to musical compositions or copyrights in musical works sold or exchanged by a taxpayer described in Section 1221(a)(3)).
237
Id.
§ 1253(a) (requiring ordinary income treatment on contingent payments received for the transfer of a trademark or trade name, and requiring ordinary income treatment on noncontingent payments received for the transfer of a trademark or trade name if the transferor retains any significant power, right, or continuing interest with respect to the subject matter of the mark or name). The terms trademark and trade name were broadly defined in regulations that were proposed in 1971, but eventually withdrawn due to a sunset provision. Prop. Treas. Reg. § 1.1253-1 to -3, 36 Fed. Reg.
13148 (July 15, 1971), withdrawn , 58 Fed. Reg. 25587 (Apr. 27, 1993).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 51 group of intellectual property assets by listing the various types of intellectual property assets within the scope of the provisions. Section 170—which contains a special charitable tax deduction provision applicable to intellectual property— takes a true “grouping” approach, applying to “any patent, copyright . . . , trademark, trade name, trade secret, know-how, software . . . , or similar property , or applications or registrations of such property.” 238 Section 197—which imposes a mandatory fifteen-year amortization schedule for certain capitalized costs—does the same, applying to “any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item ,” and “any trademark or trade name.” 239
Interestingly, these provisions adopting a grouping approach avoid using the broader term “intellectual property.” 240
1.
Deciding Whether the Tax System Should Adopt Tax
Distinctions
Drafters of any tax legislation must consider the scope of the particular provision. Thus, a legal framework for intellectual property taxation should consider whether to adopt tax distinctions for intellectual property areas. A risk of adopting tax distinctions among different types of intellectual property is that the tax system may not be flexible enough to be applied to future innovations and changes in intellectual property.
Internet domain names are a prime example of an intellectual property movement that has outstripped the present tax system. Under the current regime, specific tax rules do not exist for domain names, which are valuable assets that emerged with the arrival of global e-commerce transactions on the Internet.
241 Are domain names merely variations of traditional forms of intellectual property and other intangible rights to which the existing tax regime can be applied? As the authors have previously argued, domain names that function as source identifiers might be treated under the
238
I.R.C. § 170(e)(1)(B)(iii) (2006) (emphasis added).
239
Id.
§§ 197(d)(1)(C)(iii), (d)(1)(F) (emphasis added).
240
The term “intellectual property” was first mentioned in Davoll v. Brown , 1
Woodb. & M. 53, 7 F. Cas. 197, 199 (C.C.D. Mass. 1845). Peter S. Menell, Intellectual
Property and the Property Rights Movement , 30 R EGULATION 36, 37 (2007), available at http://www.cato.org/pubs/regulation/regv30n3/v30n3-6.pdf.
241
See, e.g.
, Domain Name Prices Rise Again , I NVESTOR ’ S B US .
D AILY , Dec. 29,
2003, at A02.

52 BROOKLYN LAW REVIEW [Vol. 76:1 current tax rules applicable to trademarks, but generic domain names possess “inherent” goodwill unaddressed by the existing tax regime.
242
Another example of the administrative difficulties of an inflexible tax system with distinct rules for different types of intellectual property is what we identify as the “Coca-Cola” problem. In business practice today, many different types of intellectual property are often bundled together, as many forms of intellectual property protection are available for a particular product or service.
243 This bundling phenomenon raises the question: How should a particular transaction involving bundled intellectual property assets be treated for tax purposes under an asset-specific tax regime that maintains distinct rules for different types of intellectual property?
There are a “bundle” of intellectual property rights embodied inside and outside each Coca-Cola can or bottle. The trademark Coca-Cola was worth about $68.734 billion in
2009.
244 It is not any ordinary trademark; it is a brand with a large equity built through years of advertisements, distributions, and uses in commerce worldwide.
245 Coca-Cola created goodwill in the trademark over the years that is attached and associated with that trademark.
246
242
Xuan-Thao N. Nguyen & Jeffrey A. Maine, Taxing the New Intellectual
Property Right , 56 H ASTINGS L.J. 1 (2004) [hereinafter Nguyen & Maine, Taxing the
New IP Right ].
243
Additionally, companies often bundle different types of intellectual property assets when they license in or out for the daily business operation. See generally Xuan-Thao N. Nguyen, Bankrupting Trademarks , 37 U.C.
D AVIS L.
R EV .
1267, 1309-10 (2004) (observing the bundling of trademarks and other intellectual property assets in licensing practices); Gideon Parchomovsky & Peter Siegelman,
Towards an Integrated Theory of Intellectual Property , 88 V A .
L.
R EV . 1455 (2002)
(noting the integration and simultaneous use of patents and trademarks in business practice and calling for a new theory of intellectual property to address the integration of different types of intellectual property).
244
Best Global Brands 2009 , I NTERBRAND , http://www.interbrand.com/en/ best-global-brands/best-global-brands-2008/best-global-brands-2009.aspx (last visited
Sept. 13, 2010).
245
Brand equity has been equated with the concept of goodwill, which has been defined as “that which makes tomorrow’s business more than an accident. It is the reasonable expectation of future patronage based on past satisfactory dealings . . .
[that] gives [the business] a selling value above that of its leasehold, equipment and stock.” E DWARD S.
R OGERS , G OOD W ILL , T RADE -M ARKS AND U NFAIR T RADING 13 (1914).
246
See Newark Morning Ledger Co. v. United States, 507 U.S. 546, 555-56
(1993) (“Although the definition of goodwill has taken different forms over the years, the shorthand description of goodwill as ‘the expectancy of continued patronage,’ provides a useful label with which to identify the total of all the imponderable qualities that attract customers to the business.” (quoting Boe v. Comm’r, 307 F.2d 339, 343 (9th
Cir. 1962)) (internal citation omitted)).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 53
The Coke bottle has a unique shape that deserves trade dress protection.
247 Indeed, courts have mentioned the Coke bottle as an example of trade dress worthy of legal protection.
248
Trade dress protection extends to the product’s packaging, and its overall look and feel that serve as a source identifier in the eyes of the consumer.
249 Protected trade dress enjoys a similar protection available to trademarks under federal and state laws.
250 The distinctive red and white design on the Coke tin can is easily recognizable today. The consumer walking down a beverage aisle has no difficulty distinguishing a pack of Coke cans from the others.
251 This design is protected under trademark law.
252
247
See Gary Myers, Statutory Interpretation, Property Rights, and
Boundaries: The Nature and Limits of Protection in Trademark Dilution, Trade Dress, and Product Configuration Cases , 23 C OLUM .-VLA J.L.
& A RTS 241, 260 (2000) (“[N]ot only is the name Coca-Cola protectable, but so is the red-and-white swirl packaging of its producer’s cans and the distinctive shape of the old-fashioned Coke bottle.”).
248
E.g.
, Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205, 215 (2000) (“[A] classic glass Coca Cola bottle, for instance, may constitute packaging for those consumers who drink the Coke and then discard the bottle, but may constitute the product itself for those consumers who are bottle collectors, or part of the product itself for those consumers who buy Coke in the classic glass bottle, rather than a can, because they think it more stylish to drink from the former.”).
249
TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 28 (2001) (“It is well established that trade dress can be protected under federal law. The design or packaging of a product may acquire a distinctiveness which serves to identify the product with its manufacturer or source; and a design or package which acquires this secondary meaning, assuming other requisites are met, is a trade dress which may not be used in a manner likely to cause confusion as to the origin, sponsorship, or approval of the goods.”); Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 775-76 (1992)
(providing trade dress protection for the look and feel of a fast food restaurant); see also
15 U.S.C. § 1125(a)(3) (2006) (“In a civil action for trade dress infringement under this chapter for trade dress not registered on the principal register, the person who asserts trade dress protection has the burden of proving that the matter sought to be protected is not functional.”).
250
Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 428 (2003) (stating that federal unfair competition law “broadly prohibits uses of trademarks, trade names, and trade dress that are likely to cause confusion about the source of a product or service”), superseded by statute , Trademark Dilution Revision Act of 2006 § 2, 15
U.S.C. § 1125(c)(1) (2006); Wal-Mart , 529 U.S. at 209 (observing that the federal
Lanham Act extends protections to “word marks, such as ‘Nike,’ and symbol marks, such as Nike’s ‘swoosh’ symbol, but also ‘trade dress’—a category that originally included only the packaging, or ‘dressing,’ of a product . . . [and] the design of a product”); see also Astoria Indus. of Iowa, Inc. v. Brand FX Body Co., No. 2-08-144-CV,
2010 WL 1433404, at *7-8 (Tex. App. Apr. 8, 2010) (holding that Texas unfair competition law against misappropriation of non-functional trade dress design is not preempted by federal patent law and affirming the trial court’s decision in favor of the plaintiff on the state claim of unfair competition against misappropriation).
251
Dana M. Herberholz, Curing Confusion: An Overview of the Regulatory
Complexities of Obtaining Pharmaceutical Trademarks and Prescription for Reform , 8
M INN .
J.L.
S CI .
& T ECH . 97, 100 (2007) (“The protections of trademark law enable the supermarket customer to choose to purchase COCA-COLA® to the exclusion of other

54 BROOKLYN LAW REVIEW [Vol. 76:1
The Coke formula is a well-kept trade secret that ensures the success of the beverage.
253 Others have tried to imitate the brown-colored drink but could not. Other brown drinks are sold under trademarks, such as Pepsi-Cola and Dr.
Pepper, but none approaches the unique taste of Coke.
254 There is no doubt that the trade secret of the Coke formula is very valuable.
255
A legal framework for intellectual property taxation should consider the most efficient manner to reflect the evolution of intellectual property rights and the realities of a changing economy. Consider a transaction involving the bundling of intellectual property rights embodied inside and outside each Coca-Cola can or bottle. A tax system that groups together various intellectual property rights for tax purposes might be more easily applied in practice than a system that adopts separate tax rules for separate transactions involving differing types of intellectual property. The grouping approach would avoid questions over whether the tax results should be dictated by focusing on the trademark Coca-Cola, on the trade dress of the Coke can, or on the trade secret of the Coke formula. When focused on all three of these rights as one unified asset, a grouping approach would also eliminate messy allocation and valuation issues.
The current tax system adopts a grouping approach for many acquisitions of intellectual property (i.e., intellectual colas, knowing that the famous red label showcasing white letters refers to a particular and familiar brand of cola.”).
252
See Coca-Cola Co. v. Gemini Rising, Inc., 346 F. Supp. 1183, 1183
(E.D.N.Y. 1972) (granting Coca-Cola’s motion to enjoin defendant from using Coca-
Cola’s red sign and white script to sell posters saying, “Enjoy Cocaine”).
253
See Coca-Cola Bottling Co. of Shreveport v. Coca-Cola Co., 107 F.R.D. 288,
286 (D. Del. 1985) (finding that the Coca-Cola formula is “one of the best-kept trade secrets in the world” and that it is kept locked away in an Atlanta bank vault which may “only be opened upon a resolution from the Company’s Board of Directors”).
254
See, e.g.
, United States v. Williams, 526 F.3d 1312, 1323-24 (11th Cir.
2008) (upholding conspiracy convictions for defendants who attempted to sell Coca-
Cola’s formula to Pepsi, noting the severity of harm that Coca-Cola could have suffered if defendants had been successful).
255
See id.
; Coca-Cola Co. v. Reed Indus., Inc., 864 F.2d 150 (Table), 1988 WL
124469, at *1 (Fed. Cir. 1988) (affirming the district court’s injunction against the defendants in a case brought by Coca-Cola for misappropriation of its Coke formulas);
Xpel Techs. Corp. v. Am. Filter Film Distribs., No. SA-08-CA-175-XR, 2008 WL
3540345, at *5 (W.D. Tex. Aug. 11, 2008) (“Take for example the formula for making
Coca-Cola. This formula is a trade secret possessed by The Coca-Cola Company. If a competitor surreptitiously eavesdropped on an internal conversation in which Coke employees were discussing this formula, and if this competitor then started using the improperly acquired formula in the making of its products, Coca-Cola would justifiably be upset.”).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 55 property acquired as part of the acquisition of assets constituting the acquisition of a trade or business). Section 197, which was enacted in 1993 to simplify tax depreciation rules for intangible property, adopts a single depreciation method—a straight-line method—and a single, fifteen-year recovery period for the capitalized costs of acquiring many forms of intellectual property.
256 Thus, a purchaser of the bundle of intellectual property rights embodied in the Coca-Cola product (trademark, trade dress, and trade secret rights) would amortize the total purchase price ratably over fifteen years.
In contrast to its treatment of intellectual property acquisitions, the tax regime does not adopt a grouping approach for the sale of intellectual property. Instead, the Code contains special tax rules for the assignment of trademarks, 257 and it relies on general tax rules for the assignment of trade secrets and trade dress rights.
258 Thus, the seller of a bundle of intellectual property rights embodied in the Coca-Cola product would be required to allocate the sales price among the various intellectual property rights and apply different tax rules to each in order to determine the tax results.
259 This would not be an easy task in light of the bundling of the various intellectual property rights.
The bundling problem, as highlighted in the Coca-Cola example above, also arises in the context of billboards. Each billboard—advertising, for example, Nike products, Marlboro cigarettes, or Wrigley gum—is a copyrighted work of authorship.
260 The creators express their ideas in a tangible medium that conveys a message embedded in the depiction.
The author of a billboard may be a freelance artist or an
256
I.R.C. § 197 (2006). See T ECHNICAL E XPLANATION , supra note 166, at 147
(explaining that Congress created Section 197 to streamline federal taxation of intangible assets).
257
I.R.C. § 1253 (2006).
258
Id.
§§ 1221, 1222, 1231.
259
Gain from the sale of the trademark would be ordinary income if payments were contingent on the productivity, use, or disposition of the mark, or if payments were noncontingent and the transferor retained any significant power, right or continuing interest with respect to the subject matter of the mark. Id.
§ 1253(a)-(c). In contrast, gain from the sale of the trade secret most likely would be treated as capital gain under general capital-gains provisions. Id.
§§ 1221, 1222, 1231.
260
See Kleier Adver., Inc. v. Premier Pontiac, Inc., 921 F.2d 1036, 1038 (10th
Cir. 1990) (involving copyright infringement brought by an advertising company against an automobile dealership and advertising agency for the allegedly infringing use of the copyrighted billboard).

56 BROOKLYN LAW REVIEW [Vol. 76:1 employee of an advertising agency.
261 The contractual agreements between the product company and the author set forth the identity of the copyright owner.
262 The billboard and its associated costs contribute to the building of the recognition, reputation, and goodwill embodied in the trademark or trade dress of each featured product. This bundling of intellectual rights in billboards raises interesting questions. For instance, how should billboard development costs be treated for tax purposes? Should costs be viewed as copyright development costs? Should such costs be treated as part of the development of a trademark or trade dress? Or should costs be treated as general advertising expenditures? The tax results under the current system depend on the answers to these questions.
263 A more efficient regime would produce similar results regardless.
Another classic example of the bundling of rights is computer software. For instance, Microsoft Windows is a group of complex software programs covered by many copyrights.
264
Each time a newer version of the software is created, there is a potential new copyright.
265 Additionally, certain functions for
261
Id.
In Kleier Advertising , the author of the copyrighted billboard “Beat the
Pants” advertisement program was an advertisement agency with many employees and the billboard program “has been a traffic-stopping success in forty geographical markets throughout the United States and Canada.” Id.
262
Id.
(noting that if a company wants to use the “Beat the Pants” billboard ad, it must obtain a license from the advertisement agency).
263
Under the current intellectual property taxation regime, copyright development costs incurred by a corporation are not currently deductible, but must be capitalized. I.R.C. §§ 263(a), 263A(a)-(b) (2006); Treas. Reg. §§ 1.263(a)-4(b)(1)(ii)-(iii), -4(d)
(2004). The costs of building up the goodwill value in a trademark are generally treated as deductible advertising costs, see Rev. Rul. 92-80, 1992-2 C.B. 57, but fees paid to the
Trademark Office for trademark protection are not currently deductible, Treas. Reg.
§ 1.263(a)-4(l), ex. 9(i) (2004). The actual costs of building the tangible property (the physical billboard itself), are not deductible but must be capitalized. Rev. Rul. 92-80, 1992-2 C.B. 57.
264
See Microsoft Corp. v. Liu, No. 1:06-CV-1352-JOF, 2007 WL 4125753, at *3
(N.D. Ga. Oct. 31, 2007) (listing the certificates of copyright registrations for some of
Microsoft Windows software programs, including (1) TX 4-905-936 (“Office 2000 Pro”);
(2) TX 4-905-950 (“Access 2000”); (3) TX 4-905-949 (“Excel 2000”); (4) TX 4-906-019
(“Outlook 2000”); (5) TX 4-905-952 (“PowerPoint 2000”); (6) TX 4-905-951 (“Word
2000”); (7) TX 4-905-937 (“Publisher 2000”); (8) TX 4-309-301 (“FrontPage 2000”); and
(9) TX 4-899-117 (“PhotoDraw 2000”)).
265
Dispatch Automation, Inc. v. Richards, 280 F.3d 1116, 1120 (7th Cir.
2002) (noting that software developers do not register numerous versions of the software as new versions are continually being created) (“One might wonder why, if the code for RiMS 2000 is as different from the code for its predecessors as Dispatch
Automation claims, neither Dispatch Automation nor Richards has registered it with the Copyright Office. Asked this question at his deposition, Richards answered that ‘if you tried to submit a copyright application every time there was a new version of the program you would spend all your time trying to continually recopyright the program since . . . the program changed literally hundreds of times that day.’”).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 57
Windows software programs are covered by patents.
266
Moreover, there is proprietary information and know-how embodied in Windows that is protected by trade secret law.
267
The name “Windows” is a known trademark, identifying the products widely installed in most computers and used by millions.
268 The four curving, colorful panels of the Windows logo are also entitled to protection under trademark law.
269 An administratively efficient tax system would be equipped to address a transaction involving the complex network of software seen in Windows.
Another example of the “Coca-Cola” bundling problem is video games. In 2008, the revenue for games and supporting systems, software, and accessories reached $21.33 billion, 270 and the number has been projected to increase to $48.9 billion by
2011.
271 A recent study revealed that the video-game industry employed 32,000 people in thirty-four states, and in 2009, these employees received $2.9 billion in compensation.
272 Another study reported that the video-game industry is growing faster than other industries and has surpassed the ailing music industry.
273 The creators, publishers, and distributors of video games rely on the bundling of different types of intellectual property for the daily operation of their businesses. For
266
Benjamin J. Kormos, Giving Frankenstein a Soul: Imposing Patentee
Obligations , 21 I NTELL .
P ROP .
J. 309, 341 (2009) (“As of 2007, Microsoft held more than
6,000 software patents.”).
267
Robert W. Gomulkiewicz, Conditions and Covenants in License Contracts:
Tales From a Test of the Artistic License , 17 T EX .
I NTELL .
P ROP .
L.J. 335, 338 (2009)
(observing that Microsoft and other software companies rely on trade secret protection afforded to software programs distributed in binary form).
268
Microsoft has brought legal actions for using its well-known Windows trademark. See, e.g.
, Microsoft Corp. v. Lindows.com, Inc., No. C01-2115C, 2002 WL
31499324 (W.D. Wash. Mar. 15, 2002).
269
See Microsoft Corp. v. Silver Star Micro, Inc., No. 1:06-cv-1350-WSD, 2008
WL 115006, at *2 (N.D. Ga. Jan. 9, 2008) (listing the various trademark registrations for
Microsoft “flag” logos that were the subject of a successful trademark infringement case).
270
2008 US Video Game Sales Reached $21.33 Bln , IT F ACTS (Jan. 15, 2009), http://www.itfacts.biz/2008-us-video-game-sales-reached-2133-bln/12439.
271
Ralph Baer, Genesis: How the Home Video Games Industry Began , http://www.ralphbaer.com/how_video_games.htm (last visited Mar. 16, 2009)
(recounting the history of home video games); Georg Szalai, Video Game Industry
Growth Still Strong: Study , R EUTERS (June 21, 2007, 4:41 AM), http://www.reuters. com/article/idUSN2132172920070623.
272
S TEPHEN E.
S ICNEK , E NTM ’ T S OFTWARE A SS ’ N , V IDEO G AMES IN THE 21 ST
C ENTURY 1 (2010), available at http://www.theesa.com/facts/pdfs/VideoGames21stCentury_
2010.pdf.
273
Szalai, supra note 271 (“The video game sector will remain one of the above-average growth segments of the global entertainment industries through 2011, with global games spending set to exceed music spending this year.”).

58 BROOKLYN LAW REVIEW [Vol. 76:1 example, game companies seek patent procurements for new game functions and initiate infringement litigation against other game companies for violations involving patent-related video games.
274 Likewise, game companies utilize trademark law to protect the goodwill accumulated in video-game names and to enforce the trademarks against unauthorized use of similar or identical games that are likely to cause consumer confusion.
275 In addition, game companies may rely on trade dress law to protect the look and feel of their game displays.
276
Most often, companies rely on copyright law for the protection of their games and prohibition of infringements.
277 In reality, video games are all about software; indeed, the industry terms these games “entertainment software.” 278
These four bundling examples in the beverage, advertising, software, and game industries are reminders that companies today rely on many different types of intellectual property. These examples are not the exception; they are the norm. For example, in the biotech or biopharma industry, drug companies rely on patents
279
and trade secrets for the protection of their research, development, and invention of certain
274
See, e.g.
, Hochstein v. Microsoft Corp., No. 04-73071, 2008 WL 4387594
(E.D. Mich. Sept. 24, 2008) (involving a video-game patent titled “Apparatus and
Method for Electrically Connecting Remotely Located Video Games,” U.S. Patent No.
5,292,125); Alpex Computer Corp. v. Nintendo Co., 770 F. Supp. 161, 162 (S.D.N.Y.
1991) (noting that the U.S. Patent No. 4,026,555 (the 555 patent) is “a patent that involves the earliest video games”).
275
E.g.
, Nintendo of Am., Inc. v. Brown, 94 F.3d 652 (Table), 1996 WL 468590, at *1 (9th Cir. 1996) (“The record supports the district court’s determination that consumer confusion would occur about the origin of the video games at issue because they were virtually identical to the games sold by Nintendo.”); see also Sony Computer
Entm’t, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000) (trademark dilution claim in a case involving console video games).
276 e.g.
, Incredible Techs., Inc. v. Virtual Techs., Inc., 400 F.3d 1007 (7th
Cir. 2005) (copyright claims in the video game instructions and display, trade dress infringement claims).
277
See, e.g.
, Wakefield v. Walt Disney Co., 321 F. App’x 685 (9th Cir. 2009)
(copyright protection and infringement claims of Kingdom Hearts video games), cert. denied , 130 S. Ct. 752 (2009); Sony Computer Entm’t Am., Inc. v. Bleem, L.L.C., 214
F.3d 1022 (9th Cir. 2000) (action alleging that developer’s use of “screen shots” from manufacturer’s games in developer’s advertising violated manufacturer’s copyright);
Nintendo , 94 F.3d 652 (Table), 1996 WL 468590 (affirming copyright and trademark infringement claims because defendant’s games were identical to plaintiff’s games);
Frybarger v. Int’l Bus. Machs. Corp., 812 F.2d 525 (9th Cir. 1987) (analyzing copyright infringement claim between two video games).
278
See Economic Data , E NTM ’ T S OFTWARE A SS ’ N , http://www.theesa.com/facts/ econdata.asp (last visited Oct. 7, 2010).
279
See generally Pharmaceutical Patents , I NNOVATION .
ORG , http://www. innovation.org/documents/File/Pharmaceutical_Patents.pdf (last visited Sept. 13, 2010).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 59 drugs.
280 Drug companies also rely on copyrights, trade dress, and trademarks in their advertising campaigns. To market and sell their drugs, for instance, drug companies use trademarks along with pamphlets and instructions.
As these examples illustrate, the rigidity of the current intellectual property taxation scheme renders it incongruent with the realities of the current intellectual property system.
Specifically, it is difficult to analyze the tax results of domain names and other Internet-based intangibles, as well as the tax results of transactions involving integrated intellectual property. Thus, an appropriate legal framework for intellectual property tax rules should ensure adequate flexibility in rules to deal with the evolution of intellectual property and the reality of the changing economy. A tax system flexible enough to account for new intangible rights and emerging intellectual property trends, such as the integration and simultaneous use of intellectual property, would achieve clearer tax results as well as administrative efficiency.
2.
Determining a Basis for Tax Distinctions
If the tax system adopts distinctions for different types of intellectual property rights, then, to minimize inequities, a legal framework for tax rules should question whether substantive differences among forms of intellectual property justify different tax results for each form. While all types of intellectual property share certain common characteristics, there are substantive differences among the forms. A patent is issued for 20 years, and a copyright is in force for the life of the author plus 70 years (or 95 years, or in the case of a hired creator, 120 years).
281 The protection for trademarks or trade names, by contrast, continues for as long as they are used in commerce.
282 To what extent, if any, should these and other substantive differences justify different tax results? Under present rules, the receipt of contingent payments in patent and copyright transfers is treated vastly differently from the receipt
280
See, e.g.
, Shankar Vedantam, Antidepressant Makers Withhold Data on
Children , W ASH .
P OST , Jan. 29, 2004, at A1.
281 supra notes 48-50 and accompanying text.
282
A trademark right is based on use. Abandonment of a trademark occurs when the owner stops using the trademark in commerce. Federal trademark law presumes abandonment after three years of non-use of the trademark. 15 U.S.C. § 1127 (2006).
Abandonment of a trademark could occur if the owner failed to police the trademark so that it becomes the generic name for the product or service with which it is used. Id.

60 BROOKLYN LAW REVIEW [Vol. 76:1 of contingent payments in trademark and trade name transfers.
283 One commentator has argued that the only major substantive difference among these forms—duration—does not justify differing effects in contingent payments.
284 But perhaps there are other substantive differences supporting differing tax results; for example, patents and copyrights further innovation goals, whereas trademarks further efficiency goals. An appropriate legal framework would focus attention on this issue and yield fewer perceived tax inequities.
If tax distinctions are deemed justified based on substantive differences among intellectual property forms, a framework should question whether the different types of intellectual property are treated in an appropriate manner vis-
à-vis one another. Assume, for example, that patents and copyrights should be treated as equals for tax purposes due to their substantive similarities (because both serve to promote science and the arts) 285 and that, conversely, trademarks should be treated differently for tax purposes (because they serve the different purpose of protecting consumers and trademark owners).
286 A legal framework for analyzing intellectual property tax rules would question whether the treatment of patents and copyrights as one group, and trademarks as another, is an appropriate method of achieving true equity.
As an alternative to focusing on the legal attributes of intellectual property and basing tax distinctions upon their substantive differences, a tax framework might base tax distinctions on the purposes that intellectual property assets serve. For example, instead of developing separate rules for identified intangibles (such as patents, trade secrets, copyrights, trademarks, trade names, and computer software), creating legal definitions, and carving out exceptions, a tax system could develop separate rules for “technology-based intangible assets,” “marketing-based intangible assets,” and
“artistic-based intangible assets.” 287
283 supra notes 93, 229-30 and accompanying text.
284
See Daniel A. Izzo, Contingent Payment Transfers of Trademarks: A Sale in
License Clothing , 12 V A .
T AX R EV . 263, 275-76 (1992).
285 supra notes 31-47 and accompanying text.
286 supra notes 51-56 and accompanying text.
287
With respect to accounting for business combinations, this is the approach that was adopted by the Financial Accounting Standards Board (FASB). See FASB,
S TATEMENT OF F INANCIAL A CCOUNTING S TANDARDS N O .
141 (B USINESS C OMBINATIONS ) app. F (2007). Technology-based intangibles include, for example, patents, unpatented technology, software, trade secrets, etc. Marketing-based intangibles include

2010] EQUITY AND EFFICIENCY IN IP TAXATION 61
Basing tax distinctions upon intellectual property uses, as opposed to intellectual property definitions, might yield a more flexible tax system capable of handling future innovations and intellectual property movements. As noted above, special tax rules governing intellectual property do not currently address domain names.
288 It is arguable that domain names functioning as trademarks be treated as trademarks under current tax rules.
289 But under this framework, they might fall within the category of “technology-based intangible assets” and thus might be treated like the other intangible assets in that category, such as patented and unpatented technology, trade secrets, etc. As with domain names, current tax rules do not specifically deal with websites.
290 Instead of treating the various components of a website differently based on current tax treatment of software, copyrightable content, and noncopyrightable content, the proposed framework might treat the website as a whole as a “marketing-related intangible asset.”
Such an approach might also eliminate problems caused by the bundling of intellectual property in business practice.
A tax system emphasizing intellectual property uses, as opposed to legal attributes, might yield more rational tax distinctions. Currently, for example, trademark and trade secret acquisition costs are treated the same for tax purposes.
291
However, it might be justifiable to treat a trade secret used as a technology-based intangible asset differently from a trademark used as a marketing based intangible asset.
Likewise, it might be justifiable to treat a copyright that is classified as an artistic-related intangible (e.g., a book, play, or musical work) differently from a copyright that classified as a marketing-related intangible asset (e.g., advertising materials). trademarks, service marks, trade names, brand names, Internet domain names, etc.
Artistic-based intangibles include literary works and copyrights, musical works, photography, maps, etc.; see also FASB, S TATEMENT OF F INANCIAL A CCOUNTING
S TANDARDS N O .
142 (G OODWILL AND O THER I NTANGIBLE A SSETS ) (2008).
288
See Taxing the New IP Right , supra note 242.
289
Id.
290
Under the current tax rules, taxpayers and advisors are left with questions, such as: Should the costs relating to the development of a website be treated the same as software development costs? How should the costs of creating or purchasing content for websites be treated? Does it make a difference if some website content is copyrightable or non-copyrightable? If websites are considered variations of existing intellectual or intangible property rights to which the existing tax law can be adopted, then the tax treatment of websites might depend on the website’s components
(e.g., software, copyrightable content, non-copyrightable content). This approach is not easily applied in practice.
291
See supra note 94 and accompanying text.

62 BROOKLYN LAW REVIEW [Vol. 76:1
This approach would ensure consistency because a copyright on a book (an artistic-related intangible) would necessarily be treated in the same way as a copyright on a musical work (also an artistic-related intangible). Current law does not treat these copyrights similarly.
292
A system focusing on intellectual property uses would also eliminate the debate over whether emphasis should be on protections available or protections actually obtained. Certain property—such as computer software—is eligible for more than one type of intellectual property protection.
293 This circumstance raises the question of whether tax consequences should be affected by the protections available (e.g., patent, copyright, trade secret), or whether tax consequences should depend on the actual protections obtained. Consider the tax treatment of an assignment of computer software or a design patent. Under current tax rules, a capital asset does not include any copyright in the hands of the person who created it.
294 An interesting question that arises is whether this copyright exclusion applies when property, such as a design patent or computer software, is both patentable and copyrightable. Under current rules, the copyright exclusion does not apply if “a patent or an invention, or a design . . . may be protected only under the patent law and not under the copyrightable law.” 295 As a result, design patents, which are “eligible for both patent and copyright protection,” are subject to the copyright exclusion. Likewise, computer software, which is copyrightable but often protected through a trade secret agreement, is also subject to the copyright
292
See supra notes 112-13 and accompanying text.
293
Copyright law has traditionally served as the source of legal protection for computer programs. See, e.g.
, Williams Elecs., Inc. v. Arctic Int’l, Inc., 685 F.2d 870,
875 (3d Cir. 1982) (“[T]he copyrightability of computer programs is firmly established after the 1980 amendment to the Copyright Act . . . .”); see also 17 U.S.C. § 101 (2006).
In addition to copyright law, patent protection has been extended to computer software inventions which are also known as Internet patents or business method patents. See
Bilski v. Kappos, 130 S. Ct. 3218 (2010) (holding that business method inventions are patentable subject matter under section 101 of the patent statute). In addition to copyright and patent law, trade secret has been extended to protect computer programs. See MGE UPS Sys., Inc. v. GE Consumer & Indus., Inc., No. 08-10521, 2010
WL 3769210, at *8 (5th Cir. 2010) (upholding the district court’s permanent injunction against the defendant for copyright infringement and trade secret misappropriation of the plaintiff’s software).
294
I.R.C. §§ 1221(a)(3)(A), 1231(b)(1)(C) (2006).
295
Treas. Reg. § 1.1221-1(c)(1) (as amended in 1980).

2010] EQUITY AND EFFICIENCY IN IP TAXATION 63 exclusion.
296 Basing tax distinctions on intellectual property uses would eliminate this outcome.
297
C ONCLUSION
Federal tax rules governing intellectual property evolved in the absence of an appropriate legal framework for the intersection of intellectual property and taxation schemes.
As a result, the current intellectual property tax regime is flawed on several grounds. Utilizing horizontal equity as a tax policy analysis tool uncovers numerous differences in the tax treatment of similar intellectual property owners, assets, and transactions. Utilizing an appropriate efficiency standard to evaluate tax subsidies for intellectual property (e.g., tax expenditures in the form of deductions and credits) reveals that many of the tax expenditures for intellectual property are circumscribed to have limited effectiveness. Although some aspects of the current tax scheme complement and promote the intellectual property scheme, others hinder it and stifle desirable intellectual property activity. Furthermore, distinctions in the current tax system—different rules for different types of intellectual property—have produced an inflexible scheme not easily applied to evolving intellectual property rights and practices, particularly transactions involving integrated intellectual property.
A rational, coherent legal framework is needed for the development of an intellectual property tax system that does not violate fundamental equity and efficiency principles of tax policy. In developing an appropriate framework for intellectual property tax rules, the following questions should be asked:
First, should the taxation and intellectual property schemes be harmonious (i.e., should the tax system be designed to support the intellectual property system)? Second, if tax distinctions among intellectual property are to be adopted, what is the basis for making them?
296
For criticism of the current approach, see C HARLES E DWARD F ALK , T AX
P LANNING FOR THE D EVELOPMENT AND L ICENSING OF C OPYRIGHTS , C OMPUTER
S OFTWARE , T RADEMARKS AND F RANCHISES , A-26 to -27 (1997).
297
Interestingly, while the tax treatment of assignments of software and design patents is impacted by intellectual property protections, the tax treatment of developments and acquisitions of software and design patents is not. Costs of software development, for example, are generally treated the same (deductible) regardless of the method of protection available or obtained. See Rev. Proc. 2000-50, 2000-2 C.B. 601. A legal framework emphasizing intellectual property uses would avoid such a distinction in the current tax system.

*
Thuy-Nga T. Vo †
The top two leadership roles in the American corporation are the chief executive officer (“CEO”) and the chairperson of the board of directors (“Chair”).
1 There is a large body of literature that examines the impact of the CEO’s compensation and stock ownership on the company’s performance. Much has also been written about the effects of the board’s size, director stock ownership, and director independence on the company’s success. Less attention has been given to the governance structure in which both the CEO and Chair positions are held by one individual and the impact of this dual leadership role—commonly known as “duality” 2 —on the corporation’s performance.
Thus far, the limited scholarship on duality takes two different analytical approaches: the theoretical underpinning of duality or the empirical effect of duality on discrete performance variables. Legal scholarship focuses primarily on theoretical concepts (e.g., conflicts of interests, entrenchment, and agency costs) to evaluate the different leadership structures of corporate entities. Literature in the areas of management, business, and financial economics, by contrast,
*
© 2010 Thuy-Nga T. Vo. All rights reserved.
†
Harvard Law School, J.D., 1988; University of Minnesota, B.A., summa cum laude , 1985. William Mitchell College of Law, Associate Professor. I am grateful to professors Greg Duhl, Doug Heidenreich, and Niels Schaumann for their comments on drafts of this article and to research assistants Tessa Kowalski and Steve Cerny. I thank Michael A. Duffy, Esq., for his insights and support.
1
See J. Richard Harrison, David L. Torres & Sal Kukalis, The Changing of the Guard: Turnover and Structural Change in the Top-Management Positions , 33
A DMIN .
S CI .
Q. 211, 211, 221-23 (1988) (arguing that although the CEO and Chair are both at the top of the corporate leadership hierarchy, the CEO has greater power relative to the Chair).
2
See B. Ram Baliga, R. Charles Moyer & Ramesh S. Rao, CEO Duality and
Firm Performance: What’s the Fuss?
, 17 S TRATEGIC M GMT .
J.
41, 42 (1996) (“In cases of
CEO duality, the CEO of the firm wears two hats—a CEO hat and a chairperson of the board of directors hat. Nonduality implies that different individuals serve as the CEO and the chairperson.”).
65

66 BROOKLYN LAW REVIEW [Vol. 76:1 focuses mostly on results from empirical tests of discrete measures (e.g., executive compensation, management turnover, and stock returns) to evaluate the different corporate leadership structures.
The pervasiveness of duality in corporate America underlies the importance of understanding this leadership structure and its impact on corporate performance. This article analyzes the impact of duality on corporate performance through an integrated framework, using concepts from legal scholarship in addition to data from management, business, and financial literature. Using these theoretical concepts and empirical results, this article analyzes whether the combination or separation of the top leadership roles better supports the foundational concept of corporate governance: directors are responsible for overseeing business operations and monitoring management to achieve corporate financial success.
3
Part I of this article discusses the management and monitoring responsibilities of the board of directors. Part II explores the duality governance structure and its prevalence in corporate America. In Part III, the article examines and weighs the theoretical arguments for and against duality. Based on these arguments, this part assesses the impact of combined or separate CEO and Chair positions on the board’s performance of its management and monitoring responsibilities. Part IV turns to the empirical data on the effect of combined, rather than separate, CEO-Chair roles on corporate performance. Part
V explains the views of corporate stakeholders on the duality
3
See A M .
L.
I NST ., P RINCIPLES OF C ORPORATE G OVERNANCE : A NALYSIS AND
R ECOMMENDATIONS § 3.01 cmt. a (1994) [hereinafter ALI P RINCIPLES ]. Comment (a) to section 3.01 quotes the Corporate Director’s Guidebook, which states:
Even under statutes providing that the business and affairs shall be
“managed” by the board of directors, it is recognized that actual operation is a function of management. The responsibility of the board is limited to overseeing such operation. . . . It is important to emphasize that the role of the director is to monitor, in an environment of loyal but independent oversight, the conduct of the business and affairs of the corporation in behalf of those who invest in the corporation.
Id.
; see also E RIC A.
C HIAPPINELLI , C ASES AND MATERIALS ON B USINESS E NTITIES 379
(2006) (“One obvious consequence of a person’s agreement to serve as a director is the understanding that he or she will strive for the corporation’s financial success.”); Paul
Mallette & Karen L. Fowler, Effects of Board Composition and Stock Ownership on the
Adoption of “Poison Pills ”, 35 A CAD .
M GMT .
J. 1010, 1012 (1992) (“[I]t is widely accepted that boards are the formal representatives of firms’ shareholders and that they exist to monitor top management performance and protect shareholders’ rights and interests.”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 67 debate. The article concludes that theoretical arguments and empirical evidence, as reflected in financial and nonfinancial metrics, strongly suggest that a corporate governance structure with a nonexecutive Chair, instead of a dual CEO-Chair, is better suited to the fulfillment of the directors’ fundamental responsibilities to oversee business operations and monitor management for the purpose of enhancing shareholder value.
I. B OARD OF D IRECTORS ’ A UTHORITY TO G OVERN
A. Management and Monitoring Roles
State statutes provide the board of directors with the authority to manage and direct the operation of the corporation.
4 The board’s management role requires directors to set enterprise policies and to make key business decisions involving matters such as financing plans, growth strategies, and executive compensation.
5 The board’s monitoring role, on the other hand, entails hiring management personnel to operate the business and overseeing management to control weak performances or self-serving action by corporate managers.
6
Both the management and monitoring roles encompass specific tasks, and it is not always easy or necessary to determine whether a task is more in the line of managing or monitoring.
7 For example, a board deciding whether to approve
4
See D EL .
C ODE A NN . tit. 8, § 141(a) (2001 & Supp. 2008) (“The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of the board of directors . . . .”); M ODEL B US .
C ORP .
A CT § 8.01 (2008)
(“[T]he business and affairs of the corporation shall be managed by or under the direction, and subject to the oversight, of its board of directors . . . .”).
5
Stephen M. Bainbridge, A Critique of the NYSE’s Director Independence
Listing Standards , 30 S EC .
R EG .
L.J. 370, 381 (2002); Robert Charles Clark, Corporate
Governance Changes in the Wake of the Sarbanes Oxley Act: A Morality Tale for
Policymakers Too , 22 G A .
S T .
U.
L.
R EV . 251, 279 (2005); R. William Ide, Post-Enron
Corporate Governance Opportunities: Creating a Culture of Greater Board
Collaboration and Oversight , 54 M ERCER L.
R EV .
829, 836 (2003).
6 supra note 5, at 381; Clark, supra note 5, at 278; Melvin A.
Eisenberg, Corporate Law and Social Norms , 99 C OLUM .
L.
R EV .
1253, 1278 (1999);
Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950-2005:
Of Shareholder Value and Stock Market Prices , 59 S TAN .
L.
R EV . 1465, 1468 (2007); Ide, supra note 5, at 836, 838; Idalene F. Kesner, Bart Victor & Bruce T. Lamont, Board
Composition and the Commission of Illegal Acts: An Investigation of Fortune 500
Companies , 29 A CAD .
M GMT .
J.
789, 790 (1986).
7
See Joel Seligman, No One Can Serve Two Masters: Corporate and
Securities Law After Enron , 80 W ASH .
U.
L.Q.
449, 457-62 (2002) (distinguishing the board’s management function in approving the company’s special purpose vehicles from

68 BROOKLYN LAW REVIEW [Vol. 76:1 a material transaction with an inside executive is exercising not only its management role of making a fundamental business decision, but also its oversight role of ensuring that the transaction enhances shareholder value instead of merely furthering executive interests.
There has been vigorous debate over whether the board’s primary role is to manage or to monitor.
8 It is well settled, though, that a board may delegate its management authority to corporate officers, 9 and that such delegation is now the norm in corporate America.
10 It is the officers who in fact manage most public corporations on a day-to-day basis.
11
Having delegated the daily management function to the executives, directors retain oversight responsibility in order to the board’s monitoring function over the CFO’s conflicts of interest in proposing and operating the special purpose vehicles).
8
See F RANKLIN G EVURTZ , G LOBAL I SSUES IN C ORPORATE L AW 68 (2006)
(observing that many commentators believe the board’s primary role is “to monitor management, rather than . . . manage the corporation”); Bainbridge, supra note 5, at
378 (recounting that the American Law Institute’s first draft of its Principles of
Corporate Governance generated the “hotly debated . . . issue of what role the board of directors . . . should play in corporate governance”).
9
See D EL .
C ODE A NN . tit. 8, § 142(a)-(b) (West 2010) (“Every corporation organized under this chapter shall have such officers with such titles and duties as shall be stated in the bylaws or in a resolution of the board of directors which is not inconsistent with the bylaws . . . . Officers shall be chosen in such manner and shall hold their offices for such terms as are prescribed by the laws or determined by the board of directors . . . .”); M ODEL B US .
C ORP .
A CT § 8.40 (2008) (“The board of directors may elect individuals to fill one or more offices of the corporation . . . .”); id.
§ 8.41
(“Each officer has the authority and shall perform the functions set forth in the bylaws or, to the extent consistent with the bylaws, the functions prescribed by the board of directors . . . .”).
10
See Eisenberg, supra note 6, at 1278-81 (explaining that the management role was dominant more than twenty years ago, but the monitoring role has now been recognized as the primary function of the board); Ide, supra note 5, at 836 (observing that the monitoring role was less recognized than the management role until post-
Enron); ALI P RINCIPLES , supra note 3, § 3.02 cmt. d (“In the publicly held corporation, the management function is normally vested in the principal senior executives.”).
11
See ALI P RINCIPLES , supra note 3, § 3.01 cmt. a (quoting the Corporate
Director’s Guidebook, which states, “It is generally recognized that the board of directors is not expected to operate the business . . . . [I]t is recognized that actual operation is a function of management. The responsibility of the board is limited to overseeing such operation.”); id.
§ 3.02 cmt. d (“A basic function of the board is to select these executives and to oversee their performance (using the term ‘oversee’ to refer to general observation and oversight, not active supervision or day-to-day scrutiny) to determine whether the business is being properly managed . . . .”); Lynn A. Stout, On the Proper Motives of Corporate Directors (or, Why You Don’t Want to Invite Homo
Economicus to Join Your Board) , 28 D EL .
J.
C ORP .
L.
1, 18 (2003) (explaining that after directors select executives and employees to run daily operations, the directors intervene in daily operations only on major issues).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 69 ensure that the executives’ actions advance the company’s business and financial objectives.
12
To facilitate the board’s monitoring function, federal laws and stock exchange listing standards require certain levels of director independence.
13 The Sarbanes-Oxley Act of
2002 requires public companies to have an audit committee composed entirely of independent directors.
14 Similarly, the listing standards of the New York Stock Exchange 15 and the
Nasdaq Stock Market 16 require public companies to have a
12
See ALI P RINCIPLES , supra note 3, § 3.01 cmt. a. Specifically, comment (a) to section 3.01, quoting the Business Roundtable Statement, states that
Although the board cannot effectively conduct day-to-day operations, the board does have a major role in, and a major accountability for, the financial performance of the enterprise. This clearly requires a continuing check on corporate financial results and prospects, including profit and loss and cash flow by major business segments.
Id.
; see also Stout, supra note 11, at 18 (“Just as a smoke detector may seem an idle lump of plastic and metal until an actual fire, a board of directors that appears passive most of the time can save shareholders billions of dollars, if it notices and reacts when things go wrong.”).
13
See Gordon, supra note 6, at 1477-83 (discussing the evolution of the director independence rules).
14
Sarbanes-Oxley Act of 2002 § 301, 15 U.S.C. § 78j-1(m)(3)(A) (2006). Being
“independent” means the audit committee member may not be an affiliate of the company and may not receive fees from the company, other than fees for service on the board or board committees. Id.
§ 78j-1(m)(3)(B).
An “affiliate” of the company is a person controlling, controlled by, or “under common control with” the company. 17
C.F.R. § 240.10A-3(e)(1)(i) (2010). Having “control” means having the “power to direct or cause the direction of the management and policies of” the company “through the ownership of voting securities, by contract, or otherwise.” Id.
§ 240.10A-3(e)(4).
15
N.Y.
S TOCK E XCH ., F INAL NYSE C ORPORATE G OVERNANCE R ULES 4-10
(2003), available at http://www.nyse.com/pdfs/finalcorpgovrules.pdf. Under NYSE requirements, a director is not independent if the director receives compensation of
“more than $100,000 per year” from the NYSE company, other than board fees, or if the director is an executive officer of another company that is doing business with the
NYSE company in excess of the “greater of $1 million or 2% of such other company’s consolidated gross revenues.” Id.
In addition, a director is not considered independent
“unless the board of directors affirmatively determines that the director has no material relationships with the listed company,” whether in the nature of commercial, industrial, banking, consulting, legal, accounting, charitable, or familial relationships.
Id.
Material relationships may occur directly between the director and the company, or indirectly through the director being a “partner, shareholder or officer of an organization that has a relationship with the company.” Id.
16
Developments in the Law—Corporations and Society , 117 H ARV .
L.
R EV .
2169, 2187, 2191, 2193 (2004) [hereinafter Developments ]. Nasdaq’s standards for director independence are similar to the NYSE standards discussed above, but
Nasdaq’s cut-off for non-board-related compensation is $60,000 per year, and the cutoff for the director’s business payments to or income from the company is the greater of
$200,000 or “5% of the recipient’s consolidated gross revenues.” Id.
at 2189-90.

70 BROOKLYN LAW REVIEW [Vol. 76:1 majority of independent directors on their boards and to have the entire nominating, compensation, and audit committees composed of independent directors.
The director independence requirement is grounded in the belief that outside directors are more effective than inside directors in monitoring management conduct.
17 Opinions and research findings, however, are mixed on the value of director independence.
18 There is evidence that director independence enhances, detracts from, or has no effect on corporate performance, in both financial and nonfinancial measures.
19 For example, some studies find that outside directors negatively affect corporate performance because the outside directors are more likely to support management prerogatives than shareholder interests, that increasing outsider representation reduces research and development spending, and that an outsider-dominated board is more likely to award “golden parachutes” to the company’s executives.
20
Other studies, on the other hand, find that increasing outsider representation on the board improves corporate
17 supra note 6, at 1468-69; see also ALI P RINCIPLES , supra note 3,
§ 3A.01 cmt. c (“The effectiveness of the oversight function is conditioned on two prerequisites: a board that can objectively evaluate the performance of the senior executives, and an accurate and reliable flow of information to the board concerning that performance.”).
18
Sanjai Bhagat & Bernard Black, The Uncertain Relationship Between
Board Composition and Firm Performance , 54 B US .
L AW . 921, 924, 942 (1999); Victor
Brudney, The Independent Director—Heavenly City or Potemkin Village?
, 95 H ARV .
L.
R EV . 597, 635 (1982); Developments , supra note 16, at 2200; Gordon, supra note 6, at
1500-09; Mallette & Fowler, supra note 3, at 1013; Dan L. Worrell, Carol Nemec &
Wallace N. Davidson III, One Hat Too Many: Key Executive Plurality and Shareholder
Wealth , 18 S TRATEGIC M GMT .
J.
499, 501 (1997).
19
Bainbridge, supra note 5, at 386-88; Clark, supra note 5, at 298-301
(summarizing studies showing positive, negative, and nominal impact of director independence on “firm profitability or performance”); Gordon, supra note 6, at 1468
(“One of the apparent puzzles in the empirical corporate governance literature is the lack of correlation between the presence of independent directors and the firm’s economic performance.”); Worrell et al., supra note 18, at 501 (noting that the presence of outside directors may lead to “positive stock price reactions” and a positive correlation between outsider presence and “bidding firms’ stock returns in acquisitions”).
20
Chamu Sundaramurthy, James M. Mahoney & Joseph T. Mahoney, Board
Structure, Antitakeover Provisions, and Stockholder Wealth , 18 S TRATEGIC M GMT .
J.
231, 240 (1997); see also Worrell et al., supra note 18, at 501 (“[O]utside directors are often chosen by the CEO and may be aligned to management interests.”). “Golden parachutes” are compensation arrangements “that allow covered managers to voluntarily resign and collect substantial remuneration—in some cases several million dollars—after a triggering event, usually a hostile takeover.” Philip L. Cochran, Robert
A. Wood & Thomas B. Jones, The Composition of Boards of Directors and Incidence of
Golden Parachutes , 28 A CAD .
M GMT .
J. 664, 664-65 (1985).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 71 performance in financial accounting measures and stock price.
21
Moreover, empirical research indicates that an independent board is more likely to terminate a CEO after a period of poor financial performance.
22 An independent board may also enhance shareholder value by reducing the likelihood that shareholders will bring suits against the company and that the board will approve greenmail payments.
23
Given the mixed results in the correlation between director independence and corporate performance, the question of whether, and what portion of, the board should be composed of independent directors has been a subject of contention.
24 This article explores a specific angle of the director independence question: whether corporations should separate the positions of
CEO and board Chair so that each position is held by a different individual.
25 Thus, the focus of this article is the independence of the chairperson of the board—not the independence of directors generally.
21
James P. Walsh & James K. Seward, On the Efficiency of Internal and
External Corporate Control Mechanisms , 15 A CAD .
M GMT .
R EV . 421, 433 (1990); Worrell et al., supra note 18, at 501.
22
Walsh Seward, note 21, at 433.
23
Mallette & Fowler, supra note 3, 1013; Sundaramurthy et al., supra note
20, at 240; Walsh & Seward, supra note 21, at 433. The corporate practice of paying a premium price to repurchase shares in order to be rid of a hostile shareholder is known as paying “greenmail” to the hostile shareholder. C HIAPPINELLI , supra note 3, at 244.
24
See Bainbridge, supra note 5, at 386-88 (questioning the effect of director independence on corporate performance); Clark, supra note 5, at 298-301 (counseling against “one-size-fits-all governmental mandates” that impose director independence requirements on corporations); Thuy-Nga T. Vo, Rating Management Behavior and
Ethics: A Proposal to Upgrade the Corporate Governance Rating Criteria , 34 J.
C ORP .
L.
1, 12 (2008) (discussing the emphasis that governance rating agencies place on director independence).
25
This article focuses on whether the board Chair should currently serve as the company’s CEO. Some proponents of separating the positions would prohibit not only the current CEO, but also former CEOs of the company, from serving as board
Chairs. Clark, supra note 5, at 271. Other observers see a benefit in having a retired
CEO assume the Chair position; putting the retired CEO on the board retains the company-specific knowledge valuable to the Chair’s job. James A. Brickley, Jeffrey L.
Coles & Gregg Jarrell, Leadership Structure: Separating the CEO and Chairman of the
Board , 3 J.
C ORP .
F IN . 189, 194-95 (1997). Yet others believe that the board should have a Chair who fully satisfies the independence requirements under regulatory and listing standards. See Steven Balsam & Arun Upadhyay, Impact of Board Leadership on Firm Performance: Does It Matter Who Heads the Board?
21 (Mar. 16, 2009), available at http://ssrn.com/abstract=1361255 (“[T]he benefits of having a separate chair . . . appear to only exist when that chair is an independent director.”).

72 BROOKLYN LAW REVIEW [Vol. 76:1
C. Responsibility to Further Shareholder Interests
Underlying the board’s authority to govern is its responsibility to strive for the corporation’s success, whether determined by financial profitability or other indices of performance.
26 There has been lively discussion about whether directors, when making decisions for the corporation, should consider shareholder interests alone or whether they should also consider the interests of other stakeholders 27 of the corporation.
28 Although this debate continues, after the appearance of constituency statutes in the 1980s, it became generally acknowledged that directors may consider various constituents’ interests in making corporate decisions.
29
Although directors may consider other stakeholders’ interests, and corporate success may be measured in terms other than financial metrics, a fundamental tenet of corporate law is that the board is charged with management and monitoring responsibilities to ensure that corporate actions serve shareholder best interests and maximize shareholder wealth.
30
26
See Ide, supra note 5, at 837-38 (stating that the board’s role to monitor corporate performance includes not only confirming that the company is meeting its financial goals but also that the company is achieving legal and regulatory compliance and human resources management); Walsh & Seward, supra note 21, at 423 (explaining that measures of corporate performance may include market value, employee turnover, employee satisfaction, and corporate involvement in illegal activities).
27 infra Part V for the definition of “stakeholders.”
28
See generally William T. Allen, Our Schizophrenic Conception of the
Business Corporation , 14 C ARDOZO L.
R EV . 261, 262-81 (1992) (discussing the inconsistent conceptions of the corporation as “shareholder property” and “social entity”); Amir N. Licht, The Maximands of Corporate Governance: A Theory of Values and Cognitive Style , 29 D EL .
J.
C ORP .
L.
649, 686-721 (2004) (explaining the debate over whether corporate fiduciaries should maximize the interests of shareholders alone or of stakeholders as a group); see also Brudney, supra note 18, at 602-07 (identifying the debate on whether directors should serve stockholders or other nonstockholder constituencies); Walsh & Seward, supra note 21, at 422-23 (distinguishing between the general view in the field of financial economics that shareholder interests are primary in corporate decisions and the general view in the field of organizational theory that the interests of many stakeholders are considered in corporate decisions).
29
See, e.g.
, Allen, supra note 28, at 279-81 (explaining that this conceptual battle was won in the late 1980s with the endorsement of the entity theory, but suggesting that the war was far from over); Brudney, supra note 18, at 604-05 (“[A]ll— except the most devout free market economists—embrace the notion of some social responsibility . . . . [However,] there is a wide range of views about how much social responsibility is enough.”); Lawrence E. Mitchell, A Theoretical and Practical
Framework for Enforcing Corporate Constituency Statutes , 70 T EX .
L.
R EV . 579, 634
(1992) (explaining that constituency statutes permit directors to consider the effects of corporate action on constituent groups).
30
Katherine M. Brown, New Demands, Better Boards: Rethinking Director
Compensation in an Era of Heightened Corporate Governance , 82 N.Y.U.
L.
R EV . 1102,
1106 (2007); Brudney, supra note 18, at 602; Gordon, supra note 6, at 1471-72; Mallette

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 73
II. C URRENT S TATUS OF D UALITY
The term “duality” describes the corporate leadership structure where one individual holds both the CEO and Chair positions.
31 Although duality is pervasive in corporate America, it is less popular 32 —or even prohibited 33 —in other countries.
Duality has been the dominant corporate governance structure in the United States.
34 According to the 1989 Forbes
& Fowler, supra note 3, at 1012; Ira M. Millstein & Paul W. MacAvoy, The Active
Board of Directors and Performance of the Large Publicly Traded Corporation , 98
C OLUM .
L.
R EV . 1283, 1283 (1998); see also ALI P RINCIPLES , supra note 3, § 3.01 cmt. a
(quoting the Corporate Director’s Guidebook that “[i]t is important to emphasize that the role of the director is to monitor, in an environment of loyal but independent oversight, the conduct of the business and affairs of the corporation in behalf of those who invest in the corporation.”); Brian R. Cheffins, Did Corporate Governance “Fail”
During the 2008 Stock Market Meltdown? The Case of the S&P 500 , 65 B US .
L AW . 1, 5-9
(2009) (discussing the evolution of corporate governance from the managerial capitalism model in post-World War II to the shareholder value model in the 1980s).
31
See Baliga et al., supra note 2, at 42 (“In cases of CEO duality, the CEO of the firm wears two hats—a CEO hat and a chairperson of the board of directors hat.
Nonduality implies that different individuals serve as the CEO and the chairperson.”);
Brian K. Boyd, CEO Duality and Firm Performance: A Contingency Model , 16
S TRATEGIC M GMT .
J.
301, 301 (1995) (“CEO duality exists when a firm’s chief executive also serves as Chairman of the board of directors. Otherwise, the board is described as having an independent structure.”); Wm. Gerard Sanders & Mason A. Carpenter,
Internationalization and Firm Governance: The Roles of CEO Compensation, Top Team
Composition, and Board Structure , 41 A CAD .
M GMT .
J.
158, 164 (1998) (“Duality describes the situation in which an executive holds both the CEO and chairperson of the board positions.”). A small number of scholars do not use the term “duality” to specify the number of positions that the CEO holds, but instead use the term to refer to how many leaders the company has. Brickley et al., supra note 25, at 192. Under that definition, a unitary leadership structure signifies that there is one individual serving as both CEO and Chair, and a dual leadership structure refers to two separate people serving as CEO and Chair. Id.
32
Dan R. Dalton & Idalene F. Kesner, Composition and CEO Duality in
Boards of Directors: An International Perspective , 18 J.
I NT ’ L B US .
S TUD .
33, 39 (1987)
(finding that duality is the governance structure for 82% of large corporations in the
United States, 30% of large corporations in the United Kingdom, and 10.9% of large corporations in Japan); M ILLSTEIN C TR .
FOR C ORP .
G OVERNANCE AND P ERFORMANCE ,
C HAIRING THE B OARD : T HE C ASE FOR I NDEPENDENT L EADERSHIP IN C ORPORATE N ORTH
A MERICA 17 (2009) [hereinafter M ILLSTEIN R EPORT ], available at http://www.cii.org/User
Files/file/Millstein%20Center%20Rpt%20-%20Chairing%20the%20Board%203-15-09.pdf
(stating that most public companies in Australia, Belgium, Brazil, Canada, Singapore, and the United Kingdom have a nonexecutive Chair); Richard W. Stevenson, Balancing the Power at the Corporate Top, British Style , N.Y.
T IMES , Nov. 15, 1992, at A4 (reporting that only 24% of public companies in Britain have duality and that the practice of having an independent director is common in Britain).
33
M ILLSTEIN R EPORT , supra note 32, at 17 (explaining that Germany and
Holland’s requirement of a two-tier board structure by definition separates the CEO and Chair positions, and South Africa’s Johannesburg Stock Exchange requires listed companies to split the positions); Sanders & Carpenter, supra note 31, at 164 n.7
(noting that some countries’ regulation of board structure results in the lack of consolidation of the CEO and Chair positions).
34
Sanders Carpenter, note 31, at 164; Stevenson, supra note 32.

74 BROOKLYN LAW REVIEW [Vol. 76:1
Executive Compensation Survey, out of 661 large U.S. firms, approximately 81% of the companies maintained a leadership structure where one individual held both the CEO and Chair titles; approximately 14% of the companies had different people in the two positions; and approximately 5% of the companies did not have a Chair position.
35 In 1992, the New York Times reported that 75% to 80% of companies had one executive who occupied both the CEO and Chair positions.
36 Similarly, a 1992 survey by executive firm Korn Ferry International affirmed that only 20% of the 1,000 largest corporations in America had a board Chair who did not also serve as the company’s CEO.
37
Although duality remains the most popular corporate leadership structure in the United States, the proportion of companies with duality has decreased in recent years.
According to a study of the 1,500 companies in the ExecuComp database during the period from 1996 to 2005, the percentage of companies with a combined CEO-Chair steadily decreased from 76% in 1996 to 69% in 2000 and 60% in 2005.
38
Conversely, the proportion of companies with a separate board
Chair steadily increased in that same ten-year period: 24% in
1996, 31% in 2000, and 40% in 2005.
39 In its 2009 board practices study, RiskMetrics Group, a provider of corporate governance services, reported that 46% of Standard & Poor’s
1,500 companies had separate individuals serving in the CEO and Chair positions.
40
Only a small percentage of the separate board Chairs are independent directors, but that percentage has also increased in recent years.
41 Prior to 2002, less than 25% of the companies that separated the CEO and Chair positions had an independent director who served as board Chair.
42 By 2005, more than 31% of companies that separated the two roles had an independent director serve as board Chair.
43 Almost half of
35
Brickley al., note 25, at 197-98.
36 supra note 32.
37
Baliga al., note 2, at 43.
38
Balsam & Upadhyay, supra note 25, at 38-39 (all figures have been rounded).
39
Id.
(all figures have been rounded).
40
Press Release, RiskMetrics Grp., RiskMetrics Group Releases 2009 Board
Practices Study (Jan. 8, 2009), http://www.riskmetrics.com/press/2009bp [hereinafter
RiskMetrics Press Release].
41
See Balsam & Upadhyay, supra note 25, at 39 (identifying the distribution of leadership structure).
42
Id.
43
Id.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 75 the individuals serving as separate Chairs were independent directors as of 2009.
44
Many companies that do not separate their CEO and
Chair positions appoint a presiding director, commonly known as a “lead director,” to address conflicts of interest and agencycost concerns that are inherent in duality.
45 The lead director’s job is to advise the CEO-Chair on selecting board committee members and setting board meeting agendas.
46 The lead director also presides over executive sessions of independent directors.
47
Similar to the increase in the number of companies that have a separate board Chair, there has been an increase in the number of companies that have appointed a lead director to work with the individual who serves as both CEO and Chair.
48
Of the companies that combined the CEO and Chair positions, less than 1% had a lead director in 1996, while almost 4% had a lead director in 2000.
49 By 2005, almost 68% of the companies that had a combined CEO-Chair also had a lead director.
50
Some corporate governance observers regard the presence of a lead director as an acceptable and effective alternative to having a separate board Chair.
51 Other commentators, however, view the appointment of a lead director as a mere symbolic gesture, rather than an actual attempt to preserve board independence.
52 Skeptics see the lead
44
RiskMetrics Press Release, supra note 40.
45
Jay W. Lorsch & Martin Lipton, On the Leading Edge: The Lead Director ,
71 H ARV .
B US .
R EV . 79, 79-80 (1993) (recommending that companies with duality designate one of the outside directors as the lead director because “[e]ffective leadership of the outside directors is essential to enable the board to discharge its monitoring function properly”); Millstein & MacAvoy, supra note 30, at 1287-88. See
Balsam & Upadhyay, supra note 25, at 8 (“Appointing a lead director could be considered a compromise leadership structure, one that firms might adopt if they feel having a separate chair is too costly.”).
46
Balsam & Upadhyay, supra note 25, at 8; Lorsch & Lipton, supra note 45, at 79. The CEO-Chair retains the power to appoint committee members and to set meeting agendas; the lead director, where there is one, provides input and suggestions to the CEO-Chair in connection with those tasks. Id.
47
Balsam Upadhyay, note 25, at 55; Clark, supra note 5, at 271. The lead director does not preside at meetings of the entire board and meetings of shareholders. Lorsch & Lipton, supra note 45, at 79.
48
Balsam & Upadhyay, supra note 25, at 16.
49
See id.
at 39 (identifying five lead directors in 595 duality companies in
1996 and twenty lead directors in 542 duality companies in 2000).
50 id.
(identifying 405 lead directors in 596 duality companies in 2005).
51
Call Grows for Separation of CEO and Chairman
Roles , 231 N.Y.
L.J.
5, 5 (2004); Clark, supra note 5, at 271; Gordon, supra note 6, at 1495.
52
See Balsam & Upadhyay, supra note 25, at 4 (“[W]e find the existence of a lead director either has no effect or is negatively associated with firm performance.

76 BROOKLYN LAW REVIEW [Vol. 76:1 director’s presence as inadequate to resolve the conflicts of interest in duality, pointing to the lead director’s consultative rather than authoritative role, lack of power to set the board agenda, and lack of authority to act as the spokesperson for the company.
53 There has not been much empirical research on the effect of having a lead director in the corporate governance structure, but one study appears to support the view that the presence of a lead director does not enhance board performance or company profitability.
54
There is disagreement regarding the causes and consequences of a company’s top-leadership structure. Why do firms choose duality for their system of governance, and what effect does that structure have on company performance?
Supporters explain duality’s persistent prevalence as evidence of its superiority as a governance structure in the competitive marketplace.
55 As this argument goes, duality is the dominant leadership structure because corporate boards have determined that their CEOs have the knowledge and skills to lead both the board and the management group, 56 or because the boards have given the title of board Chair as an award to the CEO who has led the company to successful performance.
57 Advocates of a combined CEO-Chair also contend that duality remains
This finding is consistent with firms appointing lead directors for symbolic rather than substantive purposes.”); M ILLSTEIN R EPORT , supra note 32, at 9 (“[T]he lead director is not perceived by . . . fellow board members as the board leader when in the shadow of the combined CEO and chairman.”).
53
See Balsam & Upadhyay, supra note 25, at 8 (“The difference between having a separate chair and having a lead director is that the former is nominally the head of the board which has supervisory authority over the CEO, whereas the latter’s role is normally more limited.”); Lorsch & Lipton, supra note 45, at 79 (recommending the appointment of a lead director for consultative and coordinative purposes, and specifying that the lead director will “not set the agenda nor preside at meetings” nor “act as a spokesperson for the company”); M ILLSTEIN R EPORT , supra note 32, at 8 (“The lead director does not run the meeting. He who sits at the head of the table runs the meeting.”).
54 infra Part IV.B.2.
55
Baliga al., note 2, at 43; Brickley et al., supra note 25, at 199-200.
56
Baliga et al., supra note 2, at 43.
57
See Brickley et al., supra note 25, at 192, 207 (explaining that most companies that have separate CEOs and Chairs are in a transitional succession process of testing new CEOs who would eventually be granted the Chair title);
Harrison et al., supra note 1, at 226-27, 230 (suggesting that successful corporate financial performance is likely to enhance the power of the CEO and may result in the
CEO being able to acquire the role of board Chair). Some candidates for the CEO position in fact demand that they get the Chair seat along with the top executive spot.
Joann S. Lublin, Splitting Posts of Chairman, CEO Catches On , W ALL S T .
J., Nov. 11,
2002, at B1.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 77 dominant because it is effective in generating shareholder wealth.
58
Advocates of separate CEO and Chair positions, by contrast, attribute the pervasiveness of duality not to competitiveness or effectiveness, but instead to the shift toward a governance structure of “CEO primacy” or “dictatorship of the
CEO,” 59 and to the undue influence of executive management in the board selection process.
60 Supporters of separate CEO and
Chair roles also regard duality as the cause of corporate boards’ failure to exercise their management and monitoring responsibilities to protect shareholder interests.
61
III.
T HEORETICAL A RGUMENTS A BOUT D UALITY
Some commentators have suggested that the prevalence of duality implies that a combined CEO and Chair position is the optimal leadership structure for large public companies.
62
Supporters of duality maintain that if duality were not an effective and efficient governance structure, most public companies could not maintain duality and still survive in the competitive marketplace.
63 Despite the prevalence of duality in corporate governance, however, not all of corporate America believes that duality is the optimal leadership structure. There
58
See Brickley et al., supra note 25, at 200 (suggesting that duality not be denounced without “a cogent explanation for how such an important corporate control practice can be wealth-decreasing and still survive in the competitive marketplace for so long across so many companies”).
59
Steven of Corporate Governance Law , 32 D EL .
J.
C ORP .
L.
345, 345 (2007).
60
Baliga al., note 2, at 41, 43.
See Sydney Finkelstein & Richard A.
D’Aveni, CEO Duality as a Double-Edged Sword: How Boards of Directors Balance
Entrenchment Avoidance and Unity of Command , 37 A CAD .
M GMT .
J. 1079, 1102 (1994)
(pointing out that the business press often expresses the view that “CEO duality formally institutionalizes the dominance of CEOs over boards”); Mark J. Roe, Chaos and Evolution in Law and Economics , 109 H ARV .
L.
R EV . 641, 641 (1996) (“Although institutions that have survived cannot be too inefficient, evolution-toward-efficiency constrains but does not fully determine the institutions we observe.”).
61
Baliga al., note 2, at 41, 43; M ILLSTEIN R EPORT , supra note 32, at 13.
62
See Brickley et al., supra note 25, at 199-200 (suggesting that the dominance of duality implies that having an independent chairperson is not likely to be the optimal leadership structure for most public companies); Lex Donaldson & James H. Davis,
Stewardship Theory or Agency Theory: CEO Governance and Shareholder Returns , 16
A USTL .
J.
M GMT . 49, 61 (1991) (explaining that based on the stewardship theory of corporate governance, a majority of large U.S. companies have already adopted the optimal corporate governance structure where the CEO also serves as the board Chair).
63
Brickley et al., supra note 25, at 199-200; see also Donaldson & Davis, supra note 62, at 61 (“[S]hould corporations bow to pressures to appoint independent board chairs[,] the performance of the corporations and the returns to their shareholders would suffer.”).

78 BROOKLYN LAW REVIEW [Vol. 76:1 is a view among many shareholders, business leaders, industry groups, corporate governance advisers, and regulators that corporate governance is more effective and efficient when the
CEO and Chair positions are separated than when they are combined.
64
Various theories have been advanced for and against duality. The following analysis focuses on the advantages of the
CEO-Chair and nonexecutive Chair models. In most cases, the arguments in favor of one leadership structure are essentially arguments against the other leadership structure.
A. Arguments Supporting Combined Positions
A unifying theme of the various arguments in support of duality is that combining the CEO and Chair positions enhances the board’s management performance. The board’s management responsibilities require that it make key decisions affecting the company.
65 Proponents of duality contend that combining the CEO and Chair positions enhances the board’s management role. A combined CEO-Chair, they argue, provides the board with more complete and timely information about the company, provides the company with a unified command structure and a consistent leadership direction, and creates a collaborative and collegial environment for board decision making.
66
Taking these arguments separately, the first posits that the board of directors will benefit from having a Chair who has deep, first-hand knowledge of the company.
67 Proponents contend that a board Chair who also serves as the CEO is likely to spend more time at the company, to have more detailed information about the strengths and weaknesses of the company, and to have a deeper understanding of the operational and financial health of the company.
68 Presumably, the CEO would use the knowledge and experience that she gains from serving as the company’s top executive to contribute
64
See Brickley et al., supra note 25, at 189-91 (giving examples of business leaders, shareholders, regulators, and researchers who oppose duality).
65 supra Part I.A.
66 infra Part III.A.
67
See Brickley et al., supra note 25, at 194 (“Presumably, CEOs have unparalleled specialized knowledge regarding the strategic challenges and opportunities facing the firm.”); Boyd, supra note 31, at 301 (stating that “the CEO-
Chair would be expected to have a greater knowledge of the firm and its industry”).
68 supra note 5, at 300; cf.
Brickley et al., supra note 25, at 194.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 79 to her role as Chair of the board, leading and guiding the board to understand, deliberate, and make fundamental business decisions for the company.
69 In that sense, the CEO-Chair’s
“specific knowledge may trump [the] general wisdom and outside perspective” of a non-CEO Chair in the decisionmaking process.
70
A related theory is that combining the CEO and Chair positions reduces the cost of information transfer between company leaders.
71 A combined CEO-Chair position avoids the need for the transfer of information that must take place if different individuals hold the CEO and Chair positions.
72
Because information transfer may be costly, untimely, or incomplete, having critical information reside in one combined
CEO-Chair may improve the ability of that individual to perform management responsibilities.
73
There is some evidence, however, that questions the degree of information costs that arise from separating the CEO and Chair positions.
74 For one thing, researchers have observed that a company can mitigate the information costs of separating top leadership positions by appointing nonexecutive
Chairs with significant experience and in-depth knowledge based on their long-time membership on the company’s board.
75
Moreover, combining the CEO and Chair positions may create information costs, in that many CEOs impose an unwritten policy that all communication of information from inside the company to the board must first be approved by the CEO.
76 A board with a dual CEO-Chair may lack the healthy skepticism necessary to examine information that has been screened and filtered by the CEO prior to being provided to the board.
77
69
See Balsam & Upadhyay, supra note 25, at 7 (“CEOs have specialized knowledge regarding the strategic challenges and opportunities facing the firm that is valuable to the chairman’s job.”).
70 supra note 5, at 300.
71
Dawn Harris & Constance E. Helfat, CEO Duality, Succession, Capabilities and Agency Theory: Commentary and Research Agenda , 19 S TRATEGIC M GMT .
J.
901,
903 (1998). See generally Brickley et al., supra note 25.
72
Brickley al., note 25, at 194-95.
73
Harris & Helfat, supra note 71, at 903.
74
Brickley et al., supra note 25, at 199-200 (reporting the average tenure of independent board chairs in a representative sample).
75 id.
76
See Ide, supra note 5, at 838-39 (criticizing the practice of the CEO in screening information to the board and suggesting that others in senior management provide information directly to the board).
77
See Vo, supra note 24, at 25 (suggesting that directors maintain a healthy skepticism for information that management provides to the board).

80 BROOKLYN LAW REVIEW [Vol. 76:1
The second broad argument supporting duality is that a combined position provides a unified command structure and reduces the company’s cost of decision making.
78 A CEO-Chair can exert greater authority and speed in making and implementing strategic decisions for the company.
79 Thus, decisions made by a CEO-Chair may be clearer, timelier, and more consistent than decisions made by a CEO who has to negotiate and consult with a board that is led by a separate
Chair.
80 In addition, having one individual occupy both the CEO and Chair positions reduces public confusion about who is in charge of the company, and clarifies who is responsible for the company’s performance.
81
There are countervailing considerations to the advantages of duality’s unified command structure. The concentration of corporate leadership authority in one person, the CEO-Chair, may constrain board oversight and restrict board adoption of appropriate strategies that adapt to changing business environments.
82 What appear to be clear and consistent decisions on the part of the CEO-Chair may turn out to be manifestations of the executive’s fixation on a set course of action or unwillingness to adopt new business strategies to meet pressing competitive conditions.
83
The third line of argument in favor of duality is that a combined CEO-Chair may enhance the board’s performance of
78
Baliga et note 2, at 42; Lucian A. Bebchuk, Martijn Cremers &
Urs Peyer, CEO Centrality 10 n.9 (Harvard L. Sch. John M. Olin Ctr. for Law, Econ. &
Bus., Discussion Paper No. 601, 2008), available at http://ssrn.com/abstract=1030107;
Finkelstein & D’Aveni, supra note 60, at 1083; Roberta S. Karmel, Splitting the CEO and Chairman , 231 N.Y.
L.J.
3, 3 (2004).
79
Baliga et al., supra note 2, at 42; Balsam & Upadhyay, supra note 25, at 7;
Boyd, supra note 31, at 301; Brickley et al., supra note 25, at 195; Harris & Helfat, supra note 71, at 902; cf.
Karmel, supra note 78, at 3.
80
Baliga al., note 2, at 42; Boyd, supra note 31, at 301, 304; Brickley et al., supra note 25, at 195; Finkelstein & D’Aveni, supra note 60, at 1080, 1083;
Sanders & Carpenter, supra note 31, at 164.
81
Baliga al., note 2, at 42; Boyd, supra note 31, at 301, 304; Brickley et al., supra note 25, at 195; Finkelstein & D’Aveni, supra note 60, at 1079-80, 1083-84;
Sanders & Carpenter, supra note 31, at 164; Makoto Toda & William McCarty,
Corporate Governance Changes in the Two Largest Economies: What’s Happening in the
U.S. and Japan?
, 32 S YRACUSE J.
I NT ’ L L.
& C OM . 189, 213 (2005).
82
See Baliga et al., supra note 2, at 42-43 (comparing IBM’s failure to adopt strategies to prevent loss of market share with Compaq Computer’s successful adoption of a lower-priced product model); Ramirez, supra note 59, at 370 (“Corporate governance should operate to limit CEO autonomy and to protect investors; this will lead to superior outcomes.”).
83
See Boyd, supra note 31, at 301 (explaining that “duality has been blamed for poor performance and slow response to change in firms such as General Motors,
Digital Equipment Corporation, and Goodyear Tire and Rubber”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 81 its management responsibilities by facilitating cooperation between board directors and company executives.
84 Some scholars have suggested that a board may perform its managerial role better when there is a collegial and supportive relationship among directors and officers.
85 The CEO is the leader of the company’s executive group, and several members of that executive group are also likely to serve as directors on the board.
86 Where the CEO is also the leader of the board of directors, the joint leadership may prompt more cooperation between the two groups.
87 By enhancing collegiality and collaboration between board directors and company executives, a CEO-Chair may thus facilitate consensus that leads to smooth and efficient decision making.
88
Observers of boardroom dynamics indicate that many corporate boards indeed develop a close-knit culture that values internal harmony over vigorous debate and dissension.
89
However, it is not entirely clear whether and to what extent the board’s managerial function depends on a collegial relationship among directors and managers.
90 Taking a neutral
84
See Clark, supra note 5, at 278 (asserting that “boards of directors perform the managerial role better when there is a ‘collegial and collaborative’ mode of interaction among directors and officers”).
85
See generally Larry E. Ribstein, Market vs. Regulatory Responses to
Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002 , 28 J.
C ORP .
L.
1, 35-45
(2002) (arguing that an increased emphasis on the board’s monitoring role may exacerbate tension and distrust between the outside directors and management, which may adversely affect the board’s performance of its management role).
86
C HIAPPINELLI , supra note 3, at 400; see also Gordon, supra note 6, at 1472-
76 (describing a shift in board composition away from a majority of inside directors toward a majority of independent directors during the period from 1950 to 2005, but noting that most corporations maintain one or two inside directors on their boards).
87
Cf.
Baliga et al., supra note 2, at 42 (explaining that proponents of duality contend that separating the top leadership positions may create rivalry between the
CEO and the Chair).
88
See Balsam & Upadhyay, supra note 25, at 7 (“Having one leader can also minimize the potential for rivalry.”); Millstein & MacAvoy, supra note 30, at 1284
(“Board service was largely viewed as honorific and responsive to management concerns; the arm’s-length relationship implied in the board’s monitoring role over management was replaced by a collegial relationship between the two . . . .”).
89
Walsh Seward, note 21, at 431; see also Brudney, supra note 18, at
610-17 (explaining that the obstacles to directors’ taking an arm’s-length stance toward management include unclear legal standards and weak sanctions, limited monetary incentives, psychological effects of small group dynamics, and social relationships with management).
90
See ALI P RINCIPLES , supra note 3, § 3.02 cmt. d (“The board’s obligation to oversee the performance of the principal senior executives does not imply an antagonistic relationship between the board and the executives. Rather, it contemplates a collegial relationship that is supportive as well as watchful[,] . . . challenging yet positive, arm’s length but not adversary.”); Brown, supra note 30, at
1107-08 (explaining that board failure often results from a lack of constructive criticism

82 BROOKLYN LAW REVIEW [Vol. 76:1 or critical position toward certain information provided and actions taken by senior management does not necessarily impede a board’s deliberative and decision-making processes.
91
Rather, directors who take an objective and probing stance toward senior executives while deliberating and making decisions for the company may be more likely to fulfill the directors’ managerial responsibilities.
92 Conversely, interaction between board directors and corporate executives that is markedly supportive and accommodating may signal the board’s improper deference to, and mere rubber-stamping of, executive decisions and conduct.
93
Arguments in support of duality focus primarily on the potential improvement in the board’s management role, without much consideration of the board’s other major role— namely, monitoring executive behavior. While some commentators suggest that the CEO-Chair has the in-depth knowledge about the company necessary to effectively monitor management misconduct, 94 the CEO-Chair with a keen understanding of the company’s strengths and weaknesses may be the very executive who is engaging in managerial misconduct.
95 Notwithstanding the knowledge and understanding of the CEO-Chair, the effectiveness of the board
Chair’s monitoring role is obviated when the board Chair position is occupied by the very same misbehaving CEO. from the board to management and from information asymmetries between the board and management).
91
See B US .
R OUNDTABLE , P RINCIPLES OF C ORPORATE G OVERNANCE 7 (2005), available at http://www.businessroundtable.org/sites/default/files/CorporateGovPrinciples.pdf
(“Effective directors maintain an attitude of constructive skepticism; they ask incisive, probing questions and require accurate, honest answers . . . .”); Developments , supra note 16, at 2200
(explaining that “increased independence and activism need not result in a crippled board”).
92
See Jeffrey A. Sonnenfeld, What Makes Great Boards Great , H ARV .
B US .
R EV ., Sept. 2002, at 106, 111 (“Perhaps the most important link in the virtuous cycle is the capacity to challenge one another’s assumptions and beliefs. Respect and trust do not imply endless affability or absence of disagreement.”).
93
Walsh Seward, note 21, at 431 (explaining that corporate boards that prize collegiality over objectivity may fail to scrutinize and discipline executives).
94
Cf.
Clark, supra note 5, at 300 (discussing the board’s monitoring role).
95
See id.
(“One could even argue that independent directors will not know enough about the company to act as good monitors of potential misconduct and selfdealing, even though it’s hard to then argue that inside directors, with their conflicted interests, would do better in this role.”); Walsh & Seward, supra note 21, at 424
(affirming that directors in public companies have the ultimate responsibility to scrutinize the conduct of their company’s top executives).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 83
B. Arguments Supporting Separate Positions
Supporters of splitting the CEO and Chair positions argue that separation enhances the board’s performance of its management responsibilities by improving both the quality and the timeliness of board decision making.
96 Having a board Chair who is not an executive of the company may bring fresh knowledge and insight to the board’s decision-making process.
97
With learning and experiences outside of the company whose board she leads, a nonexecutive Chair may provide unique perspectives that enhance the board’s performance of its management duties to deliberate and make strategic and fundamental business decisions.
98
A nonexecutive Chair may also facilitate the board’s management function by enabling the board to quickly make decisions and adopt new strategies to meet changing business environments.
99 Supporters of separating the top leadership positions often point to Compaq Computer as an example of a company where having a separate Chair enabled the business—over the strong objection of the company’s CEO—to adopt a lower-priced product line to remain competitive in the industry.
100 Compaq’s nonexecutive Chair confirmed that
“Compaq’s board was able to act quickly because of the corporate governance structure in place at Compaq where the
CEO and Chairman roles are distinct.” 101 Similarly, the separation of the CEO and Chair roles at Cypress
Semiconductor Corporation has been regarded as the reason that the board was able to make a strategic financial decision to stop the CEO from investing the company’s cash account in the stock market shortly before the dot-com crash.
102 Although
T.J. Rodgers, then-CEO of Cypress Semiconductor, was not pleased with the board’s decision at the time, he later acknowledged that he was glad the board stopped him because
96
Baliga al., note 2, at 42.
97 supra note 5, at 300.
98
Id.
; Sanders & Carpenter, supra note 31, at 164.
99
See Baliga et al., supra note 2, at 42 (referring to the contention that
“Roger Smith, in his dual capacities of Chairman and CEO [of General Motors], restricted board oversight and the adoption of strategies appropriate to the changing environment”).
100 e.g.
, id.
at 43.
101
Id.
102 supra note 51, at 5.

84 BROOKLYN LAW REVIEW [Vol. 76:1 the board’s decision “ended up saving [the company] a lot of money.” 103
Supporters of separating the CEO and Chair positions contend that the board also performs its monitoring role better when there is a nonexecutive Chair.
104 The monitoring role requires directors to exert oversight over corporate managers in order to detect and discipline managerial inefficiencies and misconduct.
105 Thus, duality may cause failure by the board to effectively monitor and control executive management.
106
In public companies, boards of directors delegate day-today management responsibilities instead of personally performing these tasks themselves.
107 With management tasks delegated, it is crucial that corporate boards effectively monitor executive managers’ performance.
108 The board’s ability to monitor the CEO and other executives, in turn, depends on the board’s power to exert control over the CEO and other executives.
109 However, a CEO who also serves as board Chair has de facto authority over the board, notwithstanding the board’s legal authority and responsibility to monitor and control the CEO.
110 Where the CEO, by serving simultaneously as board Chair, has practical authority and influence over other board members, the board’s power to control the CEO and other executives is curtailed or ineffective.
111 Consequently,
103
Id.
104
Baliga al., note 2, at 42; Brown, supra note 30, at 1113; Finkelstein
& D’Aveni, supra note 60, at 1079, 1082; Harris & Helfat, supra note 71, at 902.
105 supra note 6, at 1468; Kesner et al., supra note 6, at 790; Millstein
& MacAvoy, supra note 30, at 1293.
106
Baliga al., note 2, at 42; Brickley et al., supra note 25, at 189-90;
Kesner et al., supra note 6, at 790; see also Brown, supra note 30, at 1113 (“[T]he board relationship has shifted from one of ‘CEO domination’ to one of ‘CEO accountability,’ as companies move to separate CEO and board chairperson positions.”); Ramirez, supra note 59, at 392 (“[P]ermitting unbridled CEO power to reign in corporate America, as it does today, is inconsistent with any principled economic view of how corporate governance should function.”).
107 supra note 30, at 1107; Millstein & MacAvoy, supra note 30, at
1283-84; Mark S. Mizruchi, Who Controls Whom? An Examination of the Relation
Between Management and Boards of Directors in Large American Corporations , 8
A CAD .
M GMT .
R EV . 426, 430 (1983); Walsh & Seward, supra note 21, at 424.
108
Millstein & MacAvoy, supra note 30, at 1292; Sundaramurthy et al., supra note 20, at 232.
109
Millstein & MacAvoy, supra note 30, at 1292; Sanders & Carpenter, supra note 31, at 164.
110 supra note 31, at 303; Brown, supra note 30, at 1113; Del Jones & James
Kim, Stockholders Want Boards of Independents , USA T ODAY , May 14, 1993, at 1B.
111 supra note 31, at 303; Finkelstein & D’Aveni, supra note 60, at 1079,
1082; Sundaramurthy et al., supra note 20, at 233; see also Millstein & MacAvoy, supra note 30, at 1292 (“Directors who are members of management or are otherwise closely

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 85 the board is likely to perform its monitoring function more effectively when the board Chair does not also serve as the leader of the executive group that is the very focus of the board’s monitoring.
112
Proponents of duality challenge the theory that a CEO-
Chair effectively controls the modern corporate board. They contend that board functions are not concentrated in the hands of the Chair, but are delegated and dispersed to board committees, such as the compensation and auditing committees.
113 This contention has merit, in that the CEO-Chair has total and absolute control of the board only when it is a single-member board.
114 However, the modern corporation has a multi-member board that often contains a number of inside directors, 115 a fact that precipitated the director and board independence requirements discussed in Part I.B. The CEO-
Chair, as the top-ranking executive, exerts influence and control over the inside directors who are lower-ranking executives of the company.
116 Outside directors may also feel a sense of loyalty and gratitude to the CEO because the CEO often plays an influential, if not decisive, role over the election of the outside directors.
117 In addition, the CEO has immense power and control over the entire board when that CEO has linked to management have the same conflict as management in evaluating corporate performance.”).
112 supra note 31, at 303; Finkelstein & D’Aveni, supra note 60, at 1079,
1082; Millstein & MacAvoy, supra note 30, at 1292-93; Sundaramurthy et al., supra note 20, at 233.
113
Brickley al., note 25, at 196; see also Boyd, supra note 31, at 301
(explaining the view that the board Chair position is largely ceremonial and symbolic).
114
Brickley al., note 25, at 196.
115
C HIAPPINELLI , supra note 3, at 400; see also Dalton & Kesner, supra note
32, at 35, 39 (finding that more than 30% of board members in a sample of 50 large companies in the United States are “insiders,” defined as directors who are also fulltime officers of the company); Kesner et al., supra note 6, at 793-94 (citing various studies’ findings that the proportion of outside directors ranges from 12% to 100%, with a mean of 70%, for a sample of 384 of the Fortune 500 companies).
116
See Dalton & Kesner, supra note 32, at 35 (expressing doubt that an inside director can objectively evaluate the CEO); Finkelstein & D’Aveni, supra note 60, at
1082 n.4 (stating that inside directors are likely to have more information about the company’s operations, but the inside directors’ monitoring ability is likely curtailed because they are unlikely to contradict the CEO who is their work boss); Kesner et al., supra note 6, at 790 (noting the inside directors’ awkward task of evaluating the CEO who is their day-to-day boss); Walsh & Seward, supra note 21, at 425 (recognizing the difficulties with getting an unbiased inside director’s assessment of the CEO’s performance).
117 supra note 30, at 1113; Gordon, supra note 6, at 1496; Millstein &
MacAvoy, supra note 30, at 1284; Mizruchi, supra note 107, at 431; Ramirez, supra note 59, at 363.

86 BROOKLYN LAW REVIEW [Vol. 76:1 the ability, as board Chair, to make committee assignments and, consequently, to hand-pick the directors to assign to functionally important committees, such as the compensation, nomination, and audit committees.
118
Underlying the theory that a nonexecutive Chair facilitates both the board’s management and monitoring roles is the concept of agency costs.
119 Those who prefer to see two separate individuals serve in the CEO and Chair positions contend that having a separate Chair reduces the agency costs inherent in the corporate structure that separates control and ownership.
120 As one scholar explains, agency costs arise because corporate decisions are made by “agents whose decisions are influenced by private interests”; thus, their choices might not be made in an optimal fashion to further shareholder interests.
121 When company management acts more for personal interests than for general shareholder interests, the board of directors has failed in its duty to monitor and discipline management.
122 Not surprisingly, supporters of duality argue that having a separate Chair simply shifts the agency costs
118
See Finkelstein & D’Aveni, supra note 60, at 1079, 1082 (commenting that the chairperson of the board often controls the director nominating process, which gives the chairperson the power to favor directors who are loyal to the chairperson);
Sundaramurthy et al., supra note 20, at 233 (concluding that a CEO who also occupies the position of board chair compromises the board functions of setting agenda, governing, and monitoring board committees and management executives).
119
See Donaldson & Davis, supra note 62, at 51 (“Agency and organisational economics theories predict that when the CEO also holds the dual rôle [sic] of chair, then the interests of the owners will be sacrificed to a degree in favour of management, that is, there will be managerial opportunism and agency loss.”); Ramirez, supra note
59, at 377 (“[T]here is powerful evidence that the separation of CEO and chairman of the board into two positions reduces agency costs and enhances firm value.”).
120
See Boyd, supra note 31, at 304 (citing Eugene Fama and Michael Jensen’s observation that duality signals that the corporation does not separate its decision management from its decision control, and that the corporation will suffer in the competition for survival as a result of such lack of separation); Brickley et al., supra note 25, at 192-93 (citing Michael Jensen and William Meckling’s definition of agency costs as the sum of the costs to establish incentive and control mechanisms for directors and officers and the costs resulting from not providing appropriate or complete incentives and controls over directors and officers).
121
Bebchuk al., note 78, at 11; see also Walsh & Seward, supra note
21, at 421-22 (citing Adolf Berle and Gardiner Means’s observation that managers may be tempted to pursue prestige, power, and other personal interests instead of shareholder interests).
122
Dalton & Kesner, supra note 32, at 34; see also C HIAPPINELLI , supra note 3, at
500 (citing In re Enron Corp. Final Report of Neal Batson, court-appointed examiner for
Enron, as stating that the Enron board could have prevented or minimized the Enron officers’ misconduct by terminating the officers’ employment, refusing to approve the company’s financial statements, and notifying the SEC of the officers’ wrongdoing); Gordon, supra note 6, at 1469 (“Independent directors . . . enhance the fidelity of managers to shareholder objectives, as opposed to managerial interests or stakeholder interests.”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 87 from controlling the combined CEO-Chair’s behavior to controlling the separate Chair’s behavior.
123 However, for the reasons discussed below, the agency costs of controlling the nonexecutive Chair’s behavior are likely to be lower than the agency costs of controlling a board Chair who also serves as CEO.
A nonexecutive Chair may reduce agency costs through her control of information flow to the board and control over the board agenda.
124 Having a separate Chair provides the board with an additional source of information besides the
CEO.
125 This independent source of information is vital to both the board’s decision-making and oversight functions, because empirical studies 126 and anecdotal evidence 127 suggest that company executives attempt to circumvent the corporate system of checks and balances by controlling the flow of information to the board. In addition, the board Chair has the power to set the agenda for board meetings.
128 A board Chair
123
Brickley
124 al., note 25, at 193-94.
Finkelstein D’Aveni, note 60, at 1082; see also Baliga et al., supra note 2, at 41-42 (citing research on management’s domination of the board through managerial control of information flow); Walsh & Seward, supra note 21, at 431
(explaining that executives may attempt to cover up their negative qualities or low performance by controlling the board’s meeting agenda and withholding relevant information from the board).
125
Sanders & Carpenter, supra note 31, at 164; see also C HIAPPINELLI , supra note 3, at 501-03 (citing In re Enron Corp. Final Report of Neal Batson, that the company’s management “failed to present clearly Enron’s SPE transactions and the total amount and maturities of its off-balance sheet debt to the Finance Committee, . . . used misleading terms and confusing jargon, and . . . presented information to the
Enron Board and its committees in a manner that obfuscated the substance of the SPE transactions”); Douglas G. Baird & Robert K. Rasmussen, The Prime Directive , 75 U.
C IN .
L.
R EV . 921, 935 (2007) (noting that CEOs tend to provide the board with ample information relating to successful or promising projects while giving scant information about projects that go awry).
126
See, e.g.
, Baliga et al., supra note 2, at 41-42 (listing empirical studies conducted throughout the 1970s and 1980s); Walsh & Seward, supra note 21, at 431
(listing empirical studies).
127
See C HIAPPINELLI , supra note 3, at 504 (citing In re Enron Corp. Final
Report of Neal Batson, that “the Enron board did not function as an effective check and balance. This failure may have resulted from . . . a carefully orchestrated strategy of
Enron’s senior officers . . . .”); Judith H. Dobrzynski, Chairman and CEO: One Hat Too
Many , B US .
W K ., Nov. 18, 1991, at 124 (reporting that at Salomon Inc., “the board was kept in the dark long after [then] Chairman and CEO John H. Gutfreund learned of
Salomon’s transgressions” of illegal bidding in Treasury security auctions); Stevenson, supra note 32 (explaining that Fisons P.L.C.’s decision to split its CEO and Chair positions was implemented “primarily to assuage the concerns of shareholders about too much power resting with a single executive who did not seem inclined to keep shareholders fully briefed on the company’s difficulties”).
128
Finkelstein & D’Aveni, supra note 60, at 1082; Sundaramurthy et al., supra note 20, at 233; see also C HIAPPINELLI , supra note 3, at 498-99 (stating that Ken
Lay was the Chairman and CEO of Enron and that Enron management provided board members with agendas for board meetings (citation omitted)).

88 BROOKLYN LAW REVIEW [Vol. 76:1 who does not also serve as the company’s CEO may be more likely to focus the board agenda on, and provide board members with information about, issues that question management judgment or challenge management decisions.
129
Having separate individuals serve in the CEO and
Chair positions may also reduce agency costs because a board that is led by a nonexecutive Chair is more likely to evaluate objectively whether management’s performance, including that of the CEO, enhances shareholder interests.
130 When the roles of
CEO and board Chair are combined in the same person, directors are put in the awkward position of evaluating a CEO who is, at the same time, their leader on the board and the person on whom they depend for board nominations and committee assignments.
131 The situation is even worse for directors who are also executives of the company; for these inside directors, there is the added tension of evaluating the individual who is their top executive boss and who plays a large role in their position advancement, compensation, and job security.
132 Thus, although the board is often regarded as the
129
See Baliga et al., supra note 2, at 41-42 (referring to research that shows company executives circumvent the corporate system of checks and balances by controlling board agendas); Sanford V. Berg & Stanley K. Smith, CEO and Board
Chairman: A Quantitative Study of Dual vs. Unitary Board Leadership , 3 D IRECTORS &
B OARDS 34, 34-35 (1978) (“[S]elective presentation of information to the Board of
Directors can permit the CEO to continue in unprofitable activity—in the hopes that some unforeseen event will reverse the downward trend.”); Finkelstein & D’Aveni, supra note 60, at 1082 (commenting that the chairperson of the board can “dominate both the agenda and content of board meetings”).
130 supra note 31, at 302; Wallace N. Davidson III, Carol Nemec & Dan
L. Worrell, Succession Planning vs. Agency Theory: A Test of Harris and Helfat’s
Interpretation of Plurality Announcement Market Returns , 22 S TRATEGIC M GMT .
J.
179,
179 (2001); Sundaramurthy et al., supra note 20, at 232. See Baliga et al., supra note 2, at 42-43 (explaining the contention that IBM’s duality governance structure is to blame for “the board’s difficulty in critically evaluating management performance and exercising independent judgment”).
131
See Baliga et al., supra note 2, at 42 (explaining that combining the CEO and Chair roles may make it difficult for directors to be candid when evaluating company performance); Finkelstein & D’Aveni, supra note 60, at 1079, 1082
(commenting that the chairperson of the board often controls the director nominating process, which gives the chairperson the power to favor directors who are loyal to the chairperson); Mizruchi, supra note 107, at 431 (stating the widely held view that
“board members are handpicked by management”); Walsh & Seward, supra note 21, at
431 (citing a study’s finding that directors who “challenge[d] the president’s powers of control were advised . . . that such conduct was inappropriate or were asked to resign”).
132
See Dalton & Kesner, supra note 32, at 35 (expressing doubt that an inside director can objectively evaluate the CEO); Finkelstein & D’Aveni, supra note 60, at
1082 n.4 (stating that inside directors are likely to have more information about the company’s operations, but the inside directors’ monitoring ability is likely curtailed because they are unlikely to contradict the CEO who is their work boss); Kesner et al., supra note 6, at 790 (noting the inside directors’ awkward task of evaluating the CEO

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 89 shareholders’ “first line of defense” against mismanagement, 133 a board that is led by a person holding both the Chair and CEO positions is not likely to intervene when management’s behavior is inconsistent with shareholder interests.
134
Furthermore, the CEO-Chair, in the role of board Chair, would essentially be evaluating his own performance as CEO.
135
It seems unlikely that the CEO-Chair—a successful business executive who has been elevated to serve concurrently in the top two leadership positions of a company—would rate his own performance as lackluster.
136 Supporters of a separate Chair thus believe that the CEO whose performance is being evaluated should not be put in charge of the team conducting the evaluation.
137 As one governance expert observed, “One of the major functions of the board is to supervise management. If the chairman of the board is also in management, then he is in effect marking his own exam papers.” 138
Another argument in support of separating the top leadership positions is that it minimizes the risk of entrenchment.
139 A board operating under the leadership of a who is their day-to-day boss); Walsh & Seward, supra note 21, at 425 (recognizing the difficulties with getting an unbiased assessment from an inside director’s assessment of the CEO’s performance).
133
Finkelstein D’Aveni, note 60, at 1081.
134
Dalton Kesner, note 32, at 35.
135
Davidson al., note 130, at 180; Finkelstein & D’Aveni, supra note
60, at 1082.
136
Baird & Rasmussen, supra note 125, at 935 (“The CEO, like most of us, wants to appear in a good light. She has the incentive to put the best spin on her accomplishments.”); Albert A. Cannella, Jr. & Michael Lubatkin, Succession as a
Sociopolitical Process: Internal Impediments to Outsider Selection , 36 A CAD .
M GMT .
J.
763, 765 (1993) (citing evidence that “powerful CEOs, when confronted with poor performance, may try to deflect the blame onto weaker subordinates, who are then dismissed while the CEO remains”); Dobrzynski, supra note 127, at 124 (“You can hardly blame a CEO for refusing to recognize the need for new talent at the top.”);
Walsh & Seward, supra note 21, at 431 (suggesting that executives value their job security and “strive to make sure that the board sees them as high-effort/high-ability people”).
137
See Dalton & Kesner, supra note 32, at 35 (asking whether it is
“appropriate that the very person to be evaluated is the head of the evaluation team”);
Kesner et al., supra note 6, at 790 (explaining that “chairmen/CEOs cannot represent the shareholders in the first role and at the same time impartially sit in judgment on their own performance in the second role”).
138
Stevenson, supra note 32 (quoting Blenyth Jenkins, the director of corporate affairs for the Institute of Directors, a London trade group).
139
See Cannella & Lubatkin, supra note 136, at 770 (suggesting that incumbent CEOs who also hold the board Chair title have more institutional power than those who do not also serve as board Chair and, therefore, “may be able to forestall their own removal”); Harrison et al., supra note 1, at 216 (commenting that a person holding both the CEO and Chair positions is “more powerful and less easily dislodged”); Ramirez, supra note 59, at 385 (“[T]he powerful will seek to entrench their

90 BROOKLYN LAW REVIEW [Vol. 76:1
CEO-Chair lacks the motivation and incentive to objectively evaluate and discipline the dual executive, 140 which increases the risk of entrenching the CEO-Chair in both positions.
141
CEO-Chair entrenchment, in turn, increases the potential for this powerful executive to use the corporation to further his own personal interests instead of furthering general shareholder welfare.
142 Supporters of separating the positions buttress their position by pointing to well-recognized strategies of managerial entrenchment in a duality system, including the wrangling of a generous base salary for the executive and the engineering of a bonus compensation system that is not tied to company performance in the stock market.
143
In addition, an executive who can secure the role as the integrating mechanism between the management group and the board of directors—namely, the role of a combined CEO and Chair—may have succeeded in raising his value in the managerial labor market and enhancing his image as irreplaceable in the eyes of shareholders and directors.
144 Famed governance scholars Eugene Fama and Michael Jensen warn that allowing the CEO to also occupy the role of board Chair signals that the corporation has failed to separate its decision management from its decision control, which increases the likelihood that the CEO-Chair will take inefficient and opportunistic actions that deviate from shareholder interests and reduce shareholder wealth.
145
Supporters of duality respond to the entrenchment argument by pointing out that even where one individual occupies both the CEO and Chair positions, the board as a control and position, rather than expose themselves to a truly competitive environment . . . . There are few incumbents more powerful than the incumbent CEOs of public corporations.”).
140
Baliga al., note 2, at 41, 43.
141
Finkelstein D’Aveni, note 60, at 1079, 1082, 1102; see also Walsh
& Seward, supra note 21, at 432 (explaining that a key “entrenchment strategy is to neutralize the control mechanisms themselves”).
142
Finkelstein D’Aveni, note 60, at 1082; see also Mallette & Fowler, supra note 3, at 1028 (commenting that the “power and influence of a CEO-chairperson provide an opportunity to increase job security and personal well-being at the expense of shareholders”); Ramirez, supra note 59, at 348 (asserting that the United States corporate governance system is “devolving towards CEO primacy and the end of shareholder primacy”).
143
Walsh Seward, note 21, at 432; see also Ramirez, supra note 59, at
376 (explaining that study results show that enhanced CEO power is correlated to higher CEO compensation but not to CEO performance).
144
See Walsh & Seward, supra note 21, at 432 (describing various managerial entrenchment practices).
145
Finkelstein D’Aveni, note 60, at 1082.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 91 whole retains the power to hire and fire senior management, including the CEO.
146 While they concede that it may be easier for a board to remove a CEO who is not also the Chair than to remove a CEO-Chair, proponents of duality assert that the board can and does exert its removal power.
147 Examples include the board’s removal of CEO-Chair Kay Whitmore from
Eastman Kodak, CEO-Chair Robert Stempel from General
Motors, CEO-Chair John Akers from IBM, CEO-Chair James
Robinson from American Express, and CEO-Chair Paul Lego from Westinghouse.
148 Proponents of separating the top leadership positions, however, contend that these removals would have occurred earlier if the ousted CEOs were not also board Chairs.
149
Another agency argument favoring the separation of the
CEO and Chair positions is that nonexecutive Chairs have more incentives than CEO-Chairs to carry out their management and monitoring functions in ways that further shareholder interests.
150 This is because a nonexecutive Chair does not receive a salary from the corporation, and the fees for serving on the board are often modest compared to the Chair’s other sources of income.
151 Furthermore, intangible incentives, such as avoiding social criticism and protecting reputation,
146
Brickley et al., supra note 25, at 196; see also Mizruchi, supra note 107, at
433 (explaining that the board has the ultimate control in the corporation because of its power to hire and fire the CEO).
147
Brickley al., note 25, at 196.
148
Id.
149
Id.
; see also Baliga et al., supra note 2, at 41-42 (referring to research that shows company executives circumventing the corporate system of checks and balances by resisting management changes despite evidence of poor performance); Finkelstein &
D’Aveni, supra note 60, at 1081 (stating that independent directors are more likely than insider directors to remove a CEO who has performed poorly).
150
See Clark, supra note 5, at 300 (explaining that independent directors have less incentives to act contrary to shareholder interests); Gordon, supra note 6, at 1471
(noting that independent directors are “less dependent on the CEO and more sensitive to external assessments of their performance as directors”); Roberta Romano, The
Sarbanes-Oxley Act and the Making of Quack Corporate Governance , 114 Y ALE L.J.
1521, 1529 30 (2005) (commenting that outside directors may be more effective than inside directors in monitoring management conduct because their financial dependence on the corporation, in most cases, is limited to a fixed director fee instead of a variable management compensation package, which is subject to fluctuation depending on the financial performance of the corporation); see also infra note 191 and accompanying text for the counterargument that independent directors are not truly independent because they are selected by management and lack personal incentives to act independently of management.
151 supra note 30, at 1114-15; Clark, supra note 5, at 300; see also
Romano, supra note 150, at 1529-30 (noting that independent directors have no incentive to contribute to audit failures by misstating earnings “because their financial dependence on the corporation is limited to directors’ fees”).

92 BROOKLYN LAW REVIEW [Vol. 76:1 may encourage a nonexecutive Chair to act in the interests of shareholders instead of merely following management’s dictates.
152 Thus, a board led by an independent Chair may be more open to considering and accepting a takeover bid, 153 an action that has been demonstrated to result in an increase in shareholder value.
154 On the other hand, a board led by a CEO-
Chair is more likely to adopt poison pills and to resist takeover bids, 155 defensive actions that generally result in a decrease in shareholder value.
156
A response to the argument that a nonexecutive Chair has more incentive to protect shareholder interests is that any danger to shareholder interests from combining the CEO and
Chair positions may be mitigated by external monitoring and by internal alignment of CEO interests with shareholder interests through compensating the CEO with large amounts of company stock and stock options.
157 This response is weakened, however, by the apparent failure of external monitors, such as
152 supra note 30, at 1116; Finkelstein & D’Aveni, supra note 60, at
1081-82; see also Bainbridge, supra note 5, at 391 (explaining that “if the company fails on their watch . . . the independent directors’ reputation . . . is likely to suffer”).
153
See Clark, supra note 5, at 300 (stating that independent directors are more accepting of, and less resistant to, takeover bids).
154
Empirical studies show that shareholders of the acquired company experience large stock gains following announcement of a takeover bid, while shareholders of the acquiring company do not suffer an offsetting loss of stock value.
Walsh & Seward, supra note 21, at 435. Results from such studies suggest that takeovers result in no net shareholder loss; thus, takeover activities, overall, are beneficial to the economy. Id.
155
See Boyd, supra note 31, at 302 (noting that signs of CEO-Chairs’ ineffective governance include resistance to hostile takeovers and adoption of poison pills); Finkelstein & D’Aveni, supra note 60, at 1082 (citing study results that show a positive correlation between duality and adoption of poison pills).
156
See Ramirez, supra note 59, at 375-76 (finding that anti-takeover mechanisms generally correlate with higher executive compensation, lower productivity, and lower profitability). Empirical studies show that a company’s stock price drops significantly “upon the announcement of a poison pill adoption, while share prices increased significantly if the firms abandoned plans to adopt a poison pill.”
Walsh & Seward, supra note 21, at 439; see also Lucian Bebchuk, Alma Cohen & Allen
Ferrell, What Matters in Corporate Governance?
2-4 (Harvard L. Sch., John M. Olin
Ctr. for L., Econ. & Bus., Discussion Paper No. 491, 2004), available at http://ssrn. com/abstract=593423 (arguing that golden parachutes and poison pills correlate to a reduction in shareholder value). See generally John C. Coates IV, Explaining Variation in Takeover Defenses: Blame the Lawyers , 89 C AL .
L.
R EV . 1301 (2001) (describing takeover defenses and the types of companies that adopt them); Marcel Kahan &
Edward B. Rock, How I Learned to Stop Worrying and Love the Pill: Adaptive
Responses to Takeover Law , 69 U.
C HI .
L.
R EV . 871 (2002) (describing the takeover movement, antitakeover techniques, and the market’s adaptive response to antitakeover devices).
157 supra note 2, at 43; Brickley et al., supra note 25, at 196;
Donaldson & Davis, supra note 62, at 52.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 93 outside lawyers, independent accountants, credit rating agencies, securities analysts, and governmental agencies, to monitor executive misconduct in connection with the wellpublicized scandals involving major corporations and investment funds in the past decade.
158 In addition, the recent revelation of the common practice of backdating executive stock options 159 suggests that endowing CEOs with stocks and stock options does not necessarily align executive and shareholder interests; instead, it may exacerbate executive greed and prompt executive mismanagement.
160
C. Weighing the Theoretical Arguments About Duality
Weighing the theoretical arguments for and against duality is not an easy task. Some would argue that the weighing analysis should be left to each corporation because the costs and benefits of different governance structures may vary among companies, resulting in different optimal governance structures for each company.
161 For example, some scholars believe that companies often use the Chair title as an
158
See C HIAPPINELLI , supra note 3, at 510-27 (discussing the roles of external monitors in the Enron and WorldCom corporate scandals); Kara Scannell, The Madoff
Fraud: SEC Botched Inquiries into Madoff Scheme , W ALL S T .
J., Sept. 3, 2009, at C3
(summarizing an SEC inspector general report’s finding that the SEC “botched numerous opportunities to uncover Bernard Madoff’s Ponzi scheme, in part because of an inexperienced staff and delays in examinations”). See generally E NRON : C ORPORATE
F IASCOS AND T HEIR I MPLICATIONS (Nancy B. Rapoport & Bala G. Dharan eds., 2004)
(collecting works by various scholars and experts in the field of corporate governance regarding the failures of internal and external gatekeepers and the background events surrounding the collapse of Enron).
159
See Richard Hill, Cox: SEC Probing over 100 Cases Involving Reporting;
New Rules Halt Slide , 38 S EC .
R EG .
& L.
R EP . (BNA) 1567, 1567 (Sept. 18, 2006)
(backdating stock options “involves misrepresenting the date that an option is granted so that it appears to be awarded at a time when the underlying stock price is at a low point, thereby maximizing the potential profit to be gained when the stock option is exercised at a later date”); SEC Is Probing More than 100 Cases Involving Possible
Fraud in Option Reporting , 75 U.S. L.W. 2135, 2136 (Sept. 12, 2006) (recognizing that although SOX requires real-time reporting of stock option grants, backdating has continued where options are filed late and not in compliance with statutory requirements).
160
See Ramirez, supra note 59, at 366-67 (opining that the practice of backdating stock options seems “more about the crass enrichment of executives than creating any incentive for performance”); Walsh & Seward, supra note 21, at 434
(discussing the lack of consensus on whether increasing managerial ownership of company stock increases the alignment of management’s interests with those of outside shareholders).
161
Brickley et al., supra note 25, at 197; Boyd, supra note 31, at 309; see also
Karmel, supra note 78, at 3 (advocating against “[a] one size fits all command and control corporate governance regulation” because it “would stifle the experimentation that leads to good governance practices”).

94 BROOKLYN LAW REVIEW [Vol. 76:1 internal incentive mechanism for a new CEO.
162 According to this view, most of the companies that have separate CEOs and
Chairs are in a transitional succession process of testing new
CEOs who will eventually be awarded the Chair title.
163 These scholars caution against requiring companies to separate the
CEO and Chair positions because doing so would compel companies to change their internal succession processes and
CEO incentive systems.
164
Viewed in a different light, however, duality may not be the result of a deliberate succession planning process, but instead may be a signal that the company lacks a process for succession planning and for developing future leaders to run the company beyond the tenure of the current CEO-Chair.
165
Governance observers who take this view explain duality as the result of agency problems that arise when the board, beholden to the powerful individual holding both the CEO and Chair positions, fails to plan for leadership succession.
166
Another argument in support of letting each company decide for itself is that the decision to combine or separate the
CEO and Chair positions is a strategic decision in response to external pressures 167 and competitive uncertainty, such as the availability of resources in the industry, the level of instability or volatility in the industry, and the amount of competition in the industry.
168 According to this argument, a company that operates in a highly competitive environment would prefer the consolidation of leadership power and the faster decisionmaking process that a duality governance structure provides.
169
When leadership is concentrated in a combined CEO-Chair, the corporation may respond to changing business conditions more quickly and cohesively, and the benefits of a fast and unified response outweigh the potential agency costs of duality.
170
Conversely, a corporation that operates in a stable environment has less need for a powerful CEO and more time
162
Brickley al., note 25, at 192, 207, 209.
163
Id.
164
Brickley al., note 25, at 192.
165
See Harris & Helfat, supra note 71, at 901 (suggesting that combining the titles of president, chief executive, and board chair indicates a lack of succession planning).
166
See id.
at 903 (discussing investor concerns about lack of succession planning when companies consolidate leadership titles).
167
Harrison et al., supra note 1, at 225.
168 supra note 31, at 305-06.
169
Id.
at 305.
170
Id.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 95 for consensus decision making.
171 Thus, without the need for decision speed, the company would want to install an independent Chair to minimize the potential agency costs of managerial abuse.
172
There are weaknesses in the contention that each company should be permitted to adopt its choice of governance structure in order to respond appropriately to the level of external pressures that the company faces. In the same way that the levels of external pressure are not the same for all companies, the level of external pressure for any one company is not likely to remain the same for an extended period of time or for the entire life of that company.
173 Accordingly, it would be expected that companies change their top leadership structure over time as they go through periods of high external uncertainty (where the companies would opt for a unified duality structure) or low external pressures (where the companies would adopt an independent leadership structure).
But empirical studies do not indicate that companies consciously choose their leadership structure as a strategic response to different levels of external pressure. For example, in a study of 181 companies for the five-year period from 1986 to 1991, researchers found that less than one-third of these companies changed their leadership structure by combining or separating the CEO and Chair positions during the sample period.
174 These data suggest that more than two-thirds of the companies either experienced the same level of external pressures during the five-year sample period or, despite experiencing changing levels of competitive demands during those years, did not consider adopting or abandoning duality as a strategic response.
Furthermore, if companies facing competitive pressure strategically choose duality for its fast and unified decisionmaking process, we should see a general increase in the
171
Id.
172
Id.
173
See B ARACK O BAMA , T HE A UDACITY OF H OPE 145-59 (2006) (describing the spurts and stops in the growth of the economy and business enterprises in the United States).
174
Baliga al., note 2, at 45. Of the sample, 12 of the companies (6.6%) had separate CEO and Chair positions over the entire sample period, 111 of the companies (61.3%) had combined roles over the entire sample period, and 58 of the companies (32%) changed their leadership structure to or away from duality during the sample period. Id.
Another study of 671 companies finds that 94 of these companies
(14%) changed their leadership structure by combining or separating the CEO and
Chair positions during the two-year period from 1978 to 1980. Harrison et al., supra note 1, at 226.

96 BROOKLYN LAW REVIEW [Vol. 76:1 number of companies choosing to consolidate their CEO and
Chair positions—due to the need to respond to the generally increasing complexity and competitive nature of business both in the United States and globally.
175 However, as discussed in
Part II, it appears from various surveys that the trend in leadership structure has been a decrease in duality and an increase in separating the CEO and Chair positions. Although duality remains the dominant leadership governance structure in the United States, this dominance has decreased from a level of approximately 80% of the companies in the early 1990s to a level of approximately 60% of the companies in more recent years.
176 In light of the increasingly complex and competitive nature of domestic and global business activities, the data showing decreasing duality refute the argument that duality is a corporate strategy to respond to heightened business complexity and competitiveness.
The discussion in this section thus far has focused on the countervailing considerations to letting each company make its own decision about duality. The article now evaluates the theoretical arguments about duality to determine which leadership structure better supports the directors’ fundamental responsibilities to oversee business operations and monitor management conduct. Viewed from this analytical framework, the theoretical arguments suggest that companies should separate the CEO and Chair positions.
Separating the CEO and Chair positions provides a governance framework better suited to the fulfillment of the directors’ management and monitoring responsibilities. Duality may enhance the board’s performance of its management responsibilities because a CEO-Chair brings to the board a deep knowledge about the company, and duality permits clearcut authority in one combined CEO-Chair that enables consistent and timely decision making by the company.
177 The knowledge and information advantage of duality, however, diminishes when the company can put in place a nonexecutive
175
See Jacket Cover of T HOMAS L.
F RIEDMAN , T HE W ORLD I S F LAT (2005)
(“And with this ‘flattening’ of the globe, which requires us to run faster in order to stay in place, has the world gotten too small and too fast for human beings and their political systems to adjust in a stable manner?”); Berg & Smith, supra note 129, at 34
(“The complexities of managing the modern corporation have been noted by many observers.”).
176 supra Part II.
177 supra Part III.A.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 97
Chair that has long served on the board.
178 Any confusion about the line of authority and accountability may also be mitigated by clearly delineating and communicating the division of responsibilities between the CEO and the Chair.
179
Furthermore, the consistency of decisions resulting from duality’s unified command structure may be detrimental if it renders the company resistant or slow to change strategies in order to meet evolving business conditions.
180
While a combined CEO-Chair may facilitate collegiality and consensus between the executive and director groups— thereby enhancing the board’s deliberation and decisionmaking process—any potential benefit that a collegial environment might bring to the board’s management function may come at the expense of the board’s monitoring function.
181
The cordial and deferential attitude that often prevails in the corporate boardroom may inhibit the objectivity and healthy vigilance that directors need to maintain while making conflictof-interest decisions involving senior management or other strategic decisions affecting the company.
182 For example, the supportive and accommodating relationship that existed on the
Enron board of directors was regarded as a contributing factor in the board’s failure to detect and prevent the financial fraud perpetrated by Enron’s top executives.
183 As an investigation committee of the United States Senate reported:
Enron board members uniformly described internal Board relations as harmonious . . . . The Directors also described a good working relationship with Enron management. Several had close personal relationships with Board Chairman and Chief Executive Officer
(CEO) Kenneth L. Lay. All indicated they had possessed great respect for senior Enron officers, trusting the integrity and competence of Mr. Lay; President and Chief Operating Officer (and
178
Brickley al., note 25, at 199-200.
179
M ILLSTEIN R EPORT , supra note 32, at 19.
180
See Boyd, supra note 31, at 301 (pointing to examples where duality may have resulted in the company’s inability or unwillingness to adopt strategic changes).
181
See M ILLSTEIN R EPORT , supra note 32, at 19 (“[C]ombining the roles fosters a more friendly board environment, just as it encourages more complacent boards.”);
Walsh & Seward, supra note 21, at 431 (explaining that corporate boards that prize collegiality over objectivity may fail to scrutinize and discipline executives).
182
See M ILLSTEIN R EPORT , supra note 32, at 19 (“While mindless animosities and ego contests in the boardroom can be counterproductive, directors who applaud and rubberstamp all actions of the CEO without asking difficult questions are not fulfilling their duties.”).
183
See C HIAPPINELLI , supra note 3, at 491-510 (describing the Enron scandal).

98 BROOKLYN LAW REVIEW [Vol. 76:1 later CEO) Jeffrey K. Skilling; Chief Financial Officer Andrew S.
Fastow . . . .
184
The Enron failure exemplifies the risk that a board committed to being friendly and harmonious to inside directors and other inside executives will ignore or downplay the red flags of management misconduct.
Whereas duality may enhance the board’s management function, but hinder its oversight responsibilities, separating the CEO and Chair positions may enable the board to fulfill both its management and monitoring roles. Having a nonexecutive Chair may facilitate the board’s management and decision-making process by assuring appropriate information and topics are put forth to the board for consideration.
185 In addition, a nonexecutive Chair may bring an outside perspective and fresh insights to assist the board in its deliberation and decision making.
186
Separating the top executive and board roles may also provide directors with an environment more conducive to carrying out their oversight responsibilities. A nonexecutive
Chair may be more likely to provide the board with information about—and to include in the board agenda—matters that raise questions about management judgment or questions that management may be reluctant to address.
187 In addition, a nonexecutive Chair is more likely to provide—and also more likely to encourage other directors to provide—an objective evaluation of executive performance.
188 Such objectivity is necessary for the board to carry out its tasks of disciplining
184 id.
at 498 (citation omitted).
185
See Finkelstein & D’Aveni, supra note 60, at 1082 (commenting that the chairperson of the board has control over both the agenda and content of board meetings); Walsh & Seward, supra note 21, at 431 (explaining that executives may attempt to cover up their negative qualities or low performance by withholding relevant information from the board).
186 supra note 5, at 300; Sanders & Carpenter, supra note 31, at 164.
187
See Donald C. Langevoort, Organized Illusions: A Behavioral Theory of
Why Corporations Mislead Stock Market Investors (and Cause Other Social Harms) ,
146 U.
P A .
L.
R EV . 101, 139-46 (1997) (explaining that senior executives may be motivated to avoid reporting their suboptimal decisions, mistakes, and failures due to the concern that such reports may reflect poorly on them); Walsh & Seward, supra note
21, at 431 (explaining that executives may attempt to cover up their negative qualities or low performance by controlling the board’s meeting agenda and withholding relevant information from the board).
188
See Baliga et al., supra note 2, at 43 (explaining that duality may result in
“the board’s difficulty in critically evaluating management performance and exercising independent judgment”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 99 managerial inefficiencies and misconduct that destroy shareholder value.
189
A separate Chair thus gives the board a stronger chance of reining in agency problems inherent in the separation of corporate control and ownership—problems that are likely to be exacerbated when ultimate directorial and executive power reside in one individual. A useful analogy is that, in corporate governance, as in political government, a system of checks and balances is the best protection against abuse of power.
190 The theoretical arguments on duality suggest that separating the
CEO and Chair positions allows the board to better exert its management and oversight authority in furtherance of shareholder interests.
Some may contest the notion that separating the CEO and Chair roles would facilitate performance of the board’s management and monitoring roles and would thus better serve shareholder interests. These skeptics may point to the fact that, although technically elected by shareholders, all directors are actually selected by management and are therefore not truly independent from management when exercising the directors’ decision-making and oversight responsibilities.
191
However, it is difficult to argue that just because some directors’ independence may be compromised, we might as well give up on objectivity altogether and just let the CEO also chair the board. Moreover, questioning whether any director is truly independent from management does not advance the case for duality because supporters of duality often argue that “the danger of shareholder harm from combined titles can be counter-balanced by effective independent outside directors . . . .” 192
In sum, duality may bring some benefits to the board’s management role, but duality also carries substantial risks to the board’s monitoring function. Having a nonexecutive Chair, on the other hand, appears to bring considerable benefits to the
189
Kesner et al., supra note 6, at 790.
190
Paula L. Rechner & Dan R. Dalton, The Impact of CEO as Board
Chairperson on Corporate Performance: Evidence vs. Rhetoric , 3 A CAD .
M GMT .
E XECUTIVES 141, 141 (1989) [hereinafter Rechner & Dalton 1989 Study].
191
See Brown, supra note 30, at 1113 (“Directors who displeased a CEO often found it difficult to keep their seats on the board, which made it hard for the directors to maintain independence from the CEO.”); Gordon, supra note 6, at 1496 (noting that directors may feel a sense of loyalty and gratitude to the CEO who helped to put them on the board); Worrell et al., supra note 18, at 501 (“[O]utside directors are often chosen by the CEO and may be aligned to management interests.”).
192
Brickley al., note 25, at 196.

100 BROOKLYN LAW REVIEW [Vol. 76:1 board in both its management and monitoring responsibilities.
The risks that a nonexecutive Chair may have less knowledge about the inner working of the company than a CEO-Chair, or that a nonexecutive Chair may be less adept at creating a collegial atmosphere between management and the board, can be alleviated without much difficulty. A board with a separate
Chair can still benefit from the CEO’s knowledge and expertise about the company, and from the CEO’s ability to facilitate a collaborative relationship between management and the board, by having the CEO serve as a director on the board—just not in the Chair position.
Efforts to alleviate the potential loss of executive expertise and board collegiality that may arise from having a nonexecutive Chair appear to be more manageable than attempting to mitigate the agency costs of duality. The board’s objective monitoring of management performance is essential for the protection of shareholder interests. The potential managerial inefficiencies and misconduct that may result from weak oversight and ineffective monitoring by a CEO-Chair far outweigh any potential loss of knowledge and collegiality on the board that is led by a nonexecutive Chair.
IV.
E MPIRICAL E VIDENCE ON D UALITY
A number of studies provide statistical evidence about the impact of CEO duality on corporate performance, as measured by financial and nonfinancial metrics. The following discussion focuses on the research findings that have been offered to advance or reject the notion that duality, being the dominant corporate governance structure in the United States, is the optimal governance structure to further shareholder interests. Much of the empirical evidence suggests that separating the CEO and Chair positions has a positive effect on the financial and nonfinancial performance of the company.
A. Evidence Supporting a Combined Position
1. Nonfinancial Measures of Corporate Performance
Kesner, Victor, and Lamont (1985) . This study examines the relationship between duality and the company’s

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 101 involvement in illegal activities.
193 The study’s sample includes
274 companies that were continuously listed on the Fortune
500 and that consistently maintained a governance structure that either separated or combined the roles of the CEO and board Chair during the period from 1980 through 1984.
194 Of the sample, 245 (89%) of the companies had one individual serving both as CEO and board Chair, and 29 (11%) of the companies had two individuals serving in the separate positions.
195 The study focuses on the sample companies’ involvement in price discrimination, tying arrangements, price fixing, monopoly, conspiracy, and other violations of antitrust laws and the
Federal Trade Commission Act.
196 The study tallies the number of times in which the sample companies were found guilty in litigated cases, were subject to consent decrees in nonlitigated cases, or were charged in cases where the court found substantial merits to the charges.
197
The number of illegal acts over the test period ranges from zero to seventeen occurrences for each company in the sample, with a mean of less than one occurrence for all companies in the sample, and a mean of three occurrences for those companies that were involved in some types of illegal activities.
198 Without giving specific data, the researchers conclude that “firms where one individual serves as both CEO and chairman are no more likely to be associated with illegal acts than those firms in which separate individuals hold these positions.” 199
2. Financial Measures of Corporate Performance
Chaganti, Mahajan, and Sharma (1985) . This study focuses on the relationship between duality and financial health of twenty-one pairs of companies in the retail industry.
200
In each pair, one company failed during the period from 1970 to
193
See Kesner et al., supra note 6, at 792-93 (hypothesizing that companies that combine the CEO and Chair positions are more likely to commit illegal acts than companies that separate the positions).
194
Id.
at 793-94.
195
Id.
at 795.
196
Id.
at 793.
197
Id.
at 794.
198
Id.
199
Id.
at 796.
200
Rajeswararao S. Chaganti, Vijay Mahajan & Subhash Sharma, Corporate
Board Size, Composition and Corporate Failures in Retailing Industry , 22 J.
M GMT .
S TUD . 400, 408 (1985).

102 BROOKLYN LAW REVIEW [Vol. 76:1
1976, and the other company of comparable type and size in the pair did not fail during that period.
201 The study defines a
“failed” company as one that has filed for bankruptcy under
Chapter XI of the Bankruptcy Act.
202 The study controls for general economic and industry-specific conditions to isolate their effects on firm failures.
203 Recognizing that conditions leading to corporate failure take shape over time, the study collects data on whether the companies in each pair combine or separate their CEO and Chair positions during the five-year period prior to the failure of the failed company in the pair.
204
The study finds that when comparing the two sample groups—companies that failed and companies that did not fail—there are not statistically significant differences in whether these companies separated or combined their CEO and Chair positions.
205 Data collected for the sample period show that in each of the five years, between ten and twelve of the twenty-one companies that eventually failed had separated their CEO and Chair positions.
206 Similarly, for the twenty-one comparable companies that did not fail, between nine and twelve companies had separated their CEO and Chair positions.
207 Acknowledging the limited focus of the study on a small number of companies in the retailing industry, the researchers conclude that duality is “not likely to make a difference to the chances of corporate failure.” 208
Donaldson and Davis (1991) . This study analyzes the financial performance of 321 companies, including large
Fortune 500 companies and smaller corporations in seven different industries.
209 Of the sample group, 76% of the companies had a combined CEO-Chair structure, and 24% of the companies had different individuals serve in the CEO and
Chair roles.
210 The study compares the companies’ return on
201
Id.
202
Id.
at 405.
203
Id.
at 408.
204
Id.
at 409-10.
205
Id.
at 413.
206
Id.
at 412.
207
Id.
208
Id.
at 414.
209
Donaldson & Davis, supra note 62, at 54.
210
Id.
at 54-55.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 103 equity and gain in shareholder wealth for the three years from
1985 to 1987.
211
The study finds that the average return on equity was
14.75% for companies with a dual CEO-Chair and 11.49% for companies with a separate Chair.
212 The study considers this difference in return on equity as statistically significant.
213
Controlling for industry effects, the study also finds that the dual CEO-Chair structure was associated with higher levels of average return on equity than the separate Chair structure, although the difference was reduced to 2.38%.
214 Data from the study show no statistically significant difference, with and without controlling for industry effects, between the gain in shareholder wealth of corporations that combined the CEO-
Chair positions and corporations that separated these roles.
215
Baliga, Moyer, and Rao (1996) . Several researchers, using a sample of 181 Fortune 500 companies and a five-year sample period from 1986 to 1991, focus their study on the financial performance of companies that changed their governance structure to or from duality, as well as the longterm financial performance of companies that consistently maintained either of the governance structures.
216 The researchers categorize the sample companies in three groups:
111 companies (61.3%) had combined roles over the entire sample period, 12 companies (6.6%) had separate CEO and
Chair positions over the entire sample period, and 58 companies (32%) changed their leadership structure to or away from duality during the sample period.
217 The researchers compare the effects on stock price following an announcement of change in governance structure, changes in return on common equity (“ROE”) and return on total assets (“ROA”) following a change in governance structure, and the industry-
211
Id.
at 55. Return on equity is “profit generated on shareholder funds,” and gains in shareholder wealth include “the capital gains from share price appreciation plus dividends, for holding the share for three years from 1985 . . . expressed relative to the initial price . . . paid to acquire the stock in 1985.” Id .
212
Id.
at 56.
213
Id.
214
Id.
215
Id.
at 58.
216
Baliga al., note 2, at 44-45.
217
Id.
at 45. Another study of 671 companies finds that ninety-four of that study’s sample group (14%) changed their leadership structure by combining or separating the CEO and Chair positions during the two-year period from 1978 to 1980.
Harrison et al., supra note 1, at 211, 216, 226.

104 BROOKLYN LAW REVIEW [Vol. 76:1 adjusted market value added ratios (“MVA”) during the fiveyear sample period for all three groups of companies.
218
Results from this study reveal no significant effect on stock price upon announcement of a change in leadership structure, whether from duality to nonduality or from nonduality to duality.
219 The study also finds no measurable effect on ROE or ROA in the two-year period following a change in governance structure, whether from duality to nonduality or from nonduality to duality.
220 Similarly, when comparing the long-term performance of companies that maintained duality or nonduality over the entire test period, the study finds no significant evidence that duality affects financial performance, as measured by MVA.
221 Pointing to the lack of any significant difference in financial performance due to a status change toward or away from duality, and no significant difference in long-term financial performance between companies that had
CEO-Chairs and companies that had nonexecutive Chairs, the researchers conclude that the call to abolish duality is more of a “symbolic way of ‘signaling’ that the board is effectively exercising its governance role . . . than an effective way of motivating fundamental changes in firm performance.” 222
Brickley, Coles, and Jarell (1997) . This study focuses on the impact of duality on the stock returns and return on capital of 628 large U.S. companies contained in the 1988 Forbes survey of corporate executives.
223 Of this group, 535 companies
218
Baliga et al., supra note 2, at 44. Market value added ratio is “an approximation of Tobin’s Q ratio” and is calculated as “the market value of debt, preferred equity and common equity capitalization less the book value of a firm’s entire capitalization, adjusted for past write-offs of capital.” Id.
at 48. For comparative purposes, a higher MVA reflects better operating performance. Id.
219
Id.
at 46-47.
220
Id.
at 47.
221
Id.
at 49-50. Although the study’s results indicate that companies that change their leadership structure have higher changes in market value added ratios, the researchers note that the changes typically involve changing from nonduality to duality and thus the resulting changes in market value added ratios for these companies may not reflect the impact of duality on firm performance but instead may reflect a “passing the baton” process whereby CEOs who have demonstrated their ability are awarded the additional title of board chair. Id.
at 50. Accord Brinkley et al., supra note 25.
222
Baliga al., note 2, at 51.
223
Brickley et al., supra note 25, at 197-98, 202 tbl.4 (the survey contains data on 661 firms, but in calculating statistics pertinent to this article, thirty-three firms are eliminated from the original sample due to a lack of a board chairperson). Return on capital is “income before extraordinary items and discontinued operations plus interest and minority interest (income account) all divided by invested capital (total) at end of prior fiscal year.” Id.
at 210 tbl.9.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 105
(85%) had CEO-Chairs, and 93 companies (15%) had CEOs who did not serve as board Chairs.
224
Results from the study show that for the year 1988, companies that combined their leadership positions had a 6.5% higher median stock return 225 and a 3.5% higher median industry-adjusted stock return.
226 Although companies that combined their CEO and Chair positions also had a 1.4% higher median return on capital in the year 1988, 227 companies that separated their CEO and Chair positions had a 1.2% higher median industry-adjusted return on capital.
228
For the period from 1989 to 1991, while companies with a CEO-Chair had a 4.4% higher annualized median stock return, 229 companies with a separate Chair had a 1.6% higher annualized median industry-adjusted stock return.
230 The study finds similar results for return on capital during this period, whereby companies with a combined CEO-Chair had a 0.2% higher annualized median return on capital, 231 but companies with a separate Chair had a 2.4% higher annualized median industry-adjusted return on capital.
232
Based on these mixed findings, the study concludes that companies that have one individual serving as both CEO and board Chair “do not necessarily have lower accounting returns” than companies that have two individuals occupy the separate
CEO and Chair positions.
233 Moreover, because the researchers
224
Id.
at 198 tbl.1 (statistics that appear in table 1 were altered to reflect a sample size of 628 firms rather than the 661 firms used to calculate the statistics therein).
225 id.
at 210 (comparing 1988 median stock return of 10.6% for companies with separate leaders and 17.1% for companies with combined leaders).
226 id.
(comparing 1988 median industry-adjusted stock return of -2.5% for companies with separate leaders and 1.0% for companies with combined leaders).
Industry benchmarks come from companies with the same four-digit SIC code. Id.
227
See id.
(comparing 1988 median return on capital of 13.8% for companies with separate leaders and 15.2% for companies with combined leaders).
228 id.
(comparing 1988 median industry-adjusted return on capital of 2.4% for companies with separate leaders and 1.2% for companies with combined leaders).
229 id.
(comparing 1989-1991 annualized median stock return of 9.1% for companies with separate leaders and 13.5% for companies with combined leaders).
230
See id.
(comparing 1989-1991 annualized median industry-adjusted stock return of 4.0% for companies with separate leaders and 2.4% for companies with combined leaders).
231
See id.
(comparing 1989-1991 annualized median return on capital of
12.4% for companies with separate leaders and 12.6% for companies with combined leaders).
232 id.
(comparing 1989-1991 annualized median industry-adjusted return on capital of 2.7% for companies with separate leaders and 0.3% for companies with combined leaders).
233
Id.
at 211.

106 BROOKLYN LAW REVIEW [Vol. 76:1 recognize that the results reflect conflicting and mostly insignificant differences in stock return and return on capital, they urge caution in using the study’s findings to draw conclusions about the effect of duality on corporate financial profitability.
234
B. Evidence Supporting Separate Positions
1. Nonfinancial Measures of Corporate Performance
Harrison, Torres, and Kukalis (1988) . This study analyzes the turnover rates for the CEO and Chair positions of
671 large public manufacturing companies.
235 Of this sample,
72% of the companies consolidated the top leadership positions so that one individual held both the CEO and Chair positions.
236
The study determines turnover by examining whether the person who held the position in 1978 remained in the same position in 1980.
237 Results from this study show that the turnover rate for CEOs who held only one position was 15%, whereas the turnover rate for CEOs who also held the position of board Chair was only 10%.
238
Other empirical studies that focus on CEO turnover in poorly performing companies also find that it is difficult to remove an underperforming CEO if that CEO also holds the position of board Chair.
239 The consistent finding from studies on CEO turnover is that when the same individual holds both the CEO and Chair positions, the likelihood of the board dismissing the CEO decreases.
240
Mallette and Fowler (1992) . This study compares the adoption of poison pills by companies that have a dual CEO-
Chair leadership structure and companies that have a separate
234
Id.
at 210-11.
235
Harrison al., note 1, at 216.
236
Id.
at 215-16. Names of individuals holding the CEO and Chair positions come from the Standard and Poor’s Register of Corporations, Directors, and Executives for 1979 and 1981. Id.
at 217.
237
Id.
at 217.
238
Id.
at 222. The 10% represents the data for CEO-Chairs who retain neither position during the test period. Id.
239
See Balsam & Upadhyay, supra note 25, at 2, 7 (citing Weisbach’s study in
1988 and Goyal and Park’s study in 2002).
240
See Cannella & Lubatkin, supra note 136, at 782 (explaining the study’s finding that the “likelihood of dismissal is also higher for incumbent CEOs who do not hold the chairperson title”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 107
Chair.
241 The sample population includes 673 industrial manufacturing companies, and the study period covers the peak poison pill adoption years of 1985 to 1988.
242 Of the sample group, 477 companies (71%) had a combined CEO-Chair and
196 companies (29%) had a separate Chair.
243
The study finds that 226 companies (34%) of the sample population had adopted poison pills by the end of 1988, and 447 companies (66%) of the sample population did not have poison pills in place at the end of 1988.
244 Results of the study show that a company with a nonexecutive Chair was much less likely to adopt a poison pill than a company with a dual CEO-Chair.
245
Of the 226 companies that adopted poison pills during the peak years of poison pill adoption, 200 companies (88%) were led by a CEO-Chair, and only 26 companies (12%) were led by a nonexecutive Chair.
246 Although this study focuses only on the empirical association between duality and adoption of poison pills, the study cites other research that shows poison pills to have a negative effect on stock price.
247 Thus, the study concludes that a company with a combined CEO-Chair is much more likely to adopt a poison pill, a defensive measure that has been shown by other studies to have the effect of discouraging or deterring takeover bids and resulting in a decrease in shareholder value.
248
Brickley, Coles, and Jarell (1997) . This study compares the amount of compensation and the length of tenure of CEO-
Chairs and of CEOs who do not serve as Chairs.
249 The study’s sample population includes 628 companies contained in the
241
Mallette Fowler, note 3, at 1010.
242
Id.
at 1020-21.
243
Id.
at 1022.
244
Id.
at 1021.
245
Id.
at 1023. Accord Finkelstein & D’Aveni, supra note 60, at 1082 (citing, with approval, the Mallette & Fowler study’s finding of a positive correlation between duality and adoption of poison pills). Other research also shows that a board led by a
CEO-Chair is more likely to adopt poison pills and to resist takeover bids. See, e.g.
,
Boyd, supra note 31, at 302 (noting that signs of CEO-Chairs’ ineffective governance include resistance to hostile takeovers and adoption of poison pills).
246
Mallette Fowler, note 3, at 1023.
247
Id.
at 1011. See Walsh & Seward, supra note 21, at 439 (explaining that empirical studies show that a company’s stock price drops significantly upon the board’s announcement of the adoption of a poison pill, while the stock price rises upon the board’s announcement that the company has abandoned its plan to adopt a poison pill).
248
Mallette & Fowler, supra note 3, at 1028.
See S TEPHEN M.
B AINBRIDGE ,
C ORPORATION L AW AND E CONOMICS 612-14 (2002) (discussing the evidence that hostile takeovers result in increased shareholder wealth).
249
See Brickley et al., supra note 25, at 202 tbl.4 (presenting data on tenure and compensation classified by whether the CEO and Chair positions are combined).

108 BROOKLYN LAW REVIEW [Vol. 76:1
1988 Forbes survey of corporate executives.
250 Of this group, 535 companies (85%) had CEO-Chairs, and 93 companies (15%) had
CEOs who did not serve as board Chairs.
251
The study finds that both the compensation and tenure of the 535 CEO-Chairs were markedly higher than the compensation and tenure of the 93 CEOs who did not serve as board Chairs.
252 Data from the study show that the median total compensation for CEOs who also served as board Chairs was approximately 46% higher than the median total compensation for CEOs who did not serve as board Chair.
253 Similarly, whereas the median tenure for CEOs who also served as board
Chairs was 6.92 years, the median tenure for CEOs who did not serve as board Chairs was only 2.92 years.
254
The study’s findings of higher compensation and longer tenure for the CEO-Chairs may be indicators of managerial entrenchment in the duality governance structure.
255 By combining the top two leadership positions in one person, executive accountability is reduced, discharge for poor management performance is doubtful, and the combined leader is more likely to be able to extract additional compensation and stay in power longer than a CEO who has to answer to a separate board Chair.
256
A recent study by professors and researchers Bebchuk,
Cremers, and Peyer provides further empirical evidence that combining the CEO and Chair positions may facilitate managerial entrenchment.
257 Their study, in addition to providing evidence of entrenchment, also provides data on the
250
Id.
at 197, 198 tbl.1 (the survey contained data on 661 firms, but in calculating the statistics pertinent to this article, thirty-three firms were eliminated from the original sample due to a lack of a board chairperson).
251
Id.
at 198 tbl.1 (statistics that appear in table 1 were altered to reflect a sample size of 628 firms rather than the 661 firms used to calculate the statistics therein).
252
Id.
at 202 tbl.4.
253
See id.
(comparing a median of $675,000 in total compensation for CEOs and a median of $985,000 in total compensation for CEO-Chairs). Total compensation includes “salary, bonus, value of restricted stock, savings and thrift plans, and other benefits.” Id.
at tbl.4. A potential cost of separating the CEO and Chair positions is the compensation for the independent chairperson. Id.
at 195. See Brown, supra note 30, at
1105 (explaining that directors who are also employees of the corporation generally do not receive additional compensation for their service on the board).
254
Brickley al., note 25, at 202 tbl.4.
255
Id.
at 202 .
256 id.
(acknowledging that tenure and compensation data for CEO-Chairs indicate that “combined titles might imply that the CEO is not accountable to shareholders and is seldom fired for poor performance”).
257 infra Part IV.B.2.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 109 financial performance of companies that are led by dominant chief executives such as CEOs who also serve as board
Chairs.
258
Sanders and Carpenter (1998) . This study analyzes the correlation between a company’s degree of internationalization and the likelihood that the company would combine its CEO and Chair positions.
259 The study presents information that shows directors and officers of international firms operate in highly complex information processing and decision-making environments due to diverse cultural and competitive conditions.
260 In addition, internationalization presents greater information processing requirements and monitoring problems because of the geographic dispersion of assets, operations, personnel, and management.
261 International companies strive to control and cope with this informational and decisionmaking complexity by creating a governance structure that efficiently processes information and effectively monitors executive actions.
262
The study hypothesizes that as a company’s degree of internationalization increases, the likelihood decreases that the company would have a dual CEO-Chair governance structure.
263
The sample population includes 258 companies in the 1992
Standard & Poor’s 500.
264 A company’s degree of internationalization was measured by its foreign sales, foreign production, and geographic dispersion.
265
The study’s findings indicate that the degree of a company’s internationalization is a significant predictor of whether the company has the same person or two individuals serve in the CEO and Chair positions.
266 Results from the study
258
This article discusses Bebchuk, Cremers, and Peyer’s empirical study in more detail in Part IV.B.2, which analyzes the empirical evidence of financial benefits arising from separating the CEO and Chair positions.
259
Sanders Carpenter, note 31, at 158.
260 id.
at 158-60 (citing various studies).
261
Id.
at 171-72.
262 id.
at 158-60 (citing various studies).
263
Id.
at 164.
264
Id.
at 165.
265
Id.
at 166. Foreign sales are represented by “the ratio of foreign sales to total sales and reflect a firm’s dependence on sales to foreign markets.” Id.
Foreign production is represented by “foreign assets expressed as a percentage of total assets,” and geographic dispersion identifies the “number of countries in which a firm had subsidiaries, expressed as a percentage of the highest number of countries with subsidiaries represented in our sample.” Id.
266
Id.
at 170.

110 BROOKLYN LAW REVIEW [Vol. 76:1 suggest that companies with high degrees of internationalization are likely to implement a governance structure that amplifies communication channels and disperses responsibility among company leaders; the highly internationalized companies are not likely to consolidate power and responsibility into one combined CEO-Chair.
267 Instead, these companies separate the CEO and Chair positions in order to improve the information available to the board and to enhance the board’s ability to control and monitor management.
268 The study concludes that separation of the CEO and Chair positions may allow companies to cope with the high information processing and agency costs that result from a high level of internationalization.
269
2. Financial Measures of Corporate Performance
Duality is often cited as a culprit of the decline in financial performance of large corporations, 270 while the existence of a nonexecutive Chair is regarded as a reason for the competitive financial performance of other large corporations.
271 For example, opponents of duality point to
General Motors’s loss of $23.5 billion in 1992, together with its sizeable losses of market share and market value, as resulting from then-CEO-Chairman Roger Smith’s constraint on board oversight and restriction on board adoption of appropriate strategies to adapt to the competitive environment.
272
Another often cited anecdote about duality’s destruction of shareholder value involves General Motors’s payment of
“greenmail” 273 to Ross Perot, an outside director on General
267
Id.
at 164, 169-73.
See Berg & Smith, supra note 129, at 34 (“Unless some divisionalization occurs to improve information flows, the costs of monitoring and rewarding inputs (and activities) rise.”).
268
Sanders Carpenter, note 31, at 164, 169-73.
269
Id.
at 172.
270
Baliga et al., supra note 2, at 42; see also Boyd, supra note 31, at 301
(“[D]uality has been blamed for poor performance and slow response to change” in large corporations.).
271
See, e.g.
, Baliga et al., supra note 2, at 43 (citing nonduality as the reason
Compaq was able to “make appropriate strategic responses to a changing competitive environment”).
272
Id.
at 42.
273
The corporate practice of paying a premium price to repurchase shares in order to be rid of a hostile shareholder is known as paying “greenmail” to the hostile shareholder. C HIAPPINELLI , supra note 3, at 244. Several empirical studies have documented the association between greenmail payments and negative stock returns

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 111
Motors’s board who was also a major shareholder of the company and a vocal critic of General Motors’s management.
274
Many criticized CEO-Chair Roger Smith for “muzzling” Ross
Perot’s criticism of management when the CEO-Chair directed the company to buy out Perot’s shares at a premium price of
$700 million.
275 Similarly, supporters of separating the top leadership positions regard IBM’s loss of $5 billion in 1992, together with its substantial losses of market share and market value, as resulting from then-CEO-Chairman John Akers’s restraint on the board’s exercise of its own judgment to objectively evaluate management performance.
276
To contrast with the poor financial performance of
General Motors and IBM under the duality leadership structure, supporters of a separate Chair point to Compaq
Computer’s ability to perform competitively under the leadership of Ben Rosen, a nonexecutive Chair.
277 Compaq’s board of directors, under the leadership of a separate Chair and over the strong objection of the company’s CEO, adopted a successful lower-priced product line to maintain its market share and remain competitive in the industry.
278 In addition to these anecdotal cases linking duality with negative financial performance, several studies present empirical evidence that separating the CEO and Chair positions results in better corporate financial performance.
Berg and Smith (1978) . These researchers conducted one of the first empirical studies that tested the impact of duality on corporate financial performance.
279 The sample population includes the entire group of Fortune 200 companies in twenty-three industries.
280 Of the 200 companies in the sample group, about 59% had one individual serving in both the CEO and Chair roles, while approximately 41% had two separate leaders in these positions.
281 The performance measures include stock price appreciation, return on equity, for nonparticipating shareholders of the companies making the payments. Walsh &
Seward, supra note 21, at 439.
274
Baliga supra note 2, at 42-43.
275
Id.
at 42-43.
276
Id.
277
Id.
at 43.
278
Id.
279
Berg & Smith, supra note 129, at 34.
280
Id.
at 35.
281
Id.
at 38 tbl.II (Table II contains information for only 199 of the Fortune
200 companies; percentages are based on these 199 companies).

112 BROOKLYN LAW REVIEW [Vol. 76:1 and return on investment during the test period of 1974 to
1976.
282
Results from this study show that companies that combine their CEO and Chair positions experience significantly lower stock price appreciation and return on equity, and a modestly lower return on investment, than companies that separate the CEO and Chair positions.
283 These findings suggest that companies that combine the CEO and Chair positions perform worse financially than companies that have an independent Chair.
284
Rechner and Dalton (1989 and 1991) . This study examines the risk-adjusted stockholder return of 141 Fortune
500 companies that kept their governance structures constant, either combining or separating the CEO and Chair positions, over the six-year period from 1978 to 1983.
285 Of the 141 companies in the sample group, 79% had one leader who served in both the CEO and Chair roles, and 21% had two leaders in these positions.
286
The first analysis of data in 1989 finds no statistically significant difference in risk-adjusted stockholder returns between companies with a combined CEO-Chair and companies with a separate Chair.
287 The data show no significant difference in risk-adjusted stockholder return for any one single year of the sample period, and no significant difference in stock return for the entire six-year period,
282
Id.
at 35. Stock price appreciation is “the change in the value of common stock,” return on equity is “(net income)/(stockholder equity),” and return on investment is “(price appreciation and stock dividend)/(book value of equity).” Id.
at 38 statistical appendix.
283
Id.
at 39. The results as presented in Table A.1 on page 39 of the study, and reported here in this article, differ from the researchers’ summary of the results as discussed in the text on page 35 of the study. See id.
at 35 (“For total return to investors, the impact on performance was significant and negative . . . .”).
284
Cf. id.
at 35 (“It would be premature to conclude that unitary leadership reduces benefits to stockholders—although across all industries this was true for the return on book value in equity. These mixed results suggest that no general conclusion can be made, and further tests are called for.”).
285
Rechner & Dalton 1989 Study, supra note 190, at 142. The study specifies,
“Stockholder return . . . comprises risk-adjusted, abnormal returns on common stocks.
This approach takes into account the effects of both general market factors and differential risk levels on security returns. Thus, the measure reflects only those returns due to firm-specific factors.” Id.
286
Paula L. Rechner & Dan R. Dalton, CEO Duality and Organizational
Performance: A Longitudinal Analysis , 12 S TRATEGIC M GMT .
J.
155, 156 (1991)
[hereinafter Rechner & Dalton 1991 Study].
287
Rechner & Dalton 1989 Study, supra note 190, at 142.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 113 between companies that had a combined CEO-Chair and companies that had a separate Chair.
288
When the researchers conducted a subsequent analysis of the same 141 companies over the same six-year period from
1978 to 1983, focusing their research on the companies’ return on equity, return on investment, and profit margin, the results showed a negative relationship between duality and these performance measures.
289 In these three financial measures of corporate performance, the companies that had two individuals serving in the CEO and Chair positions consistently and significantly outperformed companies that had one individual occupying both roles.
290
Pi and Timme (1993) . This study investigates the variation in return on assets and production cost efficiency between companies that had one dual CEO-Chair and companies that had two individuals serve in these roles.
291 The study focuses on a sample of 112 publicly traded bank-holding companies for the period from 1987 to 1990.
292 Of the sample population, 93 banks (83%) had a combined CEO-Chair, and 19 banks (17%) had a separate Chair.
293
Controlling for company size and other variables, the study’s results show that companies that had a separate Chair consistently and significantly outperformed companies that had a combined CEO-Chair in both measures of return on assets and production cost efficiency.
294 From these results, the researchers suggest that the board’s monitoring function is not effective in a duality governance structure, with the consequence that the CEO-Chair may be less constrained from engaging in behavior that destroys shareholder value.
295
Boyd (1995) . This study gathers data on leadership structure and financial performance of 192 public companies in twelve industries.
296 The number of sample companies in each
288
Id.
289
Rechner & Dalton 1991 Study, supra note 286, at 156-59.
290
Id.
at 157.
291
Lynn Pi & Stephen G. Timme, Corporate Control and Bank Efficiency , 17
J.
B ANKING & F IN .
515, 518 (1993). Return on assets is “after-tax net income divided by total assets,” and production cost efficiency is “derived [using] a stochastic frontier cost model” that examines each company’s costs, outputs, and prices. Id.
292
Id.
at 517, 521.
293
Id.
294
Id.
at 525-26.
295
Id.
296 supra note 31, at 306.

114 BROOKLYN LAW REVIEW [Vol. 76:1 industry ranges from twelve to twenty-two, and the percentage of sample companies with duality in each industry ranges from
33% to 73%.
297 Financial performance is measured as the average return on investment over the five-year period from
1980 through 1984.
298 The study results show that the effect of duality on financial performance varies across industry groups, but that combining the CEO and Chair positions is correlated with slightly lower corporate financial performance as measured by return on investment.
299
This study also includes a meta-analysis of the findings of seven other empirical studies published during the period from 1978 to 1993.
300 In these seven studies, the sample population ranges from 42 to 800 companies.
301 The seven studies focus on measures of financial performance, such as return on equity, return on investment, stock return, and profit margin.
302 When aggregating the result statistics across these seven studies, the meta-analysis shows that separation of the
CEO and Chair positions is associated with slightly higher financial performance across the aggregated financial performance measures.
303
Sundaramurthy, Mahoney, and Mahoney (1997) . This study examines the relationship between board structure and stock market reaction to the company’s adoption of antitakeover provisions.
304 The sample population includes 261 companies in the Standard & Poor’s 500 that adopted 486 antitakeover measures from 1984 to 1988, the crest of the takeover wave.
305 The results show that “the market reacts less negatively to antitakeover provisions adopted by boards with a chairperson who is not the CEO than to antitakeover
297
Id.
at 308. The smaller percentages of duality for some industries reflect the study’s inclusion of smaller companies, where duality is not as common as in larger companies. Id.
at 307.
298
Id.
299
Id.
at 308-09.
300
Id.
at 302. The seven studies were conducted by Berg and Smith (1978);
Chaganti, Mahajan, and Sharma (1985); Rechner and Dalton (1989 and 1991);
Donaldson and Davis (1991); Mallette and Fowler (1992); and Cannella and Lubatkin
(1993). Id.
301
Id.
at 303.
302
Id.
at 302-03.
303
Id.
at 302.
304
Sundaramurthy et al., supra note 20, at 231.
305
Id.
at 234. The antitakeover provisions include supermajority voting for mergers, classified board, fair price provisions, reduction of cumulative voting, antigreenmail provisions, and poison pills. Id.
at 244-45.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 115 provisions adopted by boards chaired by the CEO.” 306 The researchers conclude that market reaction appears to be influenced by the leadership structure of the board and that investors regard a nonexecutive Chair as more capable of monitoring management actions and protecting shareholder interests than a combined CEO-Chair.
307
The study also finds that “the market reacts more negatively to antitakeover provisions adopted by outsiderdominated boards than to antitakeover provisions adopted by boards” that are dominated by insiders.
308 Thus, while the market views an outsider Chair as enhancing the ability of the board to monitor and protect shareholder interests, investors do not perceive the same value in other outside directors.
309
Bebchuk, Cremers, and Peyer (2007) . This study focuses on the relationship between CEO centrality and the value and behavior of public firms.
310 Data for the study cover 12,011 companies in twelve industries for the years 1993 through
2004.
311 The study refers to CEO centrality as the relative importance of the CEO to other top executives within the company in terms of ability, contribution, or power.
312 CEO centrality is measured by the “CEO’s pay slice (CPS),” which is the CEO’s compensation as a percentage of the aggregate topfive compensations in the company.
313 CPS is deemed to be the product of several variables relating to corporate governance, including whether the CEO also has the dual role as board
Chair.
314
Results from the study show that greater CEO centrality, or higher CPS, relates to firm performance in several ways, including lower firm value as measured by
306
Id.
at 239.
307
Id.
at 239-40. The study’s suggestion—that investor trust in the board’s monitoring role is enhanced when companies separate the CEO and Chair positions—is consistent with research findings that corporate boards that are led by a nonexecutive
Chair tend to be sued less often. Id.
at 240.
308
Id.
309 id.
(“[T]he market not only does not take into account the monitoring role of outsiders but actually discounts their presence.”).
310
See generally Bebchuk et al., supra note 78, at 1-5 (concluding that CEO centrality is an aspect of corporate governance that merits attention from researchers).
311
Id.
at 8.
312
Id.
at 1, 6.
313
Id.
Executive compensation includes “the total compensation to each executive, including salary, bonus, other annual pay, the total value of restricted stock granted that year, the Black-Scholes value of stock options granted that year, longterm incentive payouts, and all other total compensation.” Id.
at 7.
314
Id.
at 1.

116 BROOKLYN LAW REVIEW [Vol. 76:1 industry-adjusted Tobin’s Q, 315 lower industry-adjusted return on assets, 316 lower stock returns accompanying acquisition announcements, 317 and lower CEO turnover controlling for length of service and performance.
318 The study finds that the high CPS level may be the result of a CEO who uses his power to dominate the board and the company’s decision making and to raise his CPS above an optimal level.
319 Results from the study also rule out the hypothesis that the correlation between high CPS and low firm value is explained by the tendency of low value companies to adopt high levels of CPS.
320 Thus, the researchers explain, “having a high excess CPS might reflect agency and governance problems that in turn bring about a reduction in firm value.” 321
From this study, one may expect that, because high
CEO centrality is associated with low firm value, a CEO who gets high CPS but achieves low financial value for the company is likely to be removed, as the board is likely to be dissatisfied with a highly compensated CEO who fails to create high value for the company.
322 Contrary to expectation, however, the study finds that the association between high CPS and low firm value is most prominent in companies with high entrenchment— companies where the CEO is “relatively insulated from market discipline and the threat of removal.” 323 The study’s results indicate that the more dominant a CEO is within a company’s governance structure, the less impact market performance has
315
Id.
at 1, 3, 11. Tobin’s Q is “the market value of equity plus the book value of assets minus the book value of equity, all divided by the book value of assets.” Id.
at
8, 40, 41, 46, 49.
316
Id.
at 1, 3. Industry-adjusted return on assets is “the return on assets computed as net income divided by book value of assets adjusted by the median ROA of the firms in Compustat in a given four-digit SIC industry and year.” Id.
at 8-9, 40.
317
Id.
at 1, 3. The study finds that “high-CPS firms tend to make worse acquisition decisions as judged by the market’s reaction to acquisition announcements.
If the acquiring firm has higher CPS, the stock return accompanying the acquisition announcement is lower and more likely to be negative.” Id.
at 3. The researchers concluded that “one potential reason for the lower valuation of firms with high CPS is that high-CPS firms make acquisitions viewed less favorably by the market and, in particular, are more likely to make acquisitions viewed as value-destroying by the market.” Id.
at 26.
318
Id.
at 4.
319
Id.
at 2, 10, 13.
320
Id.
at 2.
321
Id.
322 id.
at 20 (discussing whether CEO turnover is related to CPS).
323
Id.
at 21.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 117 on that CEO’s tenure.
324 Based on these findings, the researchers suggest that the CEO’s dominance, of which duality may be a contributing factor, 325 exaggerates agency problems that may lower the financial performance of the company and may make the removal and replacement of the
CEO more difficult or unlikely.
326
Balsam and Upadhyay (2009) . This recent study examines the impact that duality—and the announcement that the company is moving toward or away from duality—has on corporate financial performance.
327 The study’s sample population includes the 1,500 companies in the ExecuComp database of companies during the ten-year period from 1996 to
2005.
328 The percentage of companies in the sample population that had a separate Chair ranged from 24% in 1996 to almost
40% in 2005.
329
Results from the study show that separating the CEO and board Chair positions correlates with significantly improved financial performance, as measured by Tobin’s Q, return on assets, and ratio of sales to assets.
330 The study also finds that, at times, appointment of a lead director has no effect and, at other times, has a negative effect on these three measures of corporate financial performance.
331 Thus, the researchers conclude “that having a lead director is not a substitute for having a separate chair.” 332
The study also examines the stock market reaction to the 408 announcements of a change in leadership structure made by the companies during the ten-year sample period.
333 Of the group of announcements, 236 (58%) announced a move away from duality in that the combined CEO and Chair
324
See id.
at 30 (concluding that “CEO turnover is less sensitive to firm specific returns for CEOs with a high industry-adjusted CPS”).
325
Id.
at 6.
326
Id.
at 29.
327
Balsam & Upadhyay, supra note 25, at 3, 6.
328
Id.
at 12, 38 tbl.1. The study includes one analysis that excludes utilities and financial services firms, and another analysis that includes utilities and financial services firms; both analyses yield similar results. Id.
at 12 n.11.
329
Id.
at 15-16.
330
Id.
at 4-6, 18-19, 21. Tobin’s Q is measured as “(Market value of equity +
Book value of debt)/(Book value of assets).” Id.
at 13.
331
Id.
at 4-6, 18, 21.
332
Id.
at 32.
333
Id.
at 29. The study excludes announcements that were accompanied by other material events such as “mergers, dividend declaration, splits, tender offers, new product announcements, charter amendments or substantial changes in capital structure.” Id.

118 BROOKLYN LAW REVIEW [Vol. 76:1 positions were being separated, and 172 (42%) announced a move toward duality in that the separated positions were being combined.
334 The study’s results show positive stock market returns are more likely to follow the announcement of a decision to separate the CEO and Chair positions than the announcement of a decision to combine the positions.
335
C. Weighing the Empirical Evidence
Much of the empirical evidence on both the financial and nonfinancial effects of duality weighs in favor of separating the positions of CEO and Chair. Although the studies use different measures of corporate performance—some studies focusing only on large companies or specific industries, and some studies employing no control for other governance variables—when viewed together, they provide a convincing case that separating the CEO and Chair positions has a positive impact on corporate performance from both financial and nonfinancial perspectives.
Although grouped under Part IV.A as “Evidence
Supporting Combined Positions,” the studies discussed in that section do not provide much empirical evidence that duality results in improved financial or nonfinancial performance— only that duality does not result in worse performance. With the exception of the Donaldson study in 1991, the studies in
Part IV.A find that there is no difference in performance between companies that have a combined CEO-Chair and those that have a separate Chair. The Donaldson study finds that only return on equity is higher in dual CEO-Chair companies than in companies with a separate Chair, and that there is no difference between the two groups of companies with respect to gain in shareholder wealth.
336 All other studies in that section find no difference between companies that have a combined
CEO-Chair and those that have a separate Chair with respect to involvement in illegal activities, bankruptcy filings, stock returns, return on equity, return on assets, return on capital, and market value added. Lacking the positive evidence to
334
Id.
It should be noted the original sample size was comprised of 512 announcements, 104 of which were lost “due to incomplete returns on data.” Id.
335
Id.
at 6, 29-30. Stock market returns include abnormal return, which is
“computed after subtracting predicted from realized stock returns,” and excess return, which is “computed after subtracting the return on the value-weighted market index from the firm’s realized return.” Id.
at 30.
336
Donaldson & Davis, supra note 62, at 56-58.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 119 advocate affirmatively for the combined CEO-Chair structure, the studies only defensively protect duality in concluding that companies with a combined CEO-Chair are “no more likely” to underperform on nonfinancial measures 337 and “do not necessarily” have lower financial returns than companies with a separate Chair.
338
The studies identified in Part IV.B as “Evidence
Supporting Separate Positions” provide strong data that companies with nonduality perform better in both financial and nonfinancial metrics than companies with one individual occupying both roles. Several studies focus on the effect of duality on entrenchment indicators such as the adoption of antitakeover provisions, rates of CEO turnover, lengths of CEO tenure, and amounts of CEO compensation; data from these studies suggest that combining the CEO and Chair positions may increase the likelihood of entrenchment. For example, companies with a combined CEO-Chair are much more likely to adopt poison pills 339 and less likely to oust a nonperforming
CEO.
340 Study results also indicate that the CEO-Chairs receive markedly higher compensation and longer tenure than the
CEOs who do not also serve as the Chair.
341 In addition, the studies—covering over 12,000 companies in more than twenty industries—provide compelling evidence that companies with a separate board Chair perform significantly better on financial measures such as stock returns, return on equity, return on assets, return on investment, and profit margin.
The stock market also appears to favor the separation of the CEO and Chair positions. Results from several studies suggest that investors perceive companies that separate the positions to be better monitors of management and better advocates of shareholders than companies that combine the two positions. Thus, companies that announce they are separating the CEO-Chair structure experience significantly more positive stock returns than companies that announce they are combining the CEO and Chair positions.
342 In addition, the market reacts less negatively to antitakeover provisions
337
Kesner
338
Brickley al., note 6, at 796; see also Chaganti et al., supra note 200, at 414. al., note 25, at 211; see also Baliga et al., supra note 2, at 46-51.
339
Mallette Fowler, note 3, at 1023.
340
Cannella
341
Brickley
Lubatkin, note 136, at 782; Harrison et al., al., note 25, at 202.
342
Balsam & Upadhyay, supra note 25, at 6, 30. supra note 1, at 222.

120 BROOKLYN LAW REVIEW [Vol. 76:1 adopted by a board with a separate Chair than to those measures adopted by a board with a combined CEO-Chair.
343
The empirical evidence indicates not only that duality correlates with lower corporate performance and shareholder value, but also that the negative effects of duality cannot be eliminated simply by putting more outside directors on the board or by installing a lead director.
344 It appears that the board Chair occupies a powerful and influential position in the corporate governance structure and that this individual’s independence from management is pivotal to the company’s performance.
345 Thus, having a nonexecutive Chair appears to be more crucial than having a lead director or an outsiderdominated board in reducing agency costs and enhancing shareholder value.
346
V.
S
TAKEHOLDERS
’ V
IEWS ON
D
UALITY
The board is charged with management and monitoring responsibilities in order to serve the best interests of the corporation and its shareholders, but directors may also consider the interests of other stakeholders when making corporate decisions.
347 The term “stakeholders” includes, in addition to shareholders, the corporation’s employees,
343
Sundaramurthy et al., supra note 20, at 237-40.
344
See Balsam & Upadhyay, supra note 25, at 4-6, 18-19, 21 (finding that although separation of the CEO and Chair positions correlates with higher financial performance, appointment of a lead director does not correlate with better financial results); Sundaramurthy et al., supra note 20, at 237-40 (finding that although the market reacts less negatively to antitakeover provisions adopted by boards with a separate Chair than to provisions adopted by boards with a CEO-Chair, the “market reacts more negatively to anti-takeover provisions adopted by outsider-dominated boards than to antitakeover provisions adopted by boards with fewer outsiders.”).
345
See Clark, supra note 5, at 271 (explaining that some corporate governance experts urge companies to have a substantial minority of insiders on the board but insist that the board chair be an outside director); M ILLSTEIN R EPORT , supra note 32, at 9 (“[T]he ‘chairman of the board’ title is not meaningless; it remains a strong hierarchical signal of board leadership to fellow board members, management and shareowners alike.”); Ramirez, supra note 59, at 377 (“[T]here is powerful evidence that the separation of CEO and chairman of the board into two positions reduces agency costs and enhances firm value.”).
346
See Balsam & Upadhyay, supra note 25, at 32 (“[H]aving a lead director is not a substitute for having a separate chair.”); M ILLSTEIN R EPORT , supra note 32, at 8
(“The lead director is better than nothing. But on a scale of 1 to 10, having a [nonexecutive] chairman is 10, and having a lead director is about a 4.”); Sundaramurthy et al., supra note 20, at 240 (“[T]he market not only does not take into account the monitoring role of outsiders but actually discounts their presence.”).
347
Cf.
Allen, supra note 28, at 279-81 (discussing the entity conception of corporations).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 121 customers, and creditors; “stakeholders” may also include the community and environment in which the corporation operates.
348 The term has been defined even more broadly to include “any group or individual who can affect or is affected by the achievement of the organization’s objectives.” 349 Based on that broad definition, the list of stakeholders may be expanded to include “governments, competitors, consumer advocates, environmentalists, special interest groups, and the media.” 350
Executives and boards of directors of companies that have a dual CEO-Chair governance structure naturally oppose splitting the leadership positions.
351 Some candidates for the
CEO position in fact demand that they get the chairman’s seat along with the top executive spot.
352 Reasons for opposing separation of the roles focus on the desire to have only one person in charge of the company. These reasons include preventing dilution of the CEO’s power to effectively lead the company, avoiding potential rivalry between the CEO and the
Chair, and eliminating potential confusion about who is responsible for the company’s performance.
353 As explained by an executive who supports combining the CEO and Chair positions, “They should be the same person. If they are not, the
Chairman would be a figure-head or would usurp the role of the CEO.” 354
Directors of companies that have a nonexecutive Chair, on the other hand, have expressed strong support for splitting the position.
355 The 2008 Public Company Governance Survey
348 supra note 28, at 651.
349 id.
at 722 (quoting R.
E DWARD F REEMAN , S TRATEGIC M ANAGEMENT : A
S TAKEHOLDER A PPROACH 46 (1984)).
350
Id.
at 722.
351 supra note 51, at 5; Catherine M. Daily & Dan R. Dalton, CEO and Board Chair Roles Held Jointly or Separately: Much Ado About Nothing?
, 11
A CAD .
M GMT .
E XECUTIVES 11, 11 (1997); M ILLSTEIN R EPORT , supra note 32, at 20;
Worrell et al., supra note 18, at 499.
See Balsam & Upadhyay, supra note 25, at 54
(referencing the Exxon Mobil board’s recommendation that shareholders vote against a shareholder proposal to separate the CEO and Chair positions); Millstein & MacAvoy, supra note 30, at 1287 n.18 (noting that opposition to separation of the roles originates from management groups, including The Business Roundtable, a group of chief executives from large public companies).
352
Caggiano, supra note 51, at 5. See Lublin, supra note 57 (recounting
Edward Breen’s desire for both the CEO and Chairman jobs at Tyco International).
353 supra note 45, at 79; see also Caggiano, supra note 51, at 5 (separation may create rivalry between the roles); Daily & Dalton, supra note 351, at 11 (“[J]oint leadership . . . provides a unified focus and communicates strong leadership to the external community.”).
354
Toda McCarty, note 81, at 213.
355
M ILLSTEIN R EPORT , supra note 32, at 15.

122 BROOKLYN LAW REVIEW [Vol. 76:1 conducted by the National Association of Corporate Directors shows that 72.8% of the directors serving on boards with a separate Chair believe that there is great benefit from splitting the CEO and Chair positions, while only 6.7% of the directors do not perceive a benefit from separating the roles.
356
Business leaders have also expressed concern about duality and have voiced their support for the nonexecutive
Chair role. Harold Geneen, former chairman of International
Telephone & Telegraph, believes that the board’s role is to judge the performance of the company’s management, especially the CEO.
357 Mr. Geneen opposes duality on the basis that the CEO, as the chief professional manager for the company, should not also assume the leadership position on the board because the CEO “cannot represent the shareholders and impartially sit in judgment on himself.” 358 Similarly, Carl Icahn, a prominent financier, views the weakness in board oversight as a contributing factor to the recent economic crisis, and one of his suggestions for board reform is to separate the roles of the
CEO and the board Chair.
359 Compaq Computer’s former chairman, Benjamin Rosen, opines that when the CEO also serves as the board Chair, “[c]hecks and balances have been thrown to the wind.” 360 Robert Monks, a venture capitalist and a director of numerous public companies, states it even more harshly: “You’re really talking about, when you have a combined chairman and C.E.O., a dictatorship.” 361
Many shareholders have voiced their preference for splitting the top leadership positions. Mutual funds, pension funds, other institutional shareholders, and shareholder activists have frequently lobbied for companies to adopt and implement governance policies that separate the positions of
CEO and board Chair.
362 For example, the United Shareholders’
Association, the New York City Employees Retirement System,
Ram Trust Services, and the California Public Employees’
Retirement System have submitted shareholder proposals to
356
Id.
357
Kesner et al., supra note 6, at 790.
358
Rechner & Dalton 1991 Study, supra note 286, at 155.
359 supra note 30, at 54-55.
360
Jones supra note 110.
361
Dashka Slater, Resolved: Public Corporations Shall Take Us Seriously
N.Y.
T IMES , Aug. 12, 2007 (Magazine), at 22.
,
362
Balsam Upadhyay, note 25, at 2, 54; Brickley et al., supra note 25, at 190; M ILLSTEIN R EPORT , supra note 32, at 15; Stevenson, supra note 32;
Sundaramurthy et al., supra note 20, at 233; Worrell et al., supra note 18, at 500.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 123 urge the boards of directors of large public companies, such as
General Motors, Sears, and Exxon-Mobil, to require that an outside director serve as the chairperson of the board.
363 These shareholders view the separation of the CEO and Chair positions as a good governance practice that signals the board’s ability and willingness to control management and protect shareholder interests.
364
Shareholder proposals to split the CEO and Chair positions have received increasing support from shareholders in recent years, and although nonbinding on the board of directors, these shareholder resolutions have been successful in pressuring some companies to split the positions.
365 At
Washington Mutual, for example, the board of directors decided in 2008 to replace CEO Kerry Killinger as chairman of the board in response to a majority vote by shareholders to separate the positions.
366 Similarly, at Bank of America, CEO
Kenneth Lewis relinquished his role as board Chair in mid-
2009 after a majority of the company’s shareholders voted in favor of splitting the positions.
367 Later that year, CEO John
Mackey stepped down as Chair of Whole Foods Market after
363
See Balsam & Upadhyay, supra note 25, at 54 (referencing a 2008 shareholder proposal by clients of Ram Trust Services to separate the CEO and Chair positions at Exxon-Mobil); James Kim, Sears Pushed to Split CEO’s Job , USA T ODAY ,
Apr. 22, 1993, at 2B (reporting on the efforts of the United Shareholders’ Association and the New York City Employees Retirement System to separate the jobs of CEO and
Chairman at Sears); Pi & Timme, supra note 291, at 516 (commenting on the efforts of institutional shareholders to split the combined role of CEO-Chair at General Motors);
Worrell et al., supra note 18, at 505 (discussing the California Public Employees’
Retirement System’s support for corporations to have a separate Chair).
364
Sundaramurthy et al., supra note 20, at 233.
See Balsam & Upadhyay, supra note 25, at 54 (explaining that the inherent dangers of duality include “lack of responsiveness and arbitrariness”); Kim, supra note 363 (“[S]plitting the two jobs would allow the board to scrutinize the CEOs with more rigor.”); Rechner & Dalton
1991 Study, supra note 286, at 159 (“Many funds managers want to see outside directors installed as chairmen of the board because they do not trust CEOs to serve the shareholders first and themselves second.”); Worrell et al., supra note 18, at 505
(quoting Dale Hanson, former CEO of the California Public Employees’ Retirement
System as commenting that “our whole thrust has been the empowerment of boards to do what we were always led to believe boards were supposed to do: provide oversight to management—the hiring, and if necessary, the firing”).
365
See Claudia H. Deutsch, Revolt of the Shareholders , N.Y.
T IMES , Feb. 23,
2003, at 31 (“When Dow Chemical recently said it would split the job of chairman and chief executive, the A.F.L.-C.I.O. quietly scrapped a resolution demanding that Dow do so.”); M ILLSTEIN R EPORT , supra note 32, at 15 (stating that shareholder proposals to split the positions received a record average of 31.3% of the votes cast, including more than 40% of the votes at Pfizer, Weyerhaeuser, and Time Warner).
366 supra note 30, at 47.
367
Independent Board Chair , C OUNCIL OF I NSTITUTIONAL I NVESTORS (Mar.
2009), http://www.cii.org/independentboardchair [hereinafter CII Statement].

124 BROOKLYN LAW REVIEW [Vol. 76:1 years of pressure from shareholders to separate the roles of the chief executive and the board chair.
368
Various industry groups are supportive of splitting the top corporate leadership positions. The National Association of
Corporate Directors (“NACD”), for example, identifies that one of the membership’s Key Agreed Principles to Strengthen
Corporate Governance for U.S. Publicly Traded Companies is that corporate governance should be structured to provide leadership for the management group that is distinct from leadership for the board.
369 The NACD’s guidelines for the composition of its own board of directors also specify that the
“positions of Chairman of the Board and CEO are separate,” the “CEO may not serve as Chairman,” and the “Chairman of the Board shall be an independent Director.” 370 Other organizations that have voiced their support for separating the top leadership roles include the Organization for Economic Cooperation and Development, 371 the Council of Institutional
Investors, 372 and the Millstein Center for Corporate Governance and Performance.
373
368
Id.
369
N AT ’ L A SS ’ N OF C ORP .
D IRS ., K EY A GREED P RINCIPLES TO S TRENGTHEN
C ORPORATE G OVERNANCE FOR U.S.
P UBLICLY T RADED C OMPANIES 5 (2009), https://secure.nacdonline.org/StaticContent/StaticPages/DM/NACDKeyAgreedPrinciples.
pdf. The NACD, with membership of nearly 10,000 directors and executives from public, private, and nonprofit companies, provides research and resources to assist corporate directors in fulfilling their responsibilities. About NACD , N AT ’ L A SS ’ N OF C ORP .
D IRS ., http://www.nacdonline.org/nacd/default.asp (last visited Jan. 28, 2010).
370
N AT ’ L A SS ’ N OF C ORP .
D IRS ., G OVERNANCE G UIDELINES 6 (2009), http:// www.nacdonline.org/images/GovernanceGuidelines%20050617.pdf.
371
See O RG .
FOR E CON .
C O OPERATION AND D EV ., P RINCIPLES OF C ORPORATE
G OVERNANCE 63-64 (2004), http://www.oecd.org/dataoecd/32/18/31557724.pdf
(“Separation of the two posts may be regarded as good practice, as it can help to achieve an appropriate balance of power, increase accountability and improve the board’s capacity for decision making independent of management.”). The OECD is an organization consisting of thirty member countries, including the United States, that works to promote policies to enhance economic development and maintain financial stability. Id.
at 2.
372
See CII Statement, supra note 367 (affirming that “the Council has long advocated that boards should be chaired by an independent director”). The Council of
Institutional Investors is an “association of public, union and corporate pension funds with combined assets that exceed $3 trillion” that “strives to educate its members, policymakers and the public about good corporate governance.” About the Council , C OUNCIL OF
I NSTITUTIONAL I NVESTORS , http://www.cii.org/about (last visited Jan. 28, 2010).
373 e.g.
, M ILLSTEIN R EPORT , supra note 32, at 3 (“Having an independent chairman is a means to ensure that the CEO is accountable for managing the company in close alignment with the interests of shareowners, while recognizing that managing the board is a separate and time intensive responsibility.”). The Millstein Center, part of the Yale School of Management, “sponsors research . . . and publishes policy briefings on emerging corporate governance issues.” Id.
at 4.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 125
Corporate governance advisers and rating services regard the nonexecutive Chair structure as a better governance structure than the CEO-Chair structure.
374 These advisers and services provide corporate governance ratings to various customers, including “investors, insurance companies, financial and securities analysts . . . , financial institutions, and the rated companies themselves.” 375 Customers use the ratings “to make investment decisions . . ., determine premiums, prepare financial and stock reports . . ., determine credit risks, and benchmark governance practices.” 376 Citing the enhanced ability of a nonexecutive Chair to monitor management’s performance, the governance raters assign strong grades to companies that separate their CEO and Chair positions.
377
Regulators have expressed support for board reforms that restrict the company’s CEO from serving as board Chair.
378
Current and former commissioners of the U.S. Securities and
Exchange Commission have spoken in favor of separating the positions as a means of reducing the power of the chief executive over the board.
379 Regulators believe that the separation of the roles would strengthen the governance of U.S. corporations because the CEO’s role is to lead the management group and serve as its spokesperson, whereas the Chair’s role is to lead, and be the spokesperson for, the director group that oversees the management group.
380
Legislators have also promoted legislation to separate the CEO and Chair positions.
381 In Congress, Senators Charles
Schumer and Maria Cantwell introduced the Shareholder Bill of Rights Act of 2009, and Representative Gary Peters introduced the Shareholder Empowerment Act of 2009; both bills contain a provision requiring public companies to have an independent board chair.
382 On the state front, the North
374
See Vo, supra note 24, at 13 (discussing the governance rating criteria).
375
Id.
at 2.
376
Id.
377
Id.
at 13.
378
Brickley al., note 25, at 190.
379
See id.
(citing then-SEC commissioner—now SEC chairperson—Mary
Schapiro’s support of separating the roles); Dobrzynski, supra note 127, at 124 (quoting former SEC chairman Harold Williams’s view that the CEO should not also serve as the board Chair because “[c]ontrol of the agenda and pace of the meeting is a powerful control”).
380
See Kesner et al., supra note 6, at 790 (citing the view of former SEC chairman Harold Williams).
381
Brickley al., note 25, at 190.
382 supra note 30, at 55 & n.235.

126 BROOKLYN LAW REVIEW [Vol. 76:1
Dakota legislature in 2007 successfully added a corporate governance chapter to the state’s business corporation statute; one of the governance provisions prohibits the board chair from serving as an executive officer of the corporation.
383 The North
Dakota corporate governance chapter was adopted “to strengthen corporate democracy and improve the performance of publicly traded corporations,” and the chapter provides an
“opt-in” mechanism in which corporations may elect to be subject to the governance rules of the chapter.
384
In sum, various stakeholder groups have long advocated for separation of the CEO and Chair positions. In the past decade, revelation of accounting and financial manipulation by chief executives at prominent companies, stock option backdating by senior management at hundreds of major corporations, and excessive risk taking by top executives at financial and investment institutions may have fueled the strong support among shareholders, business leaders, industry groups, corporate governance advisers, regulators, and legislators for more vigorous oversight of the company’s CEO by a separate and independent board Chair.
VI.
C ONCLUSION
Theoretical arguments and empirical evidence, as reflected in financial and nonfinancial metrics, weigh strongly in favor of a leadership structure that separates the CEO and
Chair positions. Having a nonexecutive Chair, instead of a dual
CEO-Chair, provides a governance framework that is better suited to the fulfillment of the board’s fundamental responsibilities to oversee business operations and monitor management conduct for the purpose of enhancing shareholder value. Furthermore, empirical evidence indicates not only that duality correlates with lower board performance and shareholder value, but also that the negative effects of duality cannot be eliminated simply by putting more outside directors on the board or by installing a lead director.
The recognition that board performance and corporate success do not depend solely on whether the positions of CEO and Chair are held by one or two individuals does not preclude
383
N.D.
C ORP .
G OVERNANCE C OUNCIL , E XPLANATION OF THE N ORTH D AKOTA
P UBLICLY T RADED C ORPORATIONS A CT 3 (2007), available at http://ndcgc.org/Reference/
Explain405.pdf.
384
Id.
at 1.

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 127 the conclusion that the nonexecutive Chair structure is better than the duality CEO-Chair structure for fulfilling directorial responsibility and enhancing shareholder value. Not every company that combines the CEO and Chair positions is a governance failure, and not every company that separates the
CEO and Chair positions is a model of good governance. It should be noted, however, that a substantial majority of the companies that were at the heart of the recent economic meltdown had a combined CEO-Chair structure before the crisis erupted.
385 As these financial institutions struggled over the past couple of years, many have voluntarily changed their leadership structure by electing a nonexecutive Chair.
386 Thus, although many variables affect the board’s ability to perform its management and monitoring functions and the corporation’s ability to generate shareholder value, both conceptual reasons and empirical evidence point to duality as a governance variable that is correlated with lower board performance and poorer corporate financial health. So, while there is no guarantee that separating the leadership positions alone will result in an effective board or strong financial results, splitting the roles will give the company a better chance of achieving vigilant board oversight and corporate financial success.
The lack of guarantee that separating the roles will bring governance and financial benefit to all companies suggests that perhaps this split leadership structure should not be imposed on all companies. In smaller, private companies where the CEO and Chair is the majority shareholder, or where there are controlling shareholders, there is effectively no separation of control and ownership, and the potential agency cost is minimal. Separation of the executive and board leadership roles in such companies is unlikely to enhance board performance or advance shareholder interests. Thus, the conclusion that companies should separate their CEO and
Chair positions is reserved for larger, public companies.
A thorough analysis of which, if any, regulatory bodies or other institutions should be charged with implementing and enforcing the nonexecutive Chair structure is beyond the scope of this article. Only a few thoughts about this question are presented here for potential further discussion elsewhere. If we
385
M ILLSTEIN R EPORT , supra note 32, at 18.
386
Id.
at 15.

128 BROOKLYN LAW REVIEW [Vol. 76:1 are to move beyond the current system where companies are permitted to choose the leadership structure that they want, there are various potential approaches to enforcing a separation of the CEO and Chair positions. State legislatures are generally regarded as the primary source of rules on corporate governance, 387 and they may establish the nonexecutive Chair requirement in the states’ corporate statutes. Implementing the desired leadership structure through state statutes, though, is unlikely to be achieved easily or quickly, and the task may be more quickly accomplished and uniformly applied through federal laws or stock market listing standards.
388 As discussed elsewhere in this article, many countries around the world have rules that prohibit corporations from having one individual hold both jobs of CEO and board Chair. Slightly different from the strict requirement of independent board leadership is the “comply or explain” system that exists in the United Kingdom and Canada.
389 The nonexecutive Chair structure is not a novel or untested model of corporate leadership, and the evidence and analysis presented in this article suggest that we make independent board leadership the default corporate governance structure in the United States.
There are limits to what the proposed structural change in corporate leadership can accomplish.
390 Understanding the limitation, however, does not diminish the significance of the benefits that this change may bring. Concentrating executive and board leadership in one person magnifies the opportunity for abuse; dispersing these powers reduces the potential for such behavior. Separating the CEO and Chair positions also signals the board’s recognition and willingness to exercise its monitoring responsibilities. Even if such a signal is more symbolic than real, adopting the nonexecutive Chair structure
387 supra note 59, at 351.
388 id.
at 354 (“Some commentators have suggested that federal standards should be expanded or that federal incorporation should displace the operation of state corporate governance standards for publicly held companies . . . .”).
389
M ILLSTEIN R EPORT , supra note 32, at 14.
390
See Cheffins, supra note 30, at 55 (“Despite [British] banks having the benefit of a separate chairman and CEO, the U.K. banking sector failed as profoundly as its U.S. counterpart in 2008 . . . .”); Sonnenfeld, supra note 92, at 113 (“Without a doubt, these good-governance guidelines have helped companies avoid problems, big and small. But they’re not the whole story or even the longest chapter in the story.”);
Thuy-Nga T. Vo, Lifting the Curse of the SOX Through Employee Assessments of the
Internal Control Environment , 56 U.
K AN .
L.
R EV . 1, 24 (2007) (“Structural reforms do not constitute a comprehensive and effective cure for corporate ailments.”).

2010] TO BE OR NOT TO BE BOTH CEO AND BOARD CHAIR 129 may be a highly effective way for the company to recognize the stakeholders’ voices. In light of the ample evidence that duality correlates with lower financial performance, acceding to the stakeholders’ call to separate the roles may soothe the anger being voiced against corporate leaders—even if it will not restore the financial loss that the investing public has suffered.
Thus, although splitting the CEO and Chair positions is no panacea for the corporate ailments with which we have become familiar, it would not be a meaningless exercise. It would increase the odds of getting the best from the board and the management, both of which are entrusted with creating real economic value and achieving optimal business performance.

Ronald J. Allen † and Esfand Nafisi ‡
I. I
NTRODUCTION
*
The law suffers from serious informational vulnerability. The legal system has no independent body of knowledge from which to determine rights and obligations, but rather is dependent upon external sources—witnesses and exhibits—to present information from which the facts will be found.
1 Parties presenting these sources of evidence, and sometimes the sources themselves, may have mixed incentives to present truthfully, depending upon whether the truth yields a desirable result. The law’s solution to this problem is to commit the task of fact finding to disinterested individuals, either jurors or judges, who are fully aware of the foibles of human existence. They are asked to process and rationally deliberate upon what the parties present in order to determine the most plausible explanation of the events being litigated.
The law largely permits parties to present whatever relevant evidence there is and explore the veracity of that evidence at trial. The operating assumption, and the deepest aspiration of the legal system, is that this process will facilitate the accurate resolution of disputes upon which the rights and
†
John Henry Wigmore Professor of Law, Northwestern University School of
Law. The preparation of this article was facilitated by a grant from the Searle Center on Law, Regulation, and Economic Growth, Northwestern University School of Law.
‡
B.S., 2005, Northwestern University School of Law, J.D. 2009. A draft of this article was submitted in partial fulfillment of the Senior Research Program,
Northwestern University School of Law.
*
We, like many others, were both inspired and provoked by the work of the late Professor Margaret A. Berger. In the article that follows we acknowledge much of the wisdom of her views and attempt to demonstrate where and why, in some instances, we differ. We had hoped this article would spark a dialogue with her, which is one of the reasons we published it in her home journal.
1
In fact, the matter is a bit more complicated, as most of the evidence is imported to a trial by whomever the decision maker is.
See generally Ronald J. Allen,
Factual Ambiguity and a Theory of Evidence , 88 N W .
U.
L.
R EV . 604-40 (1994); Ronald J.
Allen & Alicia L. Carriquiry, Factual Ambiguity and a Theory of Evidence Reconsidered:
A Dialogue Between a Statistician and a Law Professor , 31 I SR .
L.
R EV . 464 (1997).
131

132 BROOKLYN LAW REVIEW [Vol. 76:1 obligations of the parties depend. Without factually true findings, rights are meaningless.
2
The process of litigation seems to work fairly well for the most part. The fact that very few cases reach the trial stage 3 suggests that only highly contentious disputes need be resolved by a third-party fact finder. The reason it works well is largely because the fact finders—jurors or judges—are cognitively competent and properly motivated to find the facts accurately. Mistakes can be made, but the typical issue at trial is within the understanding of the decision makers. There are some cases, however, that pose a challenge to the deep aspiration of accurate dispute resolution. Some litigated controversies require access to organized bodies of knowledge that are not within the grasp of the intelligent layman, judge, or juror. Radiology, oncology, metallurgy, organic chemistry, and psychology are but a few examples. Since the development of the legal system, our society has changed from one of largely common knowledge, with only a few isolated bodies of specialized knowledge, to a society abounding in specialties and subspecialties. This increasing stratification of knowledge has caused informational vulnerability within the law. The law needs access to these specialized bodies of knowledge; indeed, it needs to know them—but it does not and realistically cannot.
This dilemma explains the law’s struggle to domesticate expert evidence: if the operating assumption is that the law needs access to an organized body of knowledge that it cannot assimilate, then the solution must lie in some formal criteria that take the place of substantive knowledge. In other words, the law must have a mechanism for evaluating the admissibility of evidence that judges and juries do not know enough about to evaluate for themselves.
2
Tehan v. United States, 382 U.S. 406, 416 (1966) (“The basic purpose of a trial is the determination of truth . . . .”); see also Ronald J. Allen, Explanationism All the Way Down , 5 E PISTEME 320, 321-22 (2008) (“All rights and obligations are meaningless without accurate fact finding. Whether the issue is the age of adulthood, the right to an abortion, the various powers of government, or your right to possess, consume, and dispose of your clothes, it is the conditioning of rights and obligations on facts that gives them substance. This is the feature that most distinguishes liberal democracies and market economies from autocratic states and centralized economies, and the consequences are obvious.”).
3
In 2001, only 3% of all civil cases went to trial. Thomas H. Cohen & Steven
K. Smith, Civil Trial Cases and Verdicts in Large Counties, 2001 , B UREAU OF J UST .
S TAT .
(Apr. 2004), http://www.ojp.usdoj.gov/bjs/abstract/ctcvlc01.htm. Plaintiffs won
55% of those cases . Id.

2010] DAUBERT AND ITS DISCONTENTS 133
The Frye 4 test is the paradigmatic example.
5 Motivating the Frye test is the simple but compelling assumption that deference to knowledge can substitute for rational deliberation.
Even though the fact finder may not possess the knowledge to decide the case, it can defer decision to someone who does, and simply embrace that person’s conclusion as its own. Thus the provenance of the general acceptance test is the sentiment that
“[s]cience is the only source of its own reliability.” 6 What better ground to defer to expertise—and what better guarantee of that expertise—than proof that there is unmistakably an organized body of knowledge, and that the evidence being offered is generally accepted within it?
The problems with the Frye test are serious and do not need rehashing here. In essence, they amount to a demonstration of the limits and fragility of deference.
7 We would go further and point out that deference as a mode of decision making flies in the face of—indeed is a reproach to— the deep aspiration of the legal system to obtain rational results. If it is truly the case that the fact finder does not possess the information necessary to decide a case, then it is logical that it also lacks the information necessary to know to which of two competing opinions to defer. By embracing a deferential model of decision making, the Frye test guarantees irrational decision making.
8
4
Frye v. United States, 293 F. 1013 (D.C. Cir. 1923).
5
Id.
at 1014 (“Just when a scientific principle or discovery crosses the line between the experimental and demonstrable stages is difficult to define. Somewhere in this twilight zone the evidential force of the principle must be recognized, and while the courts will go a long way in admitting experimental testimony deduced from a wellrecognized scientific principle or discovery, the thing from which the deduction is made must be sufficiently established to have gained general acceptance in the particular field in which it belongs.”).
6
Paul S. Milich, Controversial Science in the Courtroom: Daubert and the
Law’s Hubris , 43 E MORY L.J. 913, 923 (1998). Milich continues,
Anything less than complete deference to the weight of credible scientific opinion concerning the reliability of scientific evidence means going outside science—to the judge or jury . . . to resolve a scientific dispute. The resulting judgment cannot be scientific and therefore we cannot honestly speak of the evidence as having “scientific” reliability . . . . [T]he “real” issue is whether good scientists consider the evidence reliable at this time.
Id. at 923-24.
7
See Ronald J. Allen & Joseph S. Miller, The Common Law Theory of
Experts: Deference or Education?
, 87 N W .
U.
L.
R EV . 1131, 1141-42 (1993).
8
Jurors are left to decide which expert to believe based on the experts’ credentials and their credibility—that is, their oratorical performance.

134 BROOKLYN LAW REVIEW [Vol. 76:1
The United States Supreme Court’s 1993 Daubert decision was a commendable effort to reestablish the primacy of rationality in decision making.
9 Rather than engage in a futile and misdirected effort at finding the expert opinion to defer to, the Supreme Court interpreted the Federal Rules of
Evidence to require that the trial judge ensure that all evidence—not just lay evidence—be both relevant and reliable in order to be admissible.
10 However, the critical point is that the Supreme Court’s articulation of the trial court’s duty requires that the trial court not defer to the experts, but instead reach a reasoned conclusion about the substance of the testimony. In short, the trial court must inform itself about the fields pertinent to the testimony. Daubert thus rejects the deference model at least so far as the question of admissibility is concerned.
11
Unfortunately, once past the admission threshold, nothing forbids the presentation of the evidence to the jury in the tired, old, radically-subversive-to-the-goals-of-the-legalsystem, deferential fashion. The true problem with Daubert, in other words, is that it did not go far enough; although to be fair to the Court, it is constrained by the rules as written, which plainly permit a deferential presentation of the evidence.
12
Nonetheless, expert testimony could be treated just like any other testimony, which means that for it to be admitted, it must be understandable by the fact finder. To make an expert’s testimony understandable requires not just the judge but also the jury to be educated about the relevant matters.
13 If parties
9
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).
10 at 597 (“‘General acceptance’ is not a necessary precondition to the admissibility of scientific evidence under the Federal Rules of Evidence, but the Rules of
Evidence—especially Rule 702—do assign to the trial judge the task of ensuring that an expert’s testimony both rests on a reliable foundation and is relevant to the task at hand.
Pertinent evidence based on scientifically valid principles will satisfy those demands.”).
11
However, there is some ground for concern about how the trial courts will go about their task.
See generally Ronald J. Allen, Expertise and the Daubert Decision ,
84 J.
C RIM .
L.
& C RIMINOLOGY 1157 (1994).
12
Rule 704 permits experts to opine on ultimate issues to be decided by the trier of fact so long as the opinion does not state that a defendant in a criminal case
“did or did not have the mental state or condition constituting an element of a crime charged or of a defense thereto.” F ED .
R.
E VID .
704(b).
13
Alvin Goldman uses two very helpful terms to distinguish statements in experts’ discourse. Experts’ discourse involves esoteric and exoteric statements. Esoteric statements fall within “the relevant sphere of expertise,” but have “truth-values [that] are inaccessible” to jurors—“in terms of personal knowledge,” at least. “Exoteric statements [fall] outside the domain of expertise” and jurors may understand them.
Alvin I. Goldman, Experts: Which Ones Should You Trust?
, 63 P HIL .
&
P HENOMENOLOGICAL R ES . 94 (2001). Statements are exoteric or esoteric relative to an

2010] DAUBERT AND ITS DISCONTENTS 135 were forced to educate the fact finder about the topics where expert opinions are now employed, the problem of expert evidence would largely disappear because the process of educating the fact finder would likely reveal weaknesses or falsities in the evidence. Daubert thus takes a hesitating step in the right direction, and those interested in rational decisionmaking should encourage extending its application to the trial itself.
14 Cost is the primary objection to this, but it is remarkable that cost is raised as an objection to evidence that might actually be useful to a jury—evidence about oncology or statistics, for example—where by contrast we force juries to absorb vast amounts of information about the private affairs of parties that are purely useless to them.
Notwithstanding the critical epistemological limit of
Daubert elaborated above, the case has been generally well received by the legal system (although not as well received as the Federal Rules of Evidence in general).
15 In addition to its epistemological limitations, other criticisms of it have been raised, and the case has prompted at least one major proposal, supported by the Project on Scientific Knowledge and Public
Policy (“SKAPP”) and a distinguished legal scholar, Professor
Margaret A. Berger, to change tort law to avoid its effects.
16 epistemic standpoint—that is, over time statements that were once esoteric may become exoteric. On the education model of expert testimony, the aim is to convert as much esoteric evidence as possible to exoteric information. Id.
14
The positive effect of Daubert , as well as a symptom of the cost of not extending it, is clear in the concern, which is likely true, that judges are making sufficiency determinations in Daubert hearings in the guise of admissibility determinations. This is a perfectly plausible thing to do if judges think that juries will not understand expert evidence. In that case, if the evidence is admissible but not sufficient for a verdict, sending it to a jury risks a difficult-to-overturn mistake.
Screening the evidence for a sufficiently justified opinion to defer to, by contrast, advances the goals of the system in this weird setting of irrational decision making.
15
As of mid-2003, nine states had adopted the full Daubert trilogy, which includes Kumho Tire Co. v. Carmichael , 526 U.S. 137 (1999), and General Electric Co. v. Joiner , 522 U.S. 136 (1997); seven states had adopted Daubert itself but not the other parts of the trilogy; six states had adopted Daubert and Kumho (i.e., the Daubert standards apply to a wide range of expert testimony) but had not adopted Joiner (i.e., they have rejected the abuse of discretion standard for appellate review); five states had explicitly not adopted Daubert but have determined that the Daubert factors can be utilized (i.e., they have “endorsed” some of the Daubert principles); fifteen states continue to rely on Frye , with the remaining states having their own standards that are neither Daubert nor Frye. David E. Bernstein & Jeffrey D. Jackson, The Daubert
Trilogy in the States , 44 J URIMETRICS J.
351, 351-66 (2004). Similarly, many states have closely modeled their rules of evidence after the Federal Rules of Evidence. For a list of states adopting the Federal Rules of Evidence in various forms, see 6 J ACK B.
W EINSTEIN & M ARGARET A.
B ERGER , W EINSTEIN ’ S F EDERAL E VIDENCE (2d ed. 2009).
16 e.g
., Margaret A. Berger, What Has a Decade of Daubert Wrought?
, 95
A M .
J .
OF P UB .
H EALTH S59, S65 (2005) (acknowledging the Project on Scientific

136 BROOKLYN LAW REVIEW [Vol. 76:1
Collectively, these efforts raise important and timely questions, which we address in this article. Although we think the critics have highlighted critical issues and provided illuminating analysis, we ultimately conclude that, with one notable exception, they leave the important—and very difficult— questions having to do with expert testimony untouched. With respect to the notable exception, the policy prescription derived from it is, in our opinion, misguided. Nonetheless, their proposals help sharpen the intractable problems posed by
Daubert and the role of expert testimony in the legal system.
In this paper, we address the various critiques relating to Daubert that have been influenced in one manner or another by Professor Berger . We begin Part II by addressing what is perhaps the central concern with Daubert —that judges are not well suited for the gatekeeper function that Daubert bestows upon them. These concerns have given rise to a number of efforts to either eliminate Daubert or substantially alter the judge’s gatekeeper function. More particularly, Part II discusses scientific bias and its attendant evidentiary dangers, and examines one scholarly proposal for dealing with such bias.
We argue that those concerns miscalculate the incentives to create biased science. In Part III, we evaluate indirect attacks on Daubert in the form of proposals for new liability rules that eliminate outright the causation requirement in toxic tort cases, and thus minimize or eliminate the need for expert testimony to support a plaintiff’s case.
The critiques and responses to Daubert we address are individually quite creative. But they are analogous to the previous efforts to domesticate the problem of expert testimony, of which Daubert itself is an example. Rather than dealing directly with the epistemological problem expert testimony poses, each of these efforts responds with a new set of substantive rules of one sort or another, whether focusing on the criteria of admissibility or modifying substantive tort law to achieve a purportedly better outcome in the shadow of the difficulties of expert testimony. Like previous efforts to deal with expert testimony, these proposals will have undesirable consequences—often hurting those the proposals are intended to help. To us this confirms that the standard of admissibility
Knowledge and Public Policy for its support). Berger is also heavily cited in at least one
SKAPP manuscript. See P ROJECT ON S CIENTIFIC K NOWLEDGE AND P UB .
P OLICY ,
D AUBERT : T HE M OST I NFLUENTIAL S UPREME C OURT R ULING Y OU ’ VE N EVER H EARD O F
(2003) [hereinafter SKAPP, D AUBERT ].

2010] DAUBERT AND ITS DISCONTENTS 137 for expert testimony should turn on epistemological concerns rather than on political or moral concerns. By ignoring the epistemological concerns, these proposals may redistribute winners and losers in litigation, but will not advance the overall objectives of the legal system.
Finally, in Part IV, we briefly discuss SKAPP’s study of
Daubert ’s effects in the Delaware courts. That study, though not conclusive, suggests that Daubert has not led to the nightmare scenarios that many imagined. Indeed, its impact has been minimal. After evaluating the proposals for new liability rules and discussing the empirical indication that
Daubert may not have the negative effects that scholars imagine, we conclude that the solution to the problem of expert testimony lies in making it conform to the normal criteria of admissible evidence: that it is capable of being understood by the fact finder.
II. C RITIQUES OF D AUBERT
A. The Foundational Fear: Biased Judges and Biased Science
It is obvious and somewhat troubling that attorneys will select the most credible expert whose opinions about the litigated matter align with the litigants’ objectives. It is less obvious but perhaps even more troubling that, as Professor
Bernstein discusses in a recent article, 17 experts will bend, consciously and unconsciously, to the objectives of the litigants.
Conscious bias arises when experts adapt their opinions to the needs of the attorney who hires them.
18 Unconscious bias is the
“‘natural bias to do something serviceable for those who employ you and adequately remunerate you.’” 19 Selection bias means
17
Expert Witnesses, Adversarial Bias, and the (Partial)
Failure of the Daubert Revolution , 93 I OWA L.
R EV . 451, 454-55 (2008).
18
Bernstein argues that “hired gun” expert witnesses are widely recognized as a serious problem. According to Judge Jack Weinstein, “An expert can be found to testify to the truth of almost any factual theory, no matter how frivolous . . . .” Jack B. Weinstein,
Improving Expert Testimony , 20 U.
R ICH .
L.
R EV . 473, 482 (1986). Hired guns have, for example, been a major problem in asbestosis and silica litigation. See, e.g.
, In re Silica Prods.
Liab. Litig., 398 F. Supp. 2d 563, 635 (S.D. Tex. 2005) (detailing how experts skewed their testimony to benefit plaintiffs); see also David E. Bernstein, Keeping Junk Science Out of
Asbestos Litigation , 31 P EPP .
L.
R EV . 11, 12 (2003) (discussing plaintiffs’ experts who find evidence of injury from asbestos exposure in almost every individual presented to them, even when the exposure was extremely limited).
19
Bernstein, supra note 17, at 455-56 (quoting Abinger v. Ashton, 17 L.R. Eq.
358, 374 (Ch. 1873)).

138 BROOKLYN LAW REVIEW [Vol. 76:1 that experts selected for trial will be chosen to “represent the perspective the attorney wants to present at trial.” 20
Given these potential biases, Judge Alex Kozinski may have gotten it right in the remand of Daubert v. Merrell Dow
Pharmaceuticals, Inc.
, 21 when he warned that science done for the purpose of litigation is more prone to bias.
22 Judge Kozinski expressed concerns that scientists retained for trial would deviate from the norm of disinterested inquiry. This disinterested inquiry is what makes scientific evidence so valuable in courtrooms: “[T]estimony proffered by an expert . . . based directly on legitimate, preexisting research unrelated to the litigation provides the most persuasive basis for concluding that the opinions [a scientist] expresses were ‘derived by the scientific method.’” 23 The concern, expressed in a roundabout way, is that scientists conducting litigation-driven science are more likely to succumb to biases, leading them to commit fraud or to fudge the data. In other words, “when an expert prepares reports and findings before being hired as a witness, that record will limit the degree to which he can tailor his testimony to serve a party’s interests.” 24 Judge Kozinski’s central concern, to borrow a helpful dichotomy from Professor Susan Haack, is that scientists retained for litigation will focus on advocacy rather than disinterested inquiry.
25
20 at 456. Given the deference model of expert testimony encouraged by
Daubert and judges, it is quite likely that selection bias means that attorneys shop for experts who will not only testify favorably, but will do so with a convincing demeanor.
See id. at 456-57. The epistemic opacity of expert testimony on the deference model means that jurors frequently must judge expert witnesses not on their substantive testimony, but on their demeanor and credentials. See, e.g.
, Goldman, supra note 13, at
96 n.13, 97. One of the sources of evidence that non-experts may draw on to judge between competing experts is the formal credentials earned by the experts. See Scott
Brewer, Scientific Expert Testimony and Intellectual Due Process , 107 Y ALE L.J. 1535,
1538 (1998). Of the array of reasoning mechanisms available to non-experts to choose among expert witnesses, the two most likely to be relied on are (1) “the expert’s demeanor, either as he appears before the non-expert in person or as indicated by . . . the tone and authoritative style of written submissions to the court,” and (2) the expert’s credentials. Id. at 1616.
21
Daubert v. Merrell Dow Pharm., Inc., 43 F.3d 1311 (9th Cir. 1995).
22 at 1317.
23
Id.
24
Id.
25
What’s Wrong with Litigation-Driven Science? An Essay in
Legal Epistemology , 38 S ETON H ALL L.
R EV . 1053, 1070 (2008) (“Inquiry, investigation—the professional business of scientists, historians, legal and literary scholars, investigative journalists, and so forth—is a matter of trying to discover the answer to some question: who committed the crime, what caused the cancer or made it advance so quickly, where did the money go, etc.? Advocacy, by contrast—the professional business of lobbyists, attorneys, and so on—is a matter of trying to

2010] DAUBERT AND ITS DISCONTENTS 139
Although much has been made of Kozinski’s concerns about litigation-driven science, our own brief and informal survey revealed that judges who invoke this concern do so only when scientific evidence fails to meet most or all of the other
Daubert factors.
26 Indeed, it appears that judges only invoke the litigation-driven nature of scientific work where none of the
Daubert factors is satisfied—that is, the expert’s study has not been peer reviewed, has no error rate, has no general acceptance, and so forth—and then the judges only invoke it in a boilerplate fashion.
27 In effect, Judge Kozinski’s additional
Daubert factor is used as something of a pejorative term to describe evidence that has met none of the Daubert factors.
And we think this is perfectly appropriate.
1. Proposed Liberalized Standards
In a recent SKAPP-sponsored article, Leslie I. Boden and David Ozonoff argue convincingly that there is good reason to be concerned about litigation-driven science conducted by defendants prior to—and in expectation of—a lawsuit.
28 This is because certain corporations always act with an eye to persuade an audience of the truth of some proposition: that my client didn’t do it, that it was work-related PCB exposure that promoted the tumor, that the stolen money has been hidden in a numbered account in the Cayman Islands, etc.”).
26
These cases are anecdotally interesting, as the list is nowhere near comprehensive. In Cabrera v. Cordis Corp.
, 945 F. Supp. 209, 214 (D. Nev. 1996), the court mentions the litigation-driven nature of a doctor’s work, but then bars the evidence based on the damning fact that the doctor never examined the plaintiff’s brain shunt, had no literature to support his claims, and was arguing claims that are neither supported in the scientific community nor subjected to peer review. In Awad v. Merck
& Co.
, 99 F. Supp. 2d 301, 304, 306 (S.D.N.Y. 1999), the court ultimately permitted testimony despite the fact that “[the expert’s] opinion rests primarily on articles written by others, which he analyzed only because of this case . . . . [T]he theory on which he bases his conclusions—that the RA 27/3 vaccine causes chronic joint problems—has been subjected to peer review, and its degree of acceptance in the scientific community can be examined.” In Cerna v. South Florida Bioavailability
Clinic , 815 So. 2d 652, 654-56 (Fla. Dist. Ct. App. 2002), the court noted that the expert’s testimony was prepared specifically for trial, but rejected it after a lengthy analysis because “his methodologies are not generally accepted in the scientific community.” In Johnson v. Manitowoc Boom Trucks, Inc.
, 484 F.3d 426, 433, 435-36
(6th Cir. 2007), the court affirmed summary judgment for the defendant because the plaintiff’s expert had not tested his hypothesis (which itself did not enjoy general acceptance during the relevant time period) and because the “‘quintessential expert for hire’” did not show “some objective proof—such as the expert’s extensive familiarity with the particular type of machine in question . . . —supporting the reliability of the expert’s testimony.”
27
It bears mentioning that such evidence would likely be inadmissible even absent Judge Kozinski’s Daubert factor.
28
Leslie I. Boden & David Ozonoff, Litigation-Generated Science: Why
Should We Care?
, 116 E NVTL .
H EALTH P ERSP .
117 (2008).

140 BROOKLYN LAW REVIEW [Vol. 76:1 litigation.
29 Accordingly, Boden and Ozonoff argue, there is no reason to think that litigation-generated science (“LGS1”) is any less reliable than science generated in expectation of litigation (“LGS2”).
30 Thus, Kozinski’s concern about bias was correct, but it did not go far enough. Boden and Ozonoff suggest liberalizing the standards for the admissibility of scientific evidence, relying on cross-examination to winnow out the unreliable science.
31
There are, to be sure, powerful incentives in place for biased science.
32 LGS1, which plaintiffs frequently rely upon to prove causation in toxic tort cases, potentially creates in the scientist “a financial conflict of interest.” 33 The concern is that the conflict of interest “will lead the researcher to conduct the study or interpret the results in a manner designed to suit that party,” 34 but there are equally strong financial and social incentives for scientists to fudge LGS2.
35 The ability to influence scientific experiments allows corporations to use biased LGS2 to satisfy the safety concerns of purchasers, and it proves useful if the product’s safety should be litigated.
36 Boden and Ozonoff assert that a cluster of studies show “a covert litigation-driven relationship between LGS2 and the general literature that is currently less likely to be subjected to the same additional scrutiny routinely applied to science that is
29
Id.
at 118.
30
Id.
31
Id.
at 119.
32
The pressure on corporate scientists is immense:
Approval of new drugs can literally add billions of dollars to annual profits.
To obtain approval, companies must demonstrate safety and efficacy. Failure to show either can lead the U.S. Food and Drug Administration (FDA) to delay or ultimately deny approval. Thus, the companies funding drug trials obviously need and want results that support their applications. This research is begun well in advance of any possible liability litigation and not explicitly to support a position in a lawsuit. But such research purporting to demonstrate safety could be used later by companies defending themselves . . . . Scientists and companies are aware of this aspect of safety research conducted before a product hits the market.
Id.
at 118.
33
Id.
34
Id.
35
One study, for instance, shows that “safety and efficacy studies funded by pharmaceutical companies” tend to exhibit “conclusions more favorable to the companies funding them.” Id. Another study shows that “biomedical industry relationships are associated with a delay in reporting research results.” Id. (citation omitted). The authors argue that such delays violate scientific norms when they are caused by trade secret concerns. Id.
36
Id.

2010] DAUBERT AND ITS DISCONTENTS 141 explicitly case specific.” 37 Because plaintiffs do not have the same ability to generate LGS2 as potential defendants, the authors argue that judges, like Kozinski, who treat LGS1 as much more suspect than LGS2, effectively “place[][their] thumb[s] on the scales of justice.” 38
Unlike some of the other critiques of Daubert that endorse eliminating judges’ gatekeeper function outright, Boden and Ozonoff endorse substantially lowering the gate of admissibility. Specifically, they endorse “expanded discovery and greater latitude for cross-examination by the parties. .
[p]articularly . . . where company motives that appear unrelated to the case at hand may be highly pertinent.” 39 They buttress their arguments for expanded discovery by arguing that peer review is overrated and that cross-examination in many cases will do at least as good a job as peer review of winnowing out bad science.
40
Boden and Ozonoff disagree with recent work that has taken a more hopeful view of peer review’s potential to winnow scientific wheat from chaff.
41 Peer review, they argue, is not the remedy for Judge Kozinski’s concerns, and even if it were, peer review may take too long to meet the demands of litigation.
42
Moreover, the questions central to a legal case may be too narrow for peer-review publication, and the methodologies utilized in LGS1 may be too cutting edge to satisfy the “inside the box” thinking that peer review rewards.
43 Daubert, the
37
Id.
at 119.
38
Id.
39
Id.
40 at 119-20. They cite research showing that peer reviewers frequently disagree about whether to support papers. Id.
at 119 (citing Peter M. Rothwell &
Christopher N. Martyn, Reproducibility of Peer Review in Clinical Neuroscience: Is
Agreement Between Reviewers any Greater than Would Be Expected by Chance Alone?
,
123 B RAIN 1964 (2000)). They also show evidence that “poorly designed and analyzed studies can easily receive favorable reviews.” Id.
(citing Gregory D. Curfman, Stephen
Morrissey & Jeffrey M. Drazen, Expression of Concern Reaffirmed , 354 N EW E NGL .
J.
M ED . 1193 (2006); Richard Smith, Peer Review: A Flawed Process at the Heart of
Science and Journals , 99 J.
R OYAL S OC ’ Y M ED . 178 (2006)). Additionally, they argue that published articles receive “only the most cursory peer review.” Id.
at 119-20 (citing
S. Jasanoff, Representation and Re-representation in Litigation Science , 116 E NVTL .
H EALTH P ERSP .
123 (2008)). “[S]cientists opt for study designs, do analyses, and interpret results in ways that bias conclusions one way or another . . . . Peer review . . . is unlikely to detect any but the most blatant fraud or scientific misconduct.” Id.
at 120.
41
Id.
42
Id.
43
As examples of “outside of the box” thinking, the authors cite articles in economics that had great difficulty in getting published but that eventually were awarded the Nobel Prize. See, e.g.
, Joshua S. Gans & George B. Shepherd, How Are the Mighty
Fallen: Rejected Classic Articles by Leading Economists , 8 J.
E CON .
P ERSP .
165 (1994).

142 BROOKLYN LAW REVIEW [Vol. 76:1 authors point out, recognizes these problems: “‘[I]n some instances, well-grounded but innovative theories will not have particular, too new or of too limited interest to be published.’” 44
The protections of peer review, they argue, can “‘fall apart if lawyers and litigation experts invade the realm of scientific research and manipulate the medical and scientific publication system to achieve their litigation ends.’” 45
Boden and Ozonoff believe that jurors should get to decide what kind of science is unreliable by letting all evidence in and letting the process of cross-examination reveal which science is unworthy. Cross-examination, in the authors’ view, is more stringent than almost all peer review processes because lawyers, unlike peer reviewers, are properly incentivized to get to the truth; therefore, cross-examination may actually be more useful than peer review for uncovering flawed or biased research.
46 Lawyers preparing for cross-examination are typically aided by consultants and go over the studies in exacting detail, which could potentially bring to light any flaws in a particular study. Cross-examination’s adversarial nature thus offers the potential of revealing errors that peer review would not detect.
47 They conclude that there are no strong reasons to treat the conflicts of interest that LGS1 creates any differently from the conflicts of interest that LGS2 creates:
“Drawing a bright line at the moment litigation begins may be
44 supra note 28, at 120 (quoting Daubert v. Merrell Dow
Pharm., Inc .
, 509 U.S. 579, 593 (1993)).
45
Id.
at 120 (quoting William L. Anderson, Barry M. Parsons & Drummond
Rennie, Daubert ’s Backwash: Litigation-Generated Science , 34 U.
M ICH .
J.L.
R EFORM
619 (2001)).
46
Boden and Ozonoff suggest a greater degree of disclosure by scientists as required by the manuscript requirements of the International Committee for
Medical Journal Editors:
Authors submitting articles to [medical] journals must disclose all relationships that might involve the appearance of a conflict of interest, and they must disclose study funding . . . . Articles submitted to the journals should be accompanied by signed statements by authors stating that they control the data, analysis, the writing of reports, and submission for publication. Authors must describe any involvement of sponsors in any of these aspects of the study.
Id.
at 121. It seems like these questions would be answered right away on crossexamination. However, disclosure is not a panacea, the authors argue, as “[s]ponsors with control over publication can decide which studies to submit, possibly choosing preferentially to submit favorable studies and thus biasing the overall literature on safety or efficacy.” Id. (citations omitted).
47 at 120.

2010] DAUBERT AND ITS DISCONTENTS 143 convenient for the court, but it does not serve the interests of justice.” 48
Boden and Ozonoff’s prescription to lower standards of admissibility for scientific evidence is premised on the conventional notion that errors at trial should be distributed fairly, as well as the assumption that a fair distribution of errors is not possible if defendants are allowed to introduce more biased science than plaintiffs. The authors propose to solve this potential inequality by allowing judges to admit more of plaintiffs’ error-inducing biased science into the courtroom, thus ensuring a parity of errors.
We have elaborated on Boden and Ozonoff’s arguments about pre-litigation science because we think there is a critical element of truth in the assertion that LGS2 is susceptible to the same sorts of conflicts of interest and biases as LGS1.
Thus, it is by no means impossible that the Kozinski position biases the trial process unfairly against plaintiffs, and that as a result, errors at trial may be inappropriately skewed against plaintiffs. Curiously, however, the authors neglect the point that defendants also commission LGS1 and that plaintiffs also commission LGS2.
49 Boden and Ozonoff’s failure to account for these realities, particularly the latter, diminishes the force of their arguments. Recent events demonstrate that our concerns about Boden and Ozonoff’s oversights are more than merely hypothetical.
2. The Problem with Relaxed Standards: The MMR
Vaccine Example
The link between the measles, mumps, and rubella
(“MMR”) vaccination and autism has been a major source of concern for years now. The concern was that trace amounts of mercury in childhood vaccines were causing autism in very young children. Consequently, many children were not given life-saving vaccines due to parental omission bias, 50 and the
48 at 121.
49
Indeed, the point is neglected that massive errors against defendants are also made by the system. Interestingly, SKAPP’s very existence is a consequence of one of those errors. SKAPP is funded by the Silicone Implants Products Liability Litigation which was, by most lights, wrongly decided for the plaintiffs. See, e.g.
, David E.
Bernstein, The Breast Implant Fiasco , 87 C AL .
L.
R EV . 457 (1999) (reviewing M ARCIA
A NGELL , S CIENCE ON T RIAL : T HE C LASH OF M EDICAL E VIDENCE AND THE L AW IN THE
B REAST I MPLANT C ASE (1996)).
50
“[O]mission bias is manifested when a more harmful act of omission is preferred to a less harmful act of commission.” Hal Arkes, The Psychology of Patient

144 BROOKLYN LAW REVIEW [Vol. 76:1
“failure to vaccinate . . . caused many preventable deaths and avoidable hospitalizations from measles, whooping cough, diphtheria, flu, hepatitis and meningitis.” 51 In a pattern evincing the Benedictin scare leading to the Daubert lawsuit, 52 public concern about the autism link led to the vaccine thimerosal being pulled off the market, and the initiation of more than 4800 lawsuits.
53 Despite reports by pediatricians that vaccines did not cause autism, and support from American pediatricians for the World Health Organization’s decision to continue vaccinating children with thimerosal, the scare campaign carried out in the media was thoroughgoing and, evidently, good for ratings, as there was even a fictional television program about a law suit against a pharmaceutical manufacturer that created a substance similar to thimerosal.
54
Much of the vaccine scare can be traced back to a 1998 study by the English doctor Andrew Wakefield. In his study, published in the prestigious Lancet medical journal, Dr.
Wakefield reported that eight out of twelve families in his clinic who had given the measles, mumps, and rubella vaccine to their children began to see signs of autism within just days of their children receiving the jab.
55 Dr. Wakefield’s report led to a staggering decrease in vaccinations in England, with rates of inoculation falling from 92% to below 80%.
56 At the time of this writing, there are 1348 cases of measles in England and
Wales, compared to 56 in 1998.
57 Two children have died of the
Decision Making: The Omission Bias , in I NTERACTIVE T EXTBOOK ON C LINICAL S YMPTOM
R ESEARCH , http://symptomresearch.nih.gov/chapter_4/sec2/chas2pg1.htm (last visited
Oct. 28, 2010).
51
Caplan on Vaccines and Autism , T HE E DITORS ’ B LOG , A M .
J.
OF B IOETHICS
(Feb. 6, 2007), http://blog.bioethics.net/2007/02/caplan-on-vaccines-and-autism.html.
52
Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993).
53
Ed Silverman, Long Shot? Autism and Vaccines Trial Begins , P HARMALOT
(May 12, 2008, 9:11 AM), http://www.pharmalot.com/2008/05/long-shot-autism-andvaccines-trial-begins.
54
Molly McDonough, Pediatric Group Releases Mercury-Autism Study,
Condemns New Lawyer Drama , ABA J OURNAL (Jan. 30, 2008, 7:15 PM), http://www. abajournal.com/news/article/pediatric_group_releases_mercury_autism_study_condem ns_new_lawyer_drama/.
55
Andrew Deer, MMR Doctor Andrew Wakefield Fixed Data on Autism ,
S UNDAY T IMES (Feb. 8, 2009), http://www.timesonline.co.uk/tol/life_and_style/health/ article5683671.ece.
56
Id.
57
Id.

2010] DAUBERT AND ITS DISCONTENTS 145 disease.
58 It has since become clear that Wakefield drastically misreported the results of his study: 59
The patients who were “enrolled” in his study were actually not just random children who appeared on the doorstep of Royal Free
Hospital but were clients of an attorney working against a vaccine company alleging that vaccines caused autism. Most already know that the children already had autism when they came into the study, but what was news to me at least was that Wakefield had received
55,000 pounds from something called Britain’s Legal Aid Board in the previous year (big money if you are a graduate student) which supported research related to lawsuits.
60
Tellingly, the Lancet recently retracted Dr. Wakefield’s article.
61 The General Medical Council ruled that Dr. Wakefield evinced a “callous disregard” for children’s welfare and abused his station.
62
Boden and Ozonoff’s concerns about incentives to fudge science are well-founded and worthy of consideration. But their proposal for relaxed standards of admissibility does not account for the possibility that biased science is conducted on behalf of potential plaintiffs, as the Wakefield example demonstrates. If both defendants and plaintiffs have powerful incentives to manipulate scientific research, relaxing the standards of admissibility will not level the playing field, as Boden and
Ozonoff hope; it will only increase the risk of errors.
Given the attendant dangers of errors in juridical decision making based on false or misleading scientific
58
Id.
59
The Sunday Times investigation in coordination with the General Medical
Council (GMC): reveal[ed] that: In most of the 12 cases, the children’s ailments as described in The Lancet were different from their hospital and GP records. Although the research paper claimed that problems came on within days of the jab, in only one case did medical records suggest this was true, and in many of the cases medical concerns had been raised before the children were vaccinated.
Hospital pathologists, looking for inflammatory bowel disease, reported in the majority of cases that the gut was normal. This was then reviewed and the
Lancet paper showed them as abnormal.
Id.
60
Summer , B IOETHICS B LOG (Feb.
23, 2009), http://blog.bioethics.net/2009/02/the-wakefield-scandal-thickens.
61
Madison ,
CNN H EALTH (Feb. 2, 2010, 1:29 PM), http://www.cnn.com/2010/HEALTH/02/02/lancet. retraction.autism/index.html?hpt=T2.
62
Thomas , S KY N EWS
O NLINE (Jan. 28, 2010, 5:04 PM), http://news.sky.com/skynews/ (search “MMR Row
Doctor Hits Back at Conduct Claims”; then follow hyperlink to article).

146 BROOKLYN LAW REVIEW [Vol. 76:1 evidence, and the capacity of both sides to litigation to produce it, Boden and Ozonoff’s suggestion for even laxer standards of admissibility is misguided. Ensuring a parity of errors, as the authors suggest, might provide fairness, but will certainly come at the cost of accuracy in fact finding. The suggestion is both unacceptable and unnecessary. It is unacceptable given the
Supreme Court’s supposition that “[t]he basic purpose of a trial is the determination of truth.” 63 It is unnecessary because the solution to the problems of endemic bias in LGS1 and LGS2 is not to sacrifice accuracy to attain fairness, but to attain fairness by increasing accuracy. Potentially error-inducing variables in all scientific enterprises should be examined fully by the trial judges, and research efforts that do not measure up should be excluded whenever they are brought to light. This is not a radical idea at all—it is what Daubert demands.
The genius of Daubert is that it commands that the trial judge take all possibilities of bias into account. Of course, if research generated in litigation turns out to be more systematically biased than other forms, then it should follow, and should follow uncontroversially, that such research should also be more frequently excluded. Boden and Ozonoff have provided an admirable service by highlighting the potential biasing pressures in LGS2, but what follows from this is that all scientific expert testimony should run the same gamut of admissibility, not that errors at trial should be proliferated out of a misguided sense of fairness.
64
B. Bias in Action: The Unfair and Unconstitutional
Application of Daubert
SKAPP and those associated with it criticize Daubert from a number of other angles and call for a variety of reforms.
SKAPP argues that Daubert may violate the Seventh
Amendment, or at least should be construed to do so, and that judges routinely misinterpret scientific evidence in pretrial
Daubert hearings in ways that are consistently harmful to
63
Tehan v. United States, 382 U.S. 406, 416 (1966).
64
In a system without transaction costs, a policy of letting all evidence in that the parties wished to adduce might be sensible. Patient exploration of “junk” produced by the other side would expose it for what it is. Things change in a system with transaction costs, especially, as in the United States, where the parties do not bear the true cost of their activities. In that system, an exclusionary approach may achieve better overall outcomes.

2010] DAUBERT AND ITS DISCONTENTS 147 plaintiffs in toxic tort cases.
65 An important example is the exclusion of “mosaic evidence,” which entails relying on shards of otherwise inadmissible evidence in order to create a picture of causation.
66
SKAPP grounds its arguments against Daubert in the
Seventh Amendment, which it interprets as imparting a right for a plaintiff to tell his or her story in court, regardless of the evidentiary merit.
67 According to this view, Daubert hearings raise serious constitutional issues by denying plaintiffs that right.
68 According to Professor Berger, the Seventh Amendment, which assures the right to a jury trial, 69 “‘could be read as not just entitling a litigant to a jury verdict, but more broadly to a jury trial when experts in different disciplines disagree.’” 70
Professor Berger argues that point:
Even if a plaintiff’s verdict were ultimately set aside as not based on sufficient evidence of causation, a public trial means the plaintiff gets to tell his or her story and it also means that wrongdoing on the part of defendants can be exposed. Even when causation cannot be proved, that does not necessarily mean that defendants did not act in a reprehensible manner in exposing the public to risk. For example, problems often develop with drugs long after they have been approved for market. Jury trials could reveal whether corporations knowingly kept drugs or products on the market after it became clear that problems existed. If such a case ends with a Daubert hearing, none of this will ever become public.
71
The difficulty here is obvious. The Seventh Amendment has never been construed as containing the right to use trials as a form of investigative reporting independent of the validity of the underlying legal claims.
72 Professor Berger does not seriously argue to the contrary. Rather, she argues that it should be so construed, but in doing so neglects the proposal’s problems of costs and increased chance of erroneous (and
65
SKAPP, D AUBERT , supra note 16, at 7-8.
66 id.
67 at 8.
68
Id .
69
U.S.
C ONST . amend. VII.
70
SKAPP, D AUBERT , supra note 16, at 8 (citing Interview by SKAPP with
Margaret Berger, Professor of Law, Brooklyn Law School (May 15-June 6, 2003)).
71
Id.
72
As an initial matter, the Seventh Amendment has not been held
“incorporated” in the Fourteenth Amendment’s Due Process Clause. Thus, the
Constitution does not assure a right to jury trial in state court proceedings.
Minneapolis & St. Louis R.R. Co. v. Bombolis, 241 U.S. 211 (1916); Walker v. Sauvinet,
92 U.S. 90 (1875).

148 BROOKLYN LAW REVIEW [Vol. 76:1 difficult to rectify) verdicts. Moreover, it is entirely unclear what benefit might result. If “corporations”—it is unclear to us why corporations are the focus, but we adopt her focus for the discussion herein—behaved “reprehensibl[y]” and “knowingly kept drugs and products on the market after it became clear that problems existed,” it is difficult to imagine why there would not be a plethora of deserving plaintiffs willing to let the plaintiffs’ bar bring a cause of action.
73
A more troubling concern that SKAPP raises has to do with the frequency with which judges bar “mosaic evidence.”
Mosaic evidence is, as the name suggests, a composite evidentiary image made up of shards of evidence “from sources that are frequently excluded when used to prove causation— such as anecdotal evidence, animal studies, chemical structure analysis, in vitro studies, and preliminary epidemiological studies.” 74 SKAPP argues that the cumulative impact of mosaic evidence is ignored by judges who weigh each piece of evidence individually.
75 SKAPP argues that by barring mosaic evidence, judges bar evidence that is commonly relied on in the scientific community.
But the criticism misses the significance of the differing institutional context. In the scientific community, mosaic evidence is used as a brake against introducing potentially harmful products into the public, whereas in the legal context it is used as an engine of liability. So, for instance, it may take only the slightest hint that something is harmful for it not to be introduced into the public, but liability for products that have been approved by the FDA and undergone thorough testing should require more than a slight hint of risk.
The Bendectin case is a good example. As Professor
Berger and products liability scholar Aaron Twerski tell it, there were many such hints of risk at the time of litigation, but it is now generally accepted that those slight hints were statistical aberrations or the results of poorly conducted studies.
76 Bendectin is still prescribed in many places in the world, including Europe, is endorsed by the World Health
Organization as safe, and has been vindicated by meta-
73
SKAPP, D AUBERT , supra note 16, at 8.
74
David E. Bernstein, Learning the Wrong Lessons from “An American
Tragedy”: A Critique of the Berger-Twerski Informed Choice Proposal , 104 M ICH .
L.
R EV . 1961, 1971-72 (2006) (footnotes omitted).
75
SKAPP, D AUBERT , supra note 16, at 8.
76 supra note 74, at 1964-67.

2010] DAUBERT AND ITS DISCONTENTS 149 analyses and the support of a number of epidemiological studies.
77 Given the weight of evidence in favor of Bendectin’s safety, it seems peculiar to argue for mosaic evidence from a case in which it would have plainly been misleading.
The final SKAPP critique we address concerns the chilling effects of Daubert on plaintiffs. The costs of Daubert hearings, SKAPP argues, chill plaintiffs from bringing suits because jury awards often barely cover the costs of Daubert hearings.
78 This argument overestimates the frequency of
Daubert hearings 79 and miscalculates their costs. The miscalculation is because SKAPP considers only the chilling effect of Daubert hearings on plaintiffs, and ignores the effect of high costs on defendants.
80 Costly Daubert hearings may deter plaintiffs from bringing suit, but they also provide a powerful incentive for defendants to settle.
III. C
AUSATION
-F
REE
T
HEORIES OF
T
ORT
We now turn directly to the work of Professor Margaret
A. Berger, a distinguished evidence scholar who has made many significant contributions to the field of evidence, particularly scientific evidence.
81 For a little over a decade,
Professor Berger has argued for eliminating the causation
77 e.g.
, P.M. McKeigue et al., Bendectin and Birth Defects: A Meta-Analysis of the Epidemiologic Studies , 50 T ERATOLOGY 27 (1994); Bruce Jancin, Do-It-Yourself
Bendectin Advocated for Nausea , OB/GYN N EWS (Oct. 1, 2002), http://findarticles. com/p/articles/mi_m0CYD/is_19_37/ai_92938826 (“Thirty epidemiologic studies have concluded that Bendectin was safe for use in pregnancy[.] The FDA, World Health
Organization, and March of Dimes have exonerated the drug. The Centers for Disease
Control and Prevention hasn’t found any reduction in birth defects nationally since
Bendectin was pulled from the market.”) .
78
SKAPP, D AUBERT , supra note 16, at 12.
79
See N ICOLE L.
W ATERS & J ESSICA P.
H ODGE , N AT ’ L C TR .
FOR S TATE
C OURTS , T HE E FFECTS OF THE D AUBERT T RILOGY IN D ELAWARE S UPERIOR C OURT 21
(2005) (finding that in Delaware Daubert hearings were isolated to a small number of important and complex cases).
80
Defendants too must retain experts to testify at Daubert hearings.
Defendants must also contribute to costs associated with the hearing. See, e.g.
, Thomas
G. Gutheil & Harold J. Bursztajn, Attorney Abuses of Daubert Hearings: Junk Science,
Junk Law, or Just Plain Obstruction?
, 33 J.
A M .
A CAD .
P SYCHIATRY L. 150, 152 (2005).
81 e.g.
, Margaret A. Berger, Laboratory Error Seen Through the Lens of
Science and Policy , 30 U.C.
D AVIS L.
R EV . 1081 (1997); Margaret A. Berger, Procedural
Paradigms for Applying the Daubert Test , 78 M INN .
L.
R EV . 1345 (1994); Margaret A.
Berger, A Relevancy Approach to Novel Scientific Evidence , 26 J URIMETRICS J. 245
(1986); Margaret A. Berger, Introduction, Science for Judges , 12 J.L.
& P OL ’ Y 1 (2003);
Margaret A. Berger, Introduction, Science for Judges II , 12 J.L.
& P OL ’ Y 485 (2004);
Margaret A. Berger, Upsetting The Balance Between Adverse Interests: The Impact of
The Supreme Court’s Trilogy on Expert Testimony in Toxic Tort Litigation , 64 L AW &
C ONTEMP .
P ROBS . 289 (2001).

150 BROOKLYN LAW REVIEW [Vol. 76:1 requirement in toxic torts contexts, which would in turn largely eliminate the debate over scientific evidence in a large run of tort cases by making such evidence unnecessary for a plaintiff’s case. This would accomplish indirectly what the direct attacks on limited admissibility of scientific evidence attempt to achieve. We address her individual efforts and trace their evolution in her collaborative work with products liability scholar Aaron D. Twerski.
A. Professor Berger’s Causation-Free Theory
Professor Berger proposes a new theory of toxic torts that she rightly calls “a new theory of justice.” 82 Professor
Berger hopes to prevent immoral corporate behavior by imposing liability on corporations that fail “to develop and disclose information that is needed to assess serious latent risk[]” in toxic substances.
83 To accomplish this end, Berger proposes shifting the burden of persuasion on the issue of causation such that defendants in toxic tort cases must prove that they did not cause the plaintiff’s injury.
84 Under this theory, a plaintiff need only show that the defendant corporation failed to keep itself “reasonably informed about the risks of its products.” 85 Successful plaintiffs under Berger’s theory may receive only a fraction of compensatory damages
(possibly through an administrative compensation fund) because they have not borne the burden of proving the defendant caused their physical injury.
86 The damage award is largely punitive in nature, ignoring as it does causation, and focusing instead on wrongdoing.
82
Margaret A. Berger, Eliminating General Causation: Notes Towards a New
Theory of Justice and Toxic Torts , 97 C OLUM .
L.
R EV . 2117, 2117 (1997).
83
Id.
84
Id.
at 2144-45. Similarly, the defendant bears the burden of proving that the drug was only partly responsible for the plaintiff’s injury, thereby mitigating damages.
Id.
85 at 2134.
86
(“Regardless of whether an administrative compensation scheme is in effect, plaintiffs might not be entitled to a full measure of traditional damages under this new tort. In exchange for relieving plaintiffs of having to prove general causation, a possible fair trade-off might be to release defendants from having to pay for plaintiffs’ pain and suffering, or to provide for some form of damage scheduling. This is one of the many difficult issues that courts would have to resolve. Punitive damages should not be available as they already have been factored into the recovery—liability has been imposed because of defendants’ egregious indifference to ascertaining risk, a component that under traditional tort theory does not support liability in the absence of causation.”).

2010] DAUBERT AND ITS DISCONTENTS 151
Berger’s theory was born of a concern that, in a post-
Daubert world, plaintiffs frequently cannot prove causation due to scientific uncertainty about the dangers of a particular substance.
87 In toxic tort cases, “[t]he causation model is blind to the realities of scientific uncertainty.” 88 Injured plaintiffs are losing cases they should win, Professor Berger argues, because of the difficulties that attend proving causation under
Daubert .
89 Scientific uncertainty allows unscrupulous pharmaceutical manufacturers to keep potentially unsafe drugs on the market. Professor Berger’s charge is that manufacturers not only predict when they will be able to avoid liability despite having inadequately researched and disclosed the long term risks of their chemicals, but also use these predictions to market unsafe drugs.
90
Professor Berger was not being immodest when she referred to her theory as a new theory of justice: a causationfree tort that places the burden of proving noncausation on the defendant and awards injured plaintiffs a portion of compensatory damages through an administrative fund is substantively, structurally, and procedurally a significant departure from current tort practice. This novel theory arose out of two concerns. First, Professor Berger argues that tort law’s causation requirement inadequately incentivizes responsible corporate behavior.
91 Berger’s second concern is that the causation model is inconsistent with the “corrective justice rationale that liability is linked to moral responsibility.” 92 This is because “causation is often fortuitous and thus morally arbitrary. To erect sharp disparities of treatment on such a foundation violates the requirement of equal treatment implied by the conception of equal dignity and respect.” 93
87
Id.
at 2123.
88 at 2117.
89
See
90
Id.
at 2136-40.
91 at 2119.
92
Id.
(“[E]liminating causation furthers tort law’s corrective justice rationale that liability is linked to moral responsibility.”). Professor Berger argues that certain features of toxic tort cases “mesh poorly with the corrective justice notion that individuals should be liable only for morally irresponsible choices.” Id. at 2133.
93
Christopher Schroeder, , in P HILISOPHICAL F OUNDATIONS OF T ORT L AW 347, 349 (David G. Owen ed., 1995).

152 BROOKLYN LAW REVIEW [Vol. 76:1
Professor Berger’s proposal invites appraisal at both the philosophical and practical levels. We begin with the philosophical.
1. Philosophical Difficulties
Professor Berger justifies her theory in part on corrective justice grounds.
94 Specifically, she relies on the work of Christopher Schroeder, who argues that corrective justice demands the abandonment of tort law’s cause-in-fact requirement because it is “too slender a reed” upon which to rest liability.
95 Schroeder’s theory of corrective justice, which predicates liability on moral responsibility, is not well accepted among tort theorists.
96 But even Schroeder agrees that theories of corrective justice must adhere to certain foundational principles, 97 one of which is the Kantian requirement that corrective justice “defend[] liability on noninstrumental grounds, freed from consideration of purposes external to the tort process, such as distributive justice.” 98 Berger’s theory violates this requirement by justifying liability on instrumental grounds, as it aims to incentivize corporations to “obtain[]
94
Berger, supra note 82, at 2119. (“[E]liminating causation furthers tort law’s corrective justice rationale that liability is linked to moral responsibility.”).
95
Schroeder, supra note 93, at 361; see also , Christopher H. Schroeder,
Corrective Justice, Liability for Risks, and Tort Law , 38 UCLA L.
R EV . 143 (1990).
“[C]orrective justice does not require liabilities in tort to be based on cause-in-fact.” Id. at 144. Schroeder advocates a conception of corrective justice that holds “actors . . . liable for the risks they create,” rather than the risks they create that result in harm.
Id.
Indeed, Schroeder advocates a “liability-for-risk system” rather than “harm-caused system.” Id.
96
See, e.g.
, Jules Coleman & Gabriel Mendlow, Theories of Tort Law , in
S TANFORD E NCYCLOPEDIA OF P HILOSOPHY (Edward N. Zalta ed., 2010), http://plato. stanford.edu/entries/tort-theories/#CorJus (“For a loss to be wrongful in the relevant sense, it need not be one for which the wrongdoer is morally to blame.”). Schroeder maintains that his is a theory of corrective justice because corrective justice “is itself a contested concept, loose enough to invite continual debate . . . and comprehended enough to produce some shared agreement.” Schroeder, supra note 95, at 146.
97 supra note 93, at 360.
98 supra note 95, at 147 (footnote omitted) (emphasis added). For
Schroeder, who grounds his theory of corrective justice in Kantian moral philosophy, the noninstrumental requirement flows from the central tenet of Kantian moral philosophy, which is to “[a]ct in such a way that you treat humanity, whether in your own person or in the person of any other, always at the same time as an end and never merely as a means to an end.” I MMANUEL K ANT , G ROUNDING FOR THE M ETAPHYSICS OF M ORALS 30
(James W. Ellington trans., Hackett 3d ed. 1993) (1785); see also Ernest J. Weinrib,
Deterrence and Corrective Justice , 50 UCLA L.
R EV . 621, 633 (2002) (“So far as private law is concerned, Kant traces the conceptual development of right from the notion that one is not to allow oneself to be a mere means for others . . . .”). Any instrumentalist justification for the theory would then undercut its Kantian foundations.

2010] DAUBERT AND ITS DISCONTENTS 153 earlier and better information . . . about potential problems.” 99
Hence, corrective justice provides no justificatory cover for
Berger’s causation-free theory of torts. Accordingly, Berger’s theory must be evaluated on instrumental grounds; that is, the value of her theory depends entirely on the consequences of its implementation. We turn to those next.
2. The Unforeseen and Undesirable Consequences of
Berger’s Theory
Professor Berger’s theory promises to make defendants behave differently by increasing the costs for any risky behavior and vindicating plaintiffs who would otherwise lose due to scientific uncertainty. It is a safe bet that both of these aims will be fulfilled under her theory. In this sense, her theory might be said to give rise to consequences that might be viewed as beneficial. But there are a whole host of additional consequences to consider—particularly aggregate costs—that
Professor Berger does not address.
Consider the problem of setting highway speed limits: speeding-related traffic deaths would certainly be reduced if visually and emotionally arresting accidents were used as the basis for lowering highway speed limits by forty miles per hour.
100 But such a solution entails many other human costs.
101
The cost of goods would increase as commerce slowed, the economy would suffer as people spent otherwise productive time in transit. People might very well quit using highways for their high speed driving, instead choosing to drive faster in residential areas and other areas less suited for high speed driving, in turn causing even more fatal accidents and perhaps even raising the costs of traffic enforcement. By seeking to prevent all accidents, we may indirectly cause many more. All costs must be considered when writing regulations that effect human safety.
In appraising these costs, we begin with a previously unnoticed but significant consequence of Berger’s theory. By shifting the burden of proof to the defendant, Berger’s theory
99 supra note 82, at 2141.
100
Though it may be difficult to admit, we tacitly agree to sacrifice thousands of human lives a year in exchange for the benefits that flow from current highway speeds.
101
For general discussions of the unavoidable tradeoffs of governing, see
Ronald J. Allen & Larry Laudan, Deadly Dilemmas , 41 T EX .
T ECH .
L.
R EV . 65, 73
(2008); Ronald J. Allen & Amy Shavell, Further Reflections on the Guillotine , 95 J.
C RIM .
L.
& C RIMINOLOGY 625, 628 (2005).

154 BROOKLYN LAW REVIEW [Vol. 76:1 eliminates plaintiffs’ lawyers’ gatekeeper function, thereby altering the litigation calculus. Plaintiffs’ lawyers (and often their expert witnesses) play a gatekeeper function of their own, weighing the costs of litigation against the potential contingency fee discounted by the probability of success. It has been argued that Daubert drove the costs of litigation up for plaintiffs, thereby dissuading some plaintiffs from litigating, and it is certainly true that the cost of litigation affects plaintiffs’ incentive to bring suit and defendants’ incentive to settle. Berger’s proposed theory of liability will drive the costs of litigation down for plaintiffs, and it will make the costs for defendants disproportionately higher. Placing the burden of causation on the defendants concomitantly removes the burden of proving causation from the plaintiffs. As the plaintiffs’ costs go down and defendants’ costs go up, litigation is likely to increase as the incentives to settle increase.
102 In essence, the burden of proving the absence of causation will fall on defendants to show that every possible claim that plaintiffs might make is false, rather than requiring plaintiffs now to provide justification for their claims. However, the difficulty of proving a negative is legendary. All a plaintiff must do is allege some as yet unresolved state of affairs that has not been studied and claim illness as a result of, say, a defendant’s drug.
For example, a plaintiff who has taken a variety of drugs, has a rare precondition, and has developed a rare illness could require every single manufacturer of every drug the plaintiff has ever taken to demonstrate lack of causation. In short, the most predictable and troubling consequence of Berger’s theory is that meritless litigation and settlements will proliferate, generating costs which consumers will ultimately be forced to bear. Higher litigation and settlement costs for manufacturers
102
The larger the potential pool of plaintiffs suffering from a given injury, the greater a defendant’s incentives to litigate, because the costs of causation studies will be outweighed by the potential liability to the pool of plaintiffs. Conversely, smaller pools of plaintiffs will decrease defendants’ incentives to litigate, since the costs of disproving causation will be more likely to outweigh the costs of settling. Thus, so long as the plaintiff crafts an appropriately narrow claim—say, that the defendant negligently failed to research drug X ’s interaction with drug Y and rare precondition Z —the plaintiff can ensure that the defendants incentive to litigate will approach zero. A predictable result of Berger’s theory is that defendants will be overwhelmed by a torrent of unusual law suits of this sort. They will settle these suits because litigation will be exponentially more expensive. There will be many, many undeserving plaintiffs who recover under this theory, because economic efficiency demands that defendant corporations settle rather than defend in cases where the cost of disproving causation is in the hundreds of thousands or millions of dollars and the plaintiff is alleging a relatively unique injury.

2010] DAUBERT AND ITS DISCONTENTS 155 will translate into higher drug prices for consumers as well as fewer drugs being brought to market.
103
B. Professors Berger and Twerski’s Causation-Free Theory
Professor Berger recently collaborated with Professor
Aaron Twerski to revise her tort theory. Together, they argue that courts ought to recognize an informed choice cause of action that would allow plaintiffs claiming injury from pharmaceutical products to recover damages for deprivation of informed choice when the indicia of a “troubling” and
“recurring pattern of drug cases” arises:
(1) the causal relationship between the toxic agent and plaintiff’s harm is unresolved at the time of litigation . . . ; (2) the drug is not therapeutic but rather its purpose is to avoid discomfort or to improve lifestyle; (3) it is almost certain that a patient made aware of the risk that is alleged to be associated with consumption of the drug would have refused to take it; and (4) the defendant drug company was aware of the potential risk or should have undertaken reasonable testing to discover the risk and failed to provide the requisite information to the physician or patient.
104
This theory is interesting and remarkable in its own right.
Professor David Bernstein critiqued Professors Berger and Twerski’s theory and they responded, 105 and we do not recreate those arguments here. Rather, we raise concerns of our own. First, we again address the odd philosophical or theoretical aspects of the theory, which differ from those posed by Professor Berger’s alternative vision of tort liability. Next, we explain how the cause of action they propose will overdeter or underdeter due to its failure to account for base incidence
103
See, for example, the state of affairs in the preDaubert Ferebee era, when manufacturers rolled back research and development of new drugs and vaccines out of fear of litigation in which even unreliable evidence was admissible. Bernstein, supra note
17, at 467-68. “ Ferebee implicitly condoned treating plaintiffs’ experts in toxic tort cases as if their status as qualified experts meant that their reasoning and conclusions necessarily reflected the views of a reputable segment of their scientific peers.” Id. at 465-
66. And those drugs that do come to market will be covered in warnings—so many, in fact, that they may begin to lose meaning. This article’s authors did an informal survey and found that the FDA’s most severe warning, so-called “Black Box” warnings, attach to drugs for treating acne, depression, menopause, and anxiety. Drugs with Black Box
Warnings by Therapeutic Class , B LACK B OX RX, http://www.formularyproductions.com/ master/showpage.php?dir=blackbox&whichpage=237 (last visited Aug. 27, 2010).
104
Margaret A. Berger & Aaron D. Twerski, Uncertainty and Informed
Choice: Unmasking Daubert, 104 M ICH .
L.
R EV . 257, 259 (2005).
105
See id.
; Margaret A. Berger & Aaron D. Twerski, Correspondence, From the Wrong End of the Telescope: A Response to Professor David Bernstein , 104 M ICH .
L.
R EV . 1983 (2006); Bernstein, supra note 74.

156 BROOKLYN LAW REVIEW [Vol. 76:1 rates. Finally, we draw on work in moral psychology to explain why juror damage awards will likely approximate full compensatory damages instead of the partial damage awards that are integral to the theory.
1. Theoretical Problems: Proximate Cause Without
Cause-in-Fact
Professors Berger and Twerski’s theory abandons tort law’s causation-in-fact requirement because of the difficulties of proving causation in toxic tort cases. The only question is whether the defendant’s breach—here, a failure to disclose some risk—was a foreseeable cause of the plaintiff’s injury.
Note that the plaintiff must have suffered an injury, but is not required to prove that the defendant’s risky conduct caused the injury. The defendant need only have failed to disclose some risk—however small—to the plaintiff and the plaintiff must have suffered the type of injury within the scope of the risk not disclosed. The mechanics of Berger and Twerski’s tort reduces to one question: did the defendant breach a duty to the injured plaintiff?
106 It is of course possible to attach liability to breaches of duty, and this is quite common in criminal law. But it is not a feature of the tort system.
It is tempting, and certainly less confusing, to say that
Berger and Twerski’s theory simply attaches liability to a breach of duty, but that is not quite the case. The theory requires that a plaintiff have suffered some injury, but people frequently breach their duties without causing injury. The proposal thus has a conceptual muddle at its center: it randomly assigns liability based on a breach of duty, regardless of whether the breach of duty actually caused the harm. And of course, the “breach of duty” is entirely hypothetical, precisely because one does not know that in fact the harm was actually caused by the defendant.
2. Practical Problems: Unforeseen Consequences
We turn now to the potential consequences of their theory. Because plaintiffs under this theory are entitled to damages that will only be a portion of compensatory damages,
106
On this point, see Arthur Ripstein & Benjamin C. Zipursky, Corrective
Justice in an Age of Mass Torts , in P HILOSOPHY AND THE L AW OF T ORTS 214, 220-21
(Gerald J. Postema ed., 2001).

2010] DAUBERT AND ITS DISCONTENTS 157 disciplining the defendants under Berger and Twerski’s theory will be a function of the number rather than the magnitude of lawsuits. For example, in the case of drugs and disease, the number of lawsuits will turn on baseline rates of the disease
(as it would if Berger and Twerski’s theory had been applied to
Bendectin cases, which we now know to be nonteratogenic and not the cause of the injuries) rather than the real incidence of injury. This problem is most clearly understood through an example.
Consider the recent concerns over potential linkages between cell phones and brain cancer.
107 Cell phones are not necessary for the preservation of life; they simply increase the quality of life. Under Berger and Twerski’s theory, if it turns out that cell phone manufacturers did not warn of radiation risks that a reasonable person would want to know about, every person in the United States who uses a cell phone and is afflicted with brain cancer would have a cause of action against the manufacturer of his or her cell phone, regardless of the source of the injury. In other words, plaintiffs would have a cause of action regardless of the baseline cancer rates. Even if brain cancer rates had remained consistent for a century or more, thereby providing strong evidence that cell phones do not cause brain cancer, every injured person would have a cause of action against the manufacturer. Even in the unlikely event that damage awards are small in these cases, the number of cases (there are roughly 22,000 new cases of brain cancer a year) 108 would impose large costs on the manufacturer. But given the baseline, it would also very likely result in a windfall for many, if not all, of the 22,000 plaintiffs.
109 While those cell phone users who also suffered loss of informed choice—the injury for which plaintiffs recover damages under this theory— without developing cancer receive nothing, those developing cancer, whatever the cause, receive damages.
By providing recovery for unsubstantiated risks, Berger and Twerski almost certainly guarantee a regime in which doctors and pharmaceutical manufacturers provide too many warnings, which will have the dual effect of not only diminishing the force of warnings that reflect a truly serious
107
A Lexis-Nexis search for news articles with the words “cellular phones” and “cancer” pulls more than 3000 articles.
108
Brain Tumor Home Page , N AT ’ L C ANCER I NST ., http://www.cancer.gov/ cancertopics/types/brain (last visited Nov. 16, 2009).
109 id.

158 BROOKLYN LAW REVIEW [Vol. 76:1 risk, but also deterring people from taking medications that they should take.
110 If drugs like Bendectin should have come with warnings, as Berger and Twerski argue, then many other safe drugs will be covered in unnecessary warnings, thus diminishing the value of all warnings. A patient will have two choices: numb herself to the warnings that cover every pill bottle, or refuse treatment with medications that are necessary for her, or her fetus’, wellbeing.
These outcomes could very well be worse than the status quo, but in any event they plainly need to be accounted for in proposals like Berger and Twerski’s.
Finally, as with Professor Berger’s original theory, the proposed cause of action would likely lead to increased litigation with the predictable effect of driving even some safe drugs off the market:
While successful informed choice actions would individually be less remunerative for plaintiffs than successful causation actions would be, it would be much easier for plaintiffs to meet the burden of proof and persuade judges and juries to rule in their favor. Pharmaceutical companies would therefore likely face far more lawsuits for lack of informed choice than they ever faced for causation. Under such circumstances, “who in his right mind . . . would work on a product that would be used by pregnant women?”
111
. . . .
The jury is then supposed to ignore the causation and damages evidence they just heard and dispassionately decide whether the evidence of “risk” presented by the plaintiff’s experts warrants granting the plaintiff emotional distress damages based on lack of informed choice, knowing that if they rule for the defendants on this issue, the plaintiff will receive no compensation.
112
A growing body of work in psychology suggests that the sort of mental restraints that Berger and Twerski’s work requires of jurors may simply not be available to them.
113
110
Omission bias occurs when a more harmful act of omission is preferred to a less harmful act of commission. The Psychology of Patient Decision Making , supra note
50. One rather extreme example of omission bias is choosing to forego a polio vaccine during a polio outbreak because there is a one in a million chance of contracting polio from the vaccine itself.
111 supra note 105, at 1978 (footnotes omitted).
112 at 1975.
113
Joshua Green & John Haidt, How (and Where) Does Moral
Judgment Work?
, 6 T RENDS C OGNITIVE S CI . 517 (2002). One of the key ideas is
“automaticity”—i.e., “the mind’s ability to solve many problems, including high-level social ones, unconsciously and automatically.” Id. at 517.

2010] DAUBERT AND ITS DISCONTENTS 159
3. Juror Confusion: A Moral-Psychological Perspective
Berger and Twerski’s theory raises a serious question about jury decision making: when jurors are faced with a plaintiff suffering from some severe and tragic injury, and a defendant, often a corporate defendant, is shown to have failed to disclose some uncertain risk of causing the injury, it is quite possible that a juror’s natural instinct will be to fill the causation gap and punish the defendant in order to make the plaintiff whole. In this section, we draw on work in the field of moral psychology and the burgeoning field of experimental philosophy to demonstrate the seriousness of this risk. In the field of psychology, we focus on Mark Alicke’s Culpable Control
Model of Blame Attribution (“CCM”), which provides empirical evidence of the potential of Berger and Twerski’s theory to adversely affect jury decision making.
114 We also discuss Joshua
Knobe’s work with Ben Fraser on causation and ascriptions of blame which also supports the proposition that, all other things being equal, an actor who violates a moral norm is more likely to be viewed as responsible for a bad state of affairs than an actor whose conduct does not violate a moral norm.
115 The danger of Berger and Twerski’s theory is that it invites such misattributions of causation.
Alicke’s CCM provides a descriptive account of how blame attributions are made in ordinary circumstances and purports to show “the conditions that increase as well as mitigate blame and analyzes the process by which blame and mitigation decisions are made.” 116 Alicke’s work in the psychology of blame indicates that spontaneous evaluations of the bad outcome (here the injury to the plaintiff), will directly affect blame ascriptions, which jurors will then buttress by altering their causal control assessments.
117 When jurors’ blame ascription mode is turned on by evidence of corporate misfeasance or malfeasance, they tend “ to over ascribe control to human agency and to confirm unfavorable expectations ,” 118
114
See generally Mark D. Alicke, Culpable Control and the Psychology of
Blame , 126 P SYCHOL .
B ULL .
556 (2000).
115
Joshua Knobe & Ben Fraser, Causal Judgment and Moral Judgment: Two
Experiments , in 2 M ORAL P SYCHOLOGY 441, 442 (Walter Sinnott-Armstrong ed., 2008).
116 supra note 114, at 557.
117
Id. at 565 (“[S]pontaneous evaluations of the outcome directly affected blame ascriptions, which participants then buttressed by altering their causal control assessments.”).
118 at 558 (emphasis added).

160 BROOKLYN LAW REVIEW [Vol. 76:1 leading persons to “exaggerate evidence that establishe[d] [an actor’s] causal or volitional control and de-emphasize exculpatory evidence.” 119
In the context of Berger and Twerski’s theory, this could easily translate to confirming causation where none exists. To see how this works, consider the following study:
Participants learned that the driver was speeding either to hide an anniversary present or a vial of cocaine. Moreover, they learned that the driver encountered a number of environmental obstacles— slippery road, poor visibility, etc. Participants were then asked to say whether the driver’s speeding or the environmental factors played a greater role in causing the accident. The results showed that participants were more inclined to attribute the accident to the driver rather than the environmental conditions when the driver was hiding the cocaine than they were when he was hiding an anniversary gift.
120
The example above may map directly onto jury decision making, suggesting that jurors may be more inclined to attribute the accident to defendants when the defendants performed some antecedently immoral act. Under Berger and
Twerski’s theory, plaintiffs whose cases would have been dismissed on summary judgment for lack of evidence of causation will now have an opportunity to bring an action.
Once in court, plaintiffs’ lawyers will argue that the defendants immorally failed to warn of a risk. Alicke’s work suggests that
“cognitive shortcomings and motivational biases are endemic to blame,” 121 which means that actions under Berger and Twerski’s theory may likely lead to gross overcompensation, a factor that
Berger and Twerski did not consider. At a minimum, before substantial change to the tort system can be adopted, such concerns need to be accommodated.
Recent experiments conducted by Joshua Knobe and
Ben Fraser indicate that moral judgments can directly impact causal judgments.
122 As they acknowledge, “[i]t has long been known that people’s causal judgments can have an impact on their moral judgments.” 123 For instance, the knowledge that someone caused the death of another may lead to the
119
Id.
at 566.
120
Thomas Nadelhoffer, Bad Acts, Blameworthy Agents, and Intentional
Actions: Some Problems for Juror Impartiality , 9 P HILOSOPHICAL E XPLORATIONS 203,
207-08 (2006).
121 supra note 114, at 557.
122
Knobe & Fraser, supra note 115, at 441.
123
Id .

2010] DAUBERT AND ITS DISCONTENTS 161 conclusion that the behavior was morally wrong. Knobe and
Fraser proffer evidence supporting the opposite conclusion: negative moral judgments can lead to attributions of causation.
Knobe and Fraser analyze a hypothetical posed by Julia
Driver:
Lauren and Jane work for the same company. They each need to use a computer for work sometimes. Unfortunately, the computer isn’t very powerful. If two people are logged on at the same time, it usually crashes. So the company decided to institute an official policy. It declared that Lauren would be the only one permitted to use the computer in the mornings and that Jane would be the only one permitted to use the computer in the afternoons. As expected,
Lauren logged on the computer the next day at 9:00 am. But Jane decided to disobey the official policy. She also logged on at 9:00 am.
The computer crashed immediately.
124
When presented with this case, in which both persons were the but-for cause, but only one, Jane, breached a duty, people frequently respond that Jane caused the crash, not Lauren, despite the fact that Jane’s behavior almost perfectly resembles
Lauren’s. The major difference, the authors argue, is normative: Jane’s violation of her obligations influences participants’ causal judgments.
125
The problem with Knobe and Fraser’s study, however, is that it highlights, but does not clarify, the complexity of the legal concept of causation. In the example above, both Jane and
Lauren are but-for causes of the computer crash, but only Jane was the proximate cause of the computer crash.
126 Participants in Knobe and Fraser’s study may have been intending to express this notion when they ascribed causation to Jane. If true, Knobe and Fraser’s study highlights the common critique
124
Id.
at 442 (quoting Julia Driver, Attributions of Causation and Moral
Responsibility , in 2 M ORAL P SYCHOLOGY , supra note 115, at 413, 428).
125
There is a debate about whether the attributions of causation are due to the immorality of Jane’s antecedent acts or merely due to the atypicality of that act.
Knobe and Fraser highlight Julia Driver’s argument on atypicality:
Jane’s behavior seems quite atypical for a person in her position, whereas
Lauren’s behavior seems perfectly common and ordinary. So perhaps people’s tendency to pick out Jane’s behavior and classify it as a cause has nothing to do with its distinctive moral status. It might be that people simply classify
Jane’s behavior as a cause because they regard it as atypical.
Id.
; see also Julia Driver, Kinds of Norms and Legal Causation: Reply to Knobe and
Frase r and Deigh , in 2 M ORAL P SYCHOLOGY , supra note 115, at 459.
126
Jane’s use of the computer was the legal or proximate cause of the crash, in the sense that it involved an “unreasonable risk of: (1) causing harm to a class of persons of which the other is a member and (2) subjecting the other to the hazard from which the harm results.” R ESTATEMENT (S ECOND ) OF T ORTS § 430 (1965).

162 BROOKLYN LAW REVIEW [Vol. 76:1 of experimental philosophy: that opinion polling is often too blunt an instrument to tease out the concepts being studied.
127
Nonetheless, Knobe and Fraser’s findings do make the intuitively obvious point that jurors may be more likely to attribute causation to defendants who have performed some act—like failing to disclose a risk, however small—that makes the subsequent injury more foreseeable. And this is precisely what Berger and Twerski’s theory sets jurors up to do. In a typical case, a corporation will be shown to have not disclosed some risk with regard to a substance; a plaintiff that has ingested that substance and subsequently developed some tragic illness. Under Berger and Twerski’s theory, the jury is supposed to coolly and rationally put the question of causation out of their minds and simply punish the defendants for their failure to warn the plaintiffs. A more likely result, supported by Knobe and Fraser’s research, is that jurors will attribute causation in situations like these—either explicitly, in the form of a judgment, or tacitly, in the form of larger damage awards for violation of the failure to warn tort.
IV. SKAPP’ S S TUDY OF D AUBERT IN THE D ELAWARE
C OURTS : I S T HERE A P ROBLEM ?
The concerns about Daubert and the resultant solutions all turn on assumptions about the effects of Daubert . SKAPP funded a study by the National Center for State Courts to gauge these effects in Delaware courts.
128 That study found that the effects of Daubert have been minimal.
129 As SKAPP’s own
127
For further critiques of experimental philosophy, see Antti Kauppinen, The
Rise and Fall of Experimental Philosophy , 10 P HIL .
E XPLORATIONS 95 (2007);
S. Matthew Liao, A Defense of Intuitions , 140 P HIL .
S TUD . 247 (2007); Kirk Ludwig, The
Epistemology of Thought Experiments: First versus Third Person Approaches , 31
M IDWEST S TUD .
IN P HIL . 128 (2007); Ernest Sosa, Experimental Philosophy and
Philosophical Intuition , 132 P HIL .
S TUD .
99 (2006).
128
W ATERS & H ODGE , supra note 79, at 2. Delaware is among a number of states that have adopted Daubert at the state court level. Id.
at 5.
129
Id.
at 21. Waters and Hodge concluded:
The overall impact of Daubert has been minimal compared to what was originally feared when the decision came down from the U.S. Supreme Court.
Delaware Superior Court was not affected by excessive or unnecessary cost or delay as a result of Daubert . Although Daubert has created additional barriers to civil plaintiffs’ ability to bring their case to trial, the impact has been isolated to a small number, albeit important and complex, cases. As confirmed in other work in this area, challenges to expert witness testimony are not a frequent occurrence in either civil or criminal cases in the Delaware
Superior Court. The practice of holding Daubert hearings is even less frequent. Daubert motions appeared most frequently in mature cases ready

2010] DAUBERT AND ITS DISCONTENTS 163 study would seem to be credible evidence to judge its positions, we discuss it briefly below.
130
Prior to SKAPP’s study, many of the extant studies of the effects of the Daubert trilogy relied on content analysis of appellate opinions.
131 Because studies of appellate opinions are subject to selection bias, the authors of the SKAPP-funded study set out to directly explore whether and to what extent the Daubert trilogy has affected the ways courts handle expert witness testimony. The authors researched products liability and criminal cases in Delaware preDaubert from the years
1989-1993 and postDaubert from the years 1999-2004.
132 The authors surveyed all 126 product liability cases during that time period as well as 1950 cases of felony rape and murder.
133
Additionally, they conducted interviews with judges and lawyers about Daubert ’s effect on the case.
134 The authors found only twenty cases in which a litigant moved to exclude expert witness testimony.
135 Ten of the cases were preDaubert and ten were postDaubert.
136 Of the twenty disputes many revolved around “duo-experts,” involving, for example, a bio-engineering expert to explain the causal mechanism of an injury and a medical expert to explain the injury itself.
137 Usually, the motions were to ensure that the expert testifying about causation did not testify about injury and the expert testifying about injury did not testify about causation.
138 for trial, and judges typically rendered a ruling on the expert’s deposition and attorneys’ briefs. Daubert hearings were reserved for complex civil cases and occasionally entertained during a criminal trial.
Id.
130
Note that the small numbers impair its generalizability, but there should be no question about bias.
131
See Henry F. Fradella, Lauren O’Neill & Adam Fogarty, The Impact of
Daubert on Forensic Science , 31 P EPP .
L.
R EV . 323 (2004); Jennifer L. Groscup et al.,
The Effects of Daubert on the Admissibility of Expert Testimony in State and Federal
Criminal Cases , 8 P SYCH .
P UB .
P OL ’ Y & L. 339, 344 (2002); D. Michael Risinger,
Navigating Expert Reliability: Are Criminal Standards of Certainty Being Left on the
Dock?
, 64 A LB .
L.
R EV . 99 (2000); Rob Robinson, Does CSI Lie? The New
Institutionalism and the Treatment of Forensic Evidence by Federal Courts under
Daubert, (Apr. 7, 2005) (paper presented at the meeting of The Midwest Political
Science Association).
132
W ATERS & H ODGE , supra note 79, at 8, 10.
133 at 10.
134 at 2.
135 at 15.
136
Id.
137
Id.
138
Id.

164 BROOKLYN LAW REVIEW [Vol. 76:1
The authors’ findings and conclusion disconfirm
SKAPP’s prediction that Daubert portends disaster for plaintiffs. The authors found that motions in limine were treated roughly the same before and after Daubert , 139 but that postDaubert, the disposition less often resulted in a jury or bench trial.
140 And when the motions were granted, a partial exclusion of the testimony or a limiting of the scope of admissible testimony resulted more frequently than a complete exclusion of an expert.
141 They found “no differences between the preDaubert and postDaubert cases in the number of summary judgments entered.” 142 The courts were not overrun by cost or delay, due in no small part to judges’ ability to handle the new challenges.
143 Overall, Daubert hearings were found to be isolated to a small number of important and complex cases.
144
Expert testimony was challenged in only sixteen percent of product liability cases and eight percent of felony murder and rape cases.
145 The study concluded that “[t]he overall impact of
Daubert has been minimal compared to what was originally feared when the decision came down from the U.S. Supreme
Court.” 146
SKAPP argues elsewhere that Daubert has chilled plaintiffs from bringing suits.
147 Evidence supporting this proposition is said to be in the results of a 2002 RAND
Institute study, which “found that after an initial spike in the number of challenges to expert testimony, the incidence began to fall off dramatically.” 148 From this SKAPP concludes that the fall in challenges occurred because “plaintiffs increasingly decided not to bring actions that relied heavily upon scientific testimony unless that testimony met the Daubert standards.” 149
However, the decrease in the number of Daubert challenges might just as well be due to the fact that defendants choose not to pursue Daubert challenges or because the system quickly settled back into something approximating its previous status
139
Id.
140
Id.
141
Id.
142
Id.
143
Id.
at 21.
144
Id.
145
Id.
146
Id.
147
SKAPP, D AUBERT , supra note 16, at 12-13.
148
Id.
at 12.
149
Id.

2010] DAUBERT AND ITS DISCONTENTS 165 quo. Interestingly, SKAPP’s Delaware study confirms this point. Although the evidence gathered from Delaware suggests that SKAPP’s critiques may miss the mark, obviously much more empirical work is necessary to fully assess the effects of the Daubert trilogy in state courts.
150
V. C ONCLUSION
We end where we began. Daubert has not been an unmitigated success, but the recent criticisms of it, whatever their motivation, seem more likely to achieve an unjustified redistribution of wealth with predictable negative social consequences. We understand the impulse that yearns to provide the unfortunate person solace, but we do not understand the failure to contextualize the consequences of redistribution schemes, many of which may make more persons worse rather than better off.
The SKAPP study discussed in Part IV suggests that critics of Daubert are focusing on the wrong implications of the precedent in formulating their criticisms and alternate theories. For example, Berger and Twerski assume that
Daubert will result in fewer plaintiffs being able to bring successful toxic tort claims. However, the real problem with
Daubert —the problem that Berger and Twerski do not address—is epistemological in nature, and concerns the conditions that permit rational deliberation about expert testimony. This problem raises serious questions about the dangers of leaving fact finders to choose among experts based on credentials, demeanor, or epistemically arbitrary criteria.
150
L LOYD D IXON & B RIAN G ILL , C HANGES IN THE S TANDARDS FOR A DMITTING
E XPERT E VIDENCE IN F EDERAL C IVIL C ASES S INCE THE D AUBERT D ECISION xiii (2001) (“It appears that judges are indeed doing what they were directed to do by the Supreme Court: they are increasingly acting as gatekeepers for reliability and relevance, they are examining the methods and reasoning underlying the evidence, and they appear to be employing general acceptance as only one of many factors that enter their reliability assessments.”); see also Richard J. Arsenault & John Randall Whaley, Will Daubert Challenge Your Class
Certification?
, T RIAL , July 2009, at 38, 39 (“Courts have wrestled with what admissibility standard to apply at the class certification stage when parties offer expert testimony.”);
Fradella, O’Neill & Fogarty, supra note 131; Paul C. Giannelli, Daubert Revisited , 41 C RIM .
L.
B ULL .
302 (2005) (noting that “federal courts demand stringent epidemiological studies in toxic tort cases and then accept such vacuous reasoning in criminal cases”); Jeremy
Buchman, The Legal Model and Daubert ’s Effect on Trial Judges’ Decisions to Admit
Scientific Expert Testimony (Apr. 15-18, 2004) (paper presented at the Midwest Political
Science Association Annual meeting), http://www.allacademic.com//meta/p_mla_apa_ research_citation/0/8/3/3/9/pages83392/p83392-1.php (using quantitative analysis to find “no evidence that the outcomes of admissibility rulings are affected either by the Supreme
Court’s holding in Daubert or the prospect of reversal by a superior court.”).

166 BROOKLYN LAW REVIEW [Vol. 76:1
The solution is not relaxing the overall standard for expert testimony, nor is it creating new theories of liability based on a hodgepodge of otherwise inadmissible evidence, particularly if those theories will lead to excessive and unnecessary warnings.
Substantive justice in the context of expert testimony will be the result of procedures that lead to the truth.
The real problem with Daubert cannot be corrected by a formal test or by the redistribution programs discussed above.
The real problem that Daubert highlights is how incompatible the use of incomprehensible scientific or technical evidence is with basic notions of justice. The solution is not more injustice that happens to be more equally distributed, or more injustice in the name of helping the unfortunate. The solution is to deal with the problem—the informational vulnerability of the law.
Daubert should be extended rather than cut back. All evidence, not just lay evidence, should truly be tested by relevance and reliability. Ironically, the Daubert court inadequately appreciated the relevance component rather than inadequately treated the reliability component, which is the standard critique of the case. Evidence cannot be relevant unless it can be understood. Daubert requires the trial judge to understand the evidence, but does not require the trial judge to require the jury to understand it. That is the deep flaw in Daubert and the flaw that should be corrected by rejecting the deferential model of decision making it encourages.

Michael J. Borden †
I NTRODUCTION
The central questions of contract law and theory focus on the enforceability of promises.
1 For the contract theorist, the question takes the form, why should the law enforce promises?
For the lawyer, the question may often be, which promises will the law enforce? For parties to contracts, the salient question is often, what will happen if I (or my counterpart) fail to honor my promise? Implicit in each of these questions is both an ex ante and an ex post perspective: we care about whether certain utterances will be deemed worthy of the law’s attention, but we also care about how the law will respond to a broken promise.
For the theorist, the ex ante and ex post questions are often intertwined, for one cannot satisfactorily articulate a rationale for enforcing promises without taking into account the consequences for the promisee if a promise were broken and the law provided no remedy. Students of contract law learn that the doctrinal bases of contractual obligation
(consideration, promissory estoppel, unjust enrichment) correspond with the measures of damages (expectation, reliance, restitution).
It is thus not surprising that so much scholarly attention is devoted to questions of enforceability and damages.
Yet there is one doctrine in contract law that lies at the intersection of these two questions that has received very little attention in literature, and no attention whatsoever for its ex
†
Associate Professor of Law, Cleveland-Marshall College of Law, Cleveland
State University. This article benefitted from the input of the participants at the
Fourth International Conference on Contract Law, the Central States Legal
Scholarship Conference, and the Indiana University (Indianapolis) Law School Faculty
Scholarship Colloquium. I also appreciate the excellent research assistance of Ashleigh
Elscesser and the financial support of the Cleveland-Marshall Fund.
1
Melvin Aaron Eisenberg, The Responsive Model of Contract Law , 36 S TAN .
L.
R EV . 1107, 1112 (1984) (“The first great issue in contract law is what kinds of promises the law should enforce . . . .”).
167

168 BROOKLYN LAW REVIEW [Vol. 76:1 ante implications. The subject of this article is the doctrine of adequate assurances of performance. The doctrine is an innovation of twentieth-century contract law and functions as a mechanism to assist in sorting out the consequences of prospective non-performance.
In contract law, a breach cannot occur until the time for performance has passed. But sometimes, it becomes obvious that one party is not going to perform. When that happens, the injured party often would like to pack it in and declare the contract at an end. But doing so poses risks. If the injured party jumps the gun and stops performing prematurely, he risks being deemed to have breached the contract himself. One way that contract law responds to this dilemma is through the doctrine of anticipatory repudiation. Under this doctrine, certain actions may constitute a present breach even before the time for performance has passed. A promisor commits a present breach by anticipatory repudiation when he either unequivocally expresses his intention not to perform his contractual obligations, or intentionally takes some action that renders such performance impossible. Anticipatory repudiation helps disappointed promisees to efficiently organize their affairs and find alternative arrangements, without having to wait until a performance deadline that may be fairly distant.
But anticipatory repudiation can be a trap. An impatient promisee might misconstrue signals from an underperforming promisor as a repudiation when no legally cognizable repudiation has, in fact, occurred.
2 In such a case, the injured promisor who thought he was entitled to move on from an impaired relationship may find himself liable for breach of contract. A well-counseled promisee who believes that his contractual partner will not perform, but who is not certain that he has received the requisite unequivocal statement of intention not to perform that constitutes an anticipatory repudiation, can pursue another avenue to extricate himself from a troubled contract.
When adopted in 1961, Article 2 of the Uniform
Commercial Code introduced to American contract law the doctrine of adequate assurances to address the problem of the
2
See McCloskey & Co. v. Minweld Steel Co., 220 F.2d 101 (3d Cir. 1955);
Taylor v. Johnston, 539 P.2d 425 (Cal. 1975); E.
A LLAN F ARNSWORTH , C ONTRACTS
§ 8.20, at 662-66 (4th ed. 2004).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 169 insecure party.
3 A promisee who has “reasonable grounds for insecurity” about the other party’s ability or willingness to perform “may demand in a record adequate assurance of due performance and until the party receives the assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.” 4 Often, assurances are utterly straightforward, with the promisor merely affirming his intention to perform his contractual obligations. Sometimes, however, they involve new undertakings, such as a promise to furnish a personal guaranty or other measures to assuage the promisee’s insecurity. If the promisor does not promptly give the required assurances, he is deemed to have repudiated the contract, which means that the insecure party becomes entitled to stop performing. His remaining obligations are discharged and he can get on with his life. The purpose of the doctrine is thus to relieve the insecure party of the risk and uncertainty involved in relying on anticipatory repudiation as an avenue to a finding of breach.
In effect, invoking the doctrine shifts the burden to the underperforming promisor to affirm his intention to perform.
What little has been written on the subject of adequate assurances has focused on analyzing its design and effectiveness as a little dance that contracting parties engage in on the road to a finding of breach or repudiation, or its effectiveness in helping the parties avoid such outcomes.
5
Similarly, the case law generated by the doctrine (some two hundred and fifty cases) has almost entirely centered on the fact-intensive issues of whether a promisee actually had reasonable grounds for insecurity, whether she had properly made her demand for assurances, or whether the assurances demanded were inappropriate.
6 In contract law casebooks, the doctrine is invariably included in the materials on
3
See Zipporah Batshaw Wiseman, The Limits of Vision: Karl Llewellyn and the Merchant Rules , 100 H ARV .
L.
R EV . 465 (1987).
4
U.C.C. § 2-609(1) (revised 2003).
5
See, e.g.
, Richard Craswell, Insecurity, Repudiation, and Cure , 19 J.
L EGAL
S TUD . 339 (1990); Larry T. Garvin, Adequate Assurance of Performance: Of Risk,
Duress, and Cognition , 69 U.
C OLO .
L.
R EV . 71 (1998); Robert A. Hillman, Keeping the
Deal Together After Material Breach — Common Law Mitigation Rules, the UCC, and the Restatement (Second) of Contracts , 47 U.
C OLO .
L.
R EV . 553 (1976); Keith A. Rowley,
A Brief History of Anticipatory Repudiation in American Contract Law , 69 U.
C IN .
L.
R EV . 565 (2001); Celia R. Taylor, Self-Help in Contract Law: An Exploration and
Proposal , 33 W AKE F OREST L.
R EV . 839 (1998); James J. White, Eight Cases and
Section 251 , 67 C ORNELL L.
R EV . 841 (1982).
6 infra

170 BROOKLYN LAW REVIEW [Vol. 76:1 consequences of non-performance and remedies.
7 To read all of the available primary and secondary source material on the doctrine, one would think that it relates solely, and not in a terribly important way, to the back-end component of the enforceability question that lies at the heart of contract law.
But contract scholars have entirely missed the fact that the doctrine of adequate assurances implicates that most fundamental question of contract law: which promises are worthy of the law’s enforcement apparatus. In this article, I recharacterize the doctrine as one with significant implications for the question of which promises the law should enforce. My aim is to focus readers’ attention on the promissory character of adequate assurances. By this I mean that I wish to investigate whether the undertakings contained in some of the more substantial assurances are properly to be considered promises with their own independent validity; that is, contracts. Contracts that can be sued on and give rise to damages apart from those that could be recovered under the parties’ original agreement. Contracts that stand alone and endure in force even after the original contract from which they arose has ceased to be in effect; or whether they should be conceived of as modifications of the original contract, or perhaps neither.
Part I provides the reader with an account of the development of the doctrine of adequate assurances from its earliest roots in the doctrine of anticipatory repudiation. Part
II explains the workings of the modern doctrine in the context of a recent case. In Part III, I argue that promises made in response to a demand for adequate assurances can be understood as a class of enforceable promises. In Parts IV and
V, I attempt to work out the back-end consequences that would result from treating assurances as enforceable promises.
8
7
See, e.g.
, R ANDY E.
B ARNETT , C ONTRACTS , C ASES AND D OCTRINE 900-05
(4th ed. 2008); C HARLES L. K NAPP , N ATHAN M.
C RYSTAL & H ARRY G.
P RINCE ,
P ROBLEMS IN C ONTRACT L AW 839-40 (6th ed. 2007); R OBERT S.
S UMMERS & R OBERT A.
H ILLMAN , C ONTRACT AND R ELATED O BLIGATION 864-80 (4th ed. 2001).
8
This article is conceived as the first of a pair. Its focus is primarily doctrinal (arguing that adequate assurances can be understood as enforceable promises) and practical (considering the consequences of such an understanding). The follow-up article examines the theoretical implications raised by this article.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 171
I.
D OCTRINAL B ACKGROUND
The roots of the doctrine of adequate assurances lie in the legal and analytical quandary that confronts a party to a contract who awaits performance from an obligor who seems unlikely to perform.
9 This dilemma arises from the fact that until the time for performance has passed, contract law, as a matter of both logic and doctrine, deems that no breach can occur, for the obligor might still perform his contractual obligations in a timely manner.
10 If I hire a neighborhood teenager to mow my lawn on Saturday, he has until Saturday to perform. If he tells me on Thursday evening that his friend is about to leave for the beach for the weekend and he is thinking about joining him, he has not breached. He can only breach by failing to mow my lawn on Saturday.
So what am I to do? I need my lawn trimmed on
Saturday. If I do not arrange for a substitute mower soon, I may be stuck with an ill-kempt lawn for my garden party.
Common sense would suggest that as soon as I see my young friend load his beach bag into his friend’s car, I should call another enterprising local youth and arrange to have her come and cut the grass. But if I do so, and the original obligor feels the pangs of conscience and returns to honor his contract, I will be obligated to pay both the replacement and the prodigal. If I refuse to perform my part of the original contract, the law will hold me liable for breach of contract. Thus, an obligee who encounters a contracting partner who appears unwilling to perform faces a significant legal risk that impedes his ability to efficiently plan his affairs. This problem is not new, nor is the legal doctrine that purports to address it.
A similar dilemma faced the plaintiff in Hochster v. De la Tour , 11 the English case that is widely considered to have established the modern law of anticipatory repudiation.
12 In
April 1852, Hochster and De la Tour entered into a contract
9 supra note 5, at 71-76.
10
See generally Alan G. Dowling, A Right to Adequate Assurance of
Performance in All Transactions: U.C.C. § 2-609 Beyond Sales of Goods , 48 S.
C AL .
L.
R EV . 1358, 1358-59 (1975).
11
(1853) 118 Eng. Rep. 922 (Q.B.); 2 El. & Bl. 678.
12
In his excellent article tracing the origins of the law of anticipatory repudiation, Keith Rowley explains that the common wisdom that treats Hochster as the fountainhead of anticipatory repudiation is mistaken. He discusses several cases in
America and England that predate Hochster in recognizing the right to sue for breach before the time for performance. To trace the earliest roots of anticipatory repudiation, see Rowley, supra note 5, at 571-600.

172 BROOKLYN LAW REVIEW [Vol. 76:1 whereby De la Tour would employ Hochster as a courier for three months, beginning on June 1, 1852 at a rate of 10 pounds per month.
13 On May 11, 1852, De la Tour informed Hochster that he had made other arrangements and would not be honoring the contract.
14 Hochster sued De la Tour on May 22,
1852.
15 He argued that De la Tour’s renunciation of his promise constituted a breach of the contract, even though the time for performance had not yet arrived.
16 De la Tour’s answer, naturally, was that there could be no breach before the first of
June.
17 After the jury found for Hochster, De la Tour moved to arrest the judgment.
18
De la Tour argued that to prevail in his suit, Hochster would have to stand “ready and willing” to perform the entire contract to its conclusion.
19 He insisted that by finding other similar employment, Hochster had forfeited his right to sue on the contract.
20 While this argument may sound almost silly to the modern ear, it was fully consonant with the legal environment of the day. Consider Justice Holmes’ roughly contemporaneous observation that “the degree of [the promisor’s] ability at any moment before he was called on to pay [is] no concern of the [promisee].” 21
The Lord Chief Justice disagreed with the defendant, and in so doing, he initiated a major change in Anglo-American law:
If the plaintiff has no remedy for breach of the contract unless he treats the contract as in force, and acts upon it down to the 1st June
1852, it follows that, till then, he must enter into no employment which will interfere with his promise “to start with the defendant on such travels on the day and year,” and that he must then be properly equipped in all respects as a courier for a three months’ tour on the continent of Europe. But it is surely much more rational, and more for the benefit of both parties, that, after renunciation of the agreement by the defendant, the plaintiff should be at liberty to consider himself absolved from any future performance of it, retaining his right to sue for any damage he has suffered from the breach of it. Thus, instead of remaining idle and laying out money in
13
Hochster , 118 Eng. Rep. at 922.
14 id.
at 924.
15 id.
16 id.
17
Id.
18
Id .
19
Id .
20
Id.
at 926-27.
21
Lowe v. Harwood, 29 N.E. 538, 539 (Mass. 1885).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 173 preparations which must be useless, he is at liberty to seek service under another employer, which would go in mitigation of the damages to which he would otherwise be entitled for a breach of contract.
22
As for Hochster’s right to an immediate remedy, the court noted that
The man who wrongfully renounces a contract into which he has deliberately entered cannot justly complain if he is immediately sued
. . . by the man whom he has injured: and it seems reasonable to allow an option to the injured party, either to sue immediately, or to wait till the time when the act was to be done, still holding it as prospectively binding for the exercise of this option, which may be advantageous to the innocent party, and cannot be prejudicial to the wrongdoer.
23
Today’s lawyers and law students are well aware of the modern legal response to this problem: anticipatory repudiation. According to the Restatement (Second) of
Contracts, “[w]here an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.” 24 This terse provision neatly summarizes the current doctrine that aims to resolve my conflict with my derelict neighbor.
But my problem has not completely gone away. For another provision of the Restatement explains what counts as a repudiation.
A repudiation is
(a) a statement by the obligor to the obligee indicating that the obligor will commit a breach that would of itself give the obligee a claim for damages for total breach under §243 or
(b) a voluntary affirmative act which renders the obligor unable or apparently unable to perform without such breach.
25
The cases applying the doctrine of anticipatory repudiation have consistently held that an obligor must manifest an unambiguous intention “not to perform except on conditions which go beyond the contract” before he will be
22
Hochster , 118 Eng. Rep. at 926.
23
Id.
24
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 253(1) (1981).
25
Id.
§ 250.

174 BROOKLYN LAW REVIEW [Vol. 76:1 deemed to have repudiated.
26 So where does that leave me on
Thursday evening? The teenager has only told me that he is thinking about going to the beach. He has not said when he will return. He has not said that he will not perform. Perhaps his words and actions have amounted to a repudiation; perhaps not. Thus the law of repudiation has addressed one problem and introduced another. By inviting the obligee to treat a repudiation as a present breach, the doctrine has replaced a regime that, for all its flaws, at least provided a form of certainty (no breach can occur before the time for performance has passed) with a doctrine that simply shifts the locus of legal risk to the calculation of whether or not the obligor has indeed committed a repudiation. If the obligee is found to have been mistaken about the repudiation, he will likely have committed a breach himself.
So again, where does all this leave me on Thursday evening? According to Karl Llewellyn, it leaves me feeling insecure. Llewellyn recognized that the doctrine of anticipatory repudiation was unsatisfactory in the way we have just described. He was sensitive to the commercial concerns of the promisee who doubts the willingness or ability of the promisor to perform, but who cannot avail himself of the remedy of present breach by anticipatory repudiation, or at least has concerns about his ability to resort to that doctrine.
In 1941, when Llewellyn led the National Conference of
Commissioners on Uniform State Laws in its endeavor to craft what became Article 2 of the Uniform Commercial Code, he included in his first draft a provision that proved to be contract law’s first recognition of the concept of insecurity.
27 This first tentative step was a provision that stated that a buyer on credit warrants to its seller that it “will give the seller no reasonable grounds for insecurity in regard to his continuing ability and willingness to perform.” 28 Effectively, this iteration of the concept of insecurity would have created an implied term that could be sued upon if breached. But this initial, limited
26
Id.
§ 250 cmt. 3 (citing U.C.C. § 2-610 cmt. 2 (revised 2003)).
27
See A N A CT R ELATING TO S ALES OF P ERSONAL P ROPERTY AND TO
C ONTRACTS FOR THE S ALE T HEREOF , AND TO R IGHTS , O BLIGATIONS , AND R EMEDIES
A RISING OUT OF S UCH S ALES OR C ONTRACTS AND IN C ONNECTION WITH F INANCING OR
O THER T RANSACTIONS C OMMONLY A SSOCIATED T HEREWITH , AND TO M AKE U NIFORM
THE L AW OF S UCH M ATTERS § 16-C (1941), reprinted in 1 U NIFORM C OMMERCIAL C ODE
C ONFIDENTIAL D RAFTS 3 (Elizabeth Slusser Kelly & Ann Puckett eds., 1995).
28 at 73.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 175 provision grew into a much more complete remedy for a party who senses an impending breach.
When Article 2 was finally completed, it included section 2-609, titled “Right to Adequate Assurance of
Performance.” Official Comment 1 eloquently states the rationale for and purpose of the doctrine.
The section rests on the recognition of the fact that the essential purpose of a contract between commercial men is actual performance and they do not bargain merely for a promise, or for a promise plus the right to win a lawsuit and that a continuing sense of reliance and security that the promised performance will be forthcoming when due, is an important feature of the bargain. If either the willingness or the ability of a party to perform declines materially between the time of contracting and the time for performance, the other party is threatened with the loss of a substantial part of what he has bargained for. A seller needs protection not merely against having to deliver on credit to a shaky buyer, but also against having to procure and manufacture the goods, perhaps turning down other customers.
Once he has been given reason to believe that the buyer’s performance has become uncertain, it is an undue hardship to force him to continue his own performance. Similarly, a buyer who believes that the seller’s deliveries have become uncertain cannot safely wait for the due date of performance when he has been buying to assure himself of materials for his current manufacturing or to replenish his stock of merchandise.
29
With this full-throated defense of his innovative scheme to protect the insecure party, Llewellyn presented to the
American legal community a tool that has proved useful in managing the risks that often arise when a party appears unlikely to perform. Let us consider the text of the provision.
Subsection one states,
A contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. If reasonable grounds for insecurity arise with respect to the performance of either party, the other may demand in a record adequate assurance of due performance and until he receives the assurance may if commercially reasonable suspend any performance for which it has not already received the agreed return.
30
The provision comprises several legally significant components. First, one must establish reasonable grounds for insecurity.
31 Second, if such grounds exist, the Code requires
29
U.C.C. § 2-609 cmt. 1 (revised 2003).
30
Id.
§ 2-609(1).
31
Id.

176 BROOKLYN LAW REVIEW [Vol. 76:1 that a demand for assurances be made in writing.
32 Third, the assurances must be adequate.
33 Fourth, the insecure party may suspend his performance for a commercially reasonable time until he receives the assurances.
34 Finally, if the recipient of the demand does not provide the assurances within a reasonable time, the insecure party is entitled to treat this intransigence as a repudiation.
35
Clearly, each of these elements introduces significant levels of factual and legal uncertainty. What counts as reasonable grounds for insecurity?
36 What assurances are adequate?
37 How is one to formulate a demand so as to put the promisor on notice of his potential liability under section 2-
609?
38 What counts as a reasonable time for the promisee to wait to receive assurances?
39 The Code’s minimally helpful response is to inform us that “the reasonableness of grounds for insecurity and the adequacy of any assurance offered shall be determined according to commercial standards.” 40
The Official Comments attempt to furnish a somewhat more textured method for evaluating some of the factual issues that arise when an insecure party invokes section 2-609. For example, “a report from an apparently trustworthy source that the seller had shipped defective goods or was planning to ship them would normally give the buyer reasonable grounds for
32
Id.
33
Id.
34
Id.
35
Id.
36
Smyers v. Quartz Works Corp., 880 F. Supp. 1425 (D. Kan. 1995)
(failure to respond to attempts to communicate); Creusot-Loire Int’l, Inc. v. Coppus
Eng’g Corp., 585 F. Supp. 45 (S.D.N.Y. 1983) (reliable information from others who contract with the promisor that the promisor’s goods are defective).
37
Smyers , 880 F. Supp. 1425; Creusot-Loire , 585 F. Supp. 45 (demand for letter of credit and extension of warranty upheld as adequate and not excessive).
38
The language of section 2-609 requires that the demand be in writing, though many courts have relaxed this requirement. In fact, the courts have often been extremely flexible about the required form of the demand. See infra Part III. Somewhat surprisingly, several courts have found that demand has been made and assurances given where the parties themselves did not realize that they had done so. See Am.
Research Bureau, Inc. v. E-Systems, Inc., 663 F.2d 189, 196 n.19 (D.C. Cir. 1980);
AMF, Inc. v. McDonald’s Corp., 536 F.2d 1167, 1171 (7th Cir. 1976); James J. White,
Eight Cases and Section 251 , 67 C ORNELL L.
R EV . 841, 841-42 (1982) (discussing cases in which assurances were upheld despite the lack of a formal written demand). But see
Cont’l Grain Co. v. McFarland, 29 U.C.C. Rep. Serv. 512 (4th Cir. 1980) (demand for assurances must be in writing).
39
The courts do not appear eager to either extend the thirty-day limit suggested by the code or require promisors to comply with a demand more promptly than within thirty days. See, e.g.
, Smyers , 880 F. Supp. at 1432-33.
40
U.C.C. § 2-609(2) (revised 2003).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 177 insecurity.” 41 This bit of guidance is tepid, but mainly inoffensive. The Comments’ advice for assessing the adequacy of the assurance, however, verges on risible:
Where the buyer can make use of a defective delivery, a mere promise by a seller of good repute that he is giving the matter his attention and that the defect will not be repeated, is normally sufficient. Under the same circumstances, however, a similar statement by a known corner-cutter might well be considered insufficient without the posting of a guaranty or, if so demanded by the buyer, a speedy replacement of the delivery involved.
42
The attempt to distinguish between reputable actors and known corner-cutters may perhaps appeal to common sense, and it may comport with Llewellyn’s overall mission of crafting a law that rings true for “commercial men,” 43 yet this suggestion could not escape the gentle derision of the drafters of the New York State Law Revision Commission Report on the
UCC.
44 The Report noted that “it is doubtful whether courts would be receptive to an offer of evidence that the opposite party was a ‘known corner-cutter’ in view of the danger that this issue might lead to a major digression, with the dangers of prejudice presented by an exchange of name-calling.” 45
The picture that emerges from all of this is of a wellconceived doctrine that addresses a significant problem in a logical way, but one that is likely to raise challenging factual issues in litigation, undercutting its effectiveness as a measure to create certainty and predictability in commercial affairs. In fact, a large majority of the reported cases on adequate assurances deal with the issue of whether the promisee in fact had reasonable grounds for insecurity.
46
41
Id.
§ 2-609 cmt. 3.
42
Id . § 2-609 cmt. 4.
43
Franklin G. Snyder, Clouds of Mystery: Dispelling the Realist Rhetoric of the Uniform Commercial Code , 68 O HIO S T .
L.
R EV . 11, 11 (2007).
44
S TATE OF N.Y.
L AW R EVISION C OMM ’ N , S TUDY OF U NIFORM C OMMERCIAL
C ODE N O .
65, at 538 (1955).
45
Id.
46
Danzig v. AEC Corp., 224 F.3d 1333, 1338 (Fed. Cir. 2000) (promisor missing deadlines created grounds for insecurity); Pittsburgh-Des Moines Steel Co. v.
Brookhaven Manor Water Co., 532 F.2d 572, 581 (7th Cir. 1976) (reasonable grounds for insecurity must be based on events occurring after contract negotiations; subjective fear that obligee will not perform held insufficient); Nat’l Ropes, Inc. v. Nat’l Diving
Serv., Inc., 513 F.2d 53, 61 (5th Cir. 1975) (no reasonable grounds for insecurity); La.
Power & Light Co. v. Allegheny Ludlum Indus., 517 F. Supp. 1319, 1322-23 (E.D. La.
1981) (reasonable grounds for insecurity where seller suggested a disinclination to perform because of rising costs); Copylease Corp. of Am. v. Memorex Corp., 403 F.

178 BROOKLYN LAW REVIEW [Vol. 76:1
A much smaller group of cases concerns whether the assurances demanded were adequate or excessive, 47 and several cases address the form of the demand.
48 Courts may deny relief to insecure promisees who have demanded assurances that exceeded what the court found to be adequate. In Scott v.
Crown , the parties had entered into several contracts for the purchase and sale of wheat.
49 In the course of discussions with its banker, Scott learned that Crown “was not the best grain trader” and was advised to look into Crown’s reputation.
50 An agent from the Department of Agriculture informed Scott that other farmers had complained about Crown’s failure to pay them.
51 Scott acted on this information by demanding assurances from Crown in the form of immediate payment of all amounts due (the contracts called for payment within 30 days of delivery).
52 The Colorado Court of Appeals ruled that
Scott did not, as a matter of law, have the right to suspend its performance after demanding assurances, because he had
“demanded performance beyond that required by the contract.” 53
Although only one other court has agreed with the Scott court in condemning assurances that go beyond the original undertakings of the contract, 54 the ruling highlights an interesting doctrinal conflict inherent in the process of demanding assurances. However, in their treatise on the
Uniform Commercial Code, White and Summers assert that the approach the Scott court took is incorrect. As they explain,
“[a]ll demands for adequate assurance call for more than was originally promised under the contract, and that is precisely
Supp. 625, 630-31 (S.D.N.Y. 1975) (promisor’s statement that contract was not binding created reasonable grounds for insecurity).
47
Scott v. Crown, 765 P.2d 1043, 1046-47 (Colo. App. 1988); Pittsburgh-
Des Moines Steel Co.
, 532 F.2d at 572.
48
Nat’l Ropes , 513 F.2d at 60-61 n.9; Auto. Energy Sys., Inc. v. Fibers &
Fabrics of Ga., Inc., 298 S.E.2d 328, 329-30 (Ga. Ct. App. 1982); Bodine Sewer v. E. Ill.
Precast, Inc., 493 N.E.2d 705, 712 (Ill. App. Ct. 1986); Teeman v. Jurek, 251 N.W.2d 698,
701 (Minn. 1977). However, in some cases an oral demand for assurances has sufficed.
See Am. Research Bureau, Inc. v. E-Systems, Inc. 663 F.2d 189, 195-96 (D.C. Cir. 1980);
Diskmakers, Inc. v. DeWitt Equip. Corp., 555 F.2d 1177, 1180 (3d Cir. 1977).
49
Scott , 765 P.2d at 1044-45.
50 at 1045.
51
Id.
52
Id.
53
Id.
at 1046-47.
54
Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co., 532 F.2d
572, 581 (7th Cir. 1976) (demand was excessive because it sought more than what was originally promised under the contract).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 179 what 2-609 authorizes.” 55 Yet one of the definitions of anticipatory repudiation is a manifestation of unwillingness to continue to perform except upon conditions that go beyond the terms of the contract.
56 Despite what is probably a doctrinal error on the part of the Scott court, if an insecure party demands excessive assurances, he exposes himself to some risk of committing a repudiation.
When one considers that the bulk of adequate assurance cases involve disputes over whether a promisee actually had adequate grounds for insecurity, and that the promisee not infrequently loses the case on this ground, 57 a somewhat unflattering picture of the doctrine emerges. Recall the original problem of the promisee who foresees a breach by the promisor: before the middle of the 19 th Century, he had no recourse but to wait until the time for performance passed. With the advent of anticipatory repudiation, he could treat certain behavior as a breach, but he risked being deemed the breacher if he guessed wrong about the law’s eventual interpretation of the promisor’s actions. Llewellyn’s innovation purported to provide a procedure to benefit the promisee who did not believe that the promisor had actually repudiated, but who nonetheless suffered economically as a result of insecurity.
But if the pre-Article 2 promisee had to cope with risk and insecurity as a result of his imperfect capacity to accurately spot a repudiation, the promisee who relies on section 2-609 must cope with an analogous problem, but at a slightly different moment. He does not lay his wager upon the existence of a repudiation, but rather on the reasonableness of his grounds for insecurity. As one commentator put it in assessing section 2-609’s effectiveness as a legal innovation,
“section 2-609 sometimes does little more than extend the minuet between the weaseling party and the contractual counterpart and add a couple of new moves.” 58
Nevertheless, the doctrine has been viewed as enough of a success that only two decades after the widespread
55
J AMES J.
W HITE & R OBERT S.
S UMMERS , U NIFORM C OMMERCIAL C ODE § 6-2, at 199 (5th ed. 2000).
56
See U.C.C. § 2-610 cmt. 2 (revised 2003); R ESTATEMENT (S ECOND ) OF
C ONTRACTS § 250 cmt. b (1981).
57 supra note 36 and accompanying text.
58
W HITE & S UMMERS , supra note 55, at 197.

180 BROOKLYN LAW REVIEW [Vol. 76:1 enactment of Article 2 in state legislatures, the American Law
Institute included it in the Restatement (Second) of Contracts.
59
The Restatement’s version of the doctrine is nearly identical to section 2-609. One small difference is that the
Restatement does not require the demand to be made in writing. Section 2-609, on its face, requires a writing, but many courts have disregarded that requirement.
60 Another minor difference is that where the Uniform Commercial Code defines both the reasonableness of the grounds for insecurity and the adequacy of the assurances demanded by commercial standards, the Restatement does not.
61
Having established the general legal outline of the doctrine, let us now place the law into a factual context.
Sometimes, assurances take a relatively simple form—a mere affirmation of one’s duties, a promise to actually perform the obligations undertaken in the contract.
62 But sometimes, the assurances consist of new undertakings. These can take the form of granting the insecure party the right to inspect the books of the underperforming party in order to confirm ongoing solvency.
63 Credit terms could be altered to reduce the amount a buyer may borrow or shorten his time for repayment.
64 Or, more drastically, the insecure party might demand a personal guaranty from a third party.
65 But case law also reveals some more interesting assurances. A buyer who is behind in
59
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 251 (1981).
(1) Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach under §243, the obligee may demand adequate assurances of due performance and may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.
(2) The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.
Id.
But this is not to say that the doctrine has escaped serious critique. For an incisive critique, see Garvin, supra note 5, at 129-40.
60 supra notes 48-55 and accompanying text.
61
There are a few other differences between the two versions of the doctrine, none of which are significant for our purposes. For an exegesis of the differences, see
Taylor, supra note 5, at 889-93.
62
U.C.C. § 2-609 cmt. 4 (revised 2003); see also, e.g
., La. Power & Light Co. v.
Allegheny Ludlum Indus., Inc., 517 F. Supp. 1319, 1322-23 (E.D. La. 1981).
63
Int’l Therapeutics, Inc. v. McGraw-Edison Co., 721 F.2d 488, 492 (5th Cir. 1983).
64
Hornell Brewing Co. v. Spry, 664 N.Y.S.2d 698, 700-01, 703 (N.Y. Sup. Ct. 1997).
65
Creusot-Loire Int’l, Inc. v. Coppus Eng’g Corp., 585 F. Supp. 45, 50
(S.D.N.Y. 1983).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 181 payments might assign his receivables to the seller.
66 A buyer who is concerned about the quality of the machinery he is purchasing might ask for an extension or enlargement of his warranty.
67 We could make up some other examples; a seller of special equipment might make alternative arrangements for the procurement of higher quality components where the goods have been defective. But let us take a close look at an actual recent case in which a promisor provides an assurance that involves a new undertaking, and we will find that there may be more to the doctrine than has yet been considered by any court or theorist.
II.
T HE M ODERN D OCTRINE
Hornell v. Spry 68 appears to be a run of the mill adequate assurances case, addressing most of the familiar issues. But a careful reading of the facts reveals an issue that was not litigated, but that directs our attention to the promissory character of adequate assurances. Hornell was a supplier of beverages, including Arizona Iced Tea.
69 It entered into a contract with Steven Spry whereby Spry was to be an exclusive dealer of Arizona Iced Tea products in Canada.
70
Perhaps because Spry had a reputation as a successful businessman, Hornell was prepared to ship him a large quantity of product on credit without a written agreement.
71
The relationship quickly ran into significant problems, mostly stemming from the fact that Spry was not paying for the beverages Hornell was shipping.
72 After a series of attempts to resolve their differences, the parties agreed to a new, more rigorous financing arrangement, whereby Hornell would
“provide Spry with a $300,000 line of credit, so long as payments were made on a net 14 day basis.” 73 Spry also entered into an agreement with a factor, whereby Spry would assign his receivables to the factor who would, in turn, pay Hornell
66
Erwin Weller Co. v. Talon, Inc., 295 N.W.2d 172 (S.D. 1980); Hornell , 664
N.Y.S.2d at 698.
67
Creusot-Loire , 585 F. Supp. 45.
68
Hornell , 664 N.Y.S.2d at 698.
69 at 699.
70
Id.
71
Id . at 699-700.
72
Id.
at 700.
73
Id.

182 BROOKLYN LAW REVIEW [Vol. 76:1 the amounts due on Spry’s account.
74 Hornell resumed shipping iced tea to Spry on these terms, but despite the fact that Spry made his first payment on time, Hornell learned that “Spry’s warehouse was empty, that he had no managerial, sales or office staff, that he had no trucks, and that in effect his whole operation was a sham.” 75
As a result of this disturbing news, on May 10, 1994,
Hornell wrote a letter to Spry stating,
[B]efore we release any more product, we are asking you to provide us with a letter confirming the existence of your line of credit as well as a personal guarantee that is backed up with a personal financial statement that can be verified. Another option would be for you to provide us with an irrevocable letter of credit in the amount of
$300,000.
76
Spry did not respond to this letter and, after a few months of negotiations, Hornell sued Spry, seeking a declaratory judgment that Spry had no further rights under the contract.
77
In ruling for Hornell, the court noted that while both parties maintained that there had been only one demand for adequate assurances (the alteration of credit terms to cap advances at
$300,000 and demand that payment be made in full within fourteen days), in fact Hornell had made two separate demands for adequate assurances.
78
The court agreed that Spry’s initial failure to make timely payments gave Hornell reasonable grounds for insecurity and ruled that Hornell’s initiation of tighter credit terms was a reasonable demand for assurances.
79 These assurances were given and put the relationship on proper legal footing.
80 But the court explained that when Hornell learned that Spry had been accepting shipments of product without having established any appropriate business operations,
Hornell had renewed grounds for insecurity.
81 Thus, the May 10 letter constituted another appropriate demand for adequate assurances.
82 Spry’s failure to respond to this demand
74
Id.
at 700. Neither of these new commitments was made pursuant to a formal written demand for assurances under section 2-609. Id.
at 700, 702.
75
Id.
at 701.
76
Id.
77
Id . at 699, 701.
78
Id.
at 701-03.
79 at 703.
80
Id.
81
Id.
at 703-04.
82
Id.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 183 amounted to a “repudiation of the distributorship agreement, which entitled plaintiff to suspend performance and terminate the agreement.” 83
Putting aside the question of what Spry wanted with all that iced tea if he wasn’t going to sell it, the case raises a series of issues common to the adequate assurances cases. Did the first attempt to restrain Spry’s actions with the imposition of tighter credit terms amount to a demand for assurances? Were
Hornell’s second grounds for insecurity reasonable in view of the fact that Spry had paid his balance in full within fourteen days, in accordance with the initial demand for assurances?
Were the assurances demanded in the May 10 letter excessive?
None of these questions caused much difficulty for the
Hornell court, though it did hint that there was some doubt as to whether Hornell’s second demand was excessive.
84 Yet there is another question lurking in this case, a question that courts have yet to address. When Hornell initially found that Spry was delinquent in its payments, it demanded that Spry agree to new credit terms in order to assuage its insecurity.
85 In giving these assurances, Spry made a promise. The question that neither the Hornell court, nor any other court, seems to have explicitly confronted is, how long should this new arrangement endure? Is it to last the lifetime of the contract?
Should it persist only until Spry establishes a record of timely payment? Or should Spry be required to comply with the promise of the assurances until Hornell has been made whole?
The first option suggests that the assurances amount to a modification of the contract. The second, which is probably what the Hornell court would have chosen, would more closely tie the assurance to the insecurity—when the promisee is no longer insecure, the assurance is no longer needed.
86 The last option would indicate that the assurance represents an independent promise in the nature of a separate contract.
Reflecting upon these questions forces one to consider the promissory character of adequate assurances. What are we to make of this promise? Is it a modification of the original
83 at 704.
84
Id.
(noting that the question of reasonableness of demands for assurances was “a close one”).
85 at 700.
86 infra note 153 and accompanying text.

184 BROOKLYN LAW REVIEW [Vol. 76:1 contract or could it be viewed as an independent promise?
87
This article will focus on the latter possibility. When one focuses on the promissory character of the assurance in this manner, one must confront several questions. Is the promise enforceable as a contract?
88 How long is it to endure?
89 What are the consequences if it is breached, and can its breach give rise to damages independent of the original contract?
90 This last question takes on particular importance when one considers the possibility that the original contract might include some limitations on damages, such as a stipulated damages clause, an exclusion of consequential damages, or a clause limiting damages to repair or replacement. The remainder of this article will address these questions.
III.
A
DEQUATE
A
SSURANCES
O
FTEN
C
OMPRISE
P
ROMISES
THAT
S
HOULD
B
E
T
REATED AS
C
ONTRACTS
This section will, from a doctrinal perspective, examine whether promises made in response to a demand for adequate assurances meet the basic requirements of a contract.
Specifically, this Part will consider contract law’s traditional bases of enforcement as well as a relevant ground to deny enforcement—duress.
A.
Enforceable Promises
A logical place to begin this inquiry is with the definition of a contract. A contract is unhelpfully defined in the
Restatement (Second) of Contracts as “a promise or set of promises for the breach of which the law gives a remedy.” 91 Of course, not all promises are enforced as contracts; the simplest way to describe the current state of American contract law is to say that there are two primary categories of promises that courts enforce: those that are given for consideration, and those on which the promisee detrimentally relies.
92 In this article, I
87
Here I wish to clarify my terminology. By using the term “independent promise,” I do not wish to reference the vocabulary of conditions. Rather, I simply mean that the promise of the assurance could form the basis of a separate contract.
88 infra Part III.
89
See
90 infra Part V.
91
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 1 (1981).
92
There are, of course, other categories of enforceable promises. For example, promises under seal and promises to modify a contract under section 2-209 of the

2010] ADEQUATE ASSURANCES OF PERFORMANCE 185 will ask whether various types of assurances satisfy one or the other of these two criteria for enforceability, but I will treat an affirmative answer to that question as a necessary—but not a sufficient—condition for treating such an assurance as a contract. Even if an assurance-promise is enforceable because it is given for consideration, or is relied on, it may only be enforceable as a modification of the original contract, not as a separate contract.
93
As a preliminary matter, let us first dispose of the weakest form of assurance contemplated by section 2-609: the mere affirmation of one’s intention to perform his obligations under the contract.
94 While this sort of assurance could possibly be construed as a promise, it is not the sort of promise that this article seeks to address.
95 Instead, as we embark on our inquiry into whether an assurance might involve an enforceable promise, we will focus on more robust, sturdy promises, such as the one to furnish a personal guaranty.
Is such an assurance an enforceable promise? On one level, the question of enforcement can be answered preliminarily in a rather straightforward manner: yes, it’s enforceable. Why? By operation of positive law—section 2-609.
But this facile answer skirts a fundamental underlying question: what does it mean to enforce a promise? Typically, contract law enforces promises by providing a remedy for their breach, and the remedy is typically money damages meant to put the promisee in the position he would have occupied had the promisor performed.
96 But in saying that section 2-609 makes the promise enforceable, we are only saying that section
2-609 provides its own regime of enforcement. The promise is, by the terms of the statutory provision, enforced with the remedy of accelerating breach, i.e., the insecure party may treat the principal contract as repudiated. Yet this proposition is, in fact, inaccurate. Section 2-609 is silent on enforcement of the promise, and merely creates a duty to make a certain kind
Uniform Commercial Code. U.C.C. § 2-209 (revised 2003); J OSEPH M.
P ERILLO & J OHN
D.
C ALAMARI , C ALAMARI AND P ERILLO ON C ONTRACTS 274-78 (5th ed. 2003).
93
I will take up this line of inquiry in the epilogue, infra .
94
Assurances of this sort are rather common in the case law. See, e.g.
,
Bausch & Lomb, Inc. v. Bressler, 977 F.2d 720 (2d Cir. 1992); Gutor Int’l AG v.
Raymond Packer Co., 493 F.2d 938 (1st Cir. 1992).
95
This is not to say that this sort of assurance is entirely devoid of theoretical significance. Those who would take a strong position on the illegitimacy of assurances would even consider the mere affirmation of intention to perform to be more security than that to which the promisee is entitled. See Garvin, supra note 5, at 130-38.
96
See R ESTATEMENT (S ECOND ) OF C ONTRACTS § 344(1) (1981).

186 BROOKLYN LAW REVIEW [Vol. 76:1 of promise and punishes the failure to make that promise, under certain circumstances. Further, it is silent on the question of what happens when a party furnishes assurances but does not live up to them.
97 Thus my central question: is the promise enforceable in its own right, outside of the context and framework of section 2-609?
The promise might be enforceable for the same kinds of reasons we enforce other promises; namely, it might have been given for consideration, or detrimentally relied upon by the promisee. Let us begin by asking whether there is consideration for the promise. According to Holmes, consideration involves not just a benefit to the promisor and a detriment to the promisee, but also a relationship of “reciprocal conventional inducement.” 98 The “promise must induce the detriment and the detriment must induce the promise.” 99 In our example, the buyer promised to furnish a personal guaranty of monies owed. Was that promise bargained for? Did the buyer receive a benefit, or did the seller suffer a detriment? In order to answer these questions, a bit of factual context will be helpful. Imagine the following conversation between a seller and a buyer:
S : Look, I’ve heard that you have not been paying your other creditors for quite some time. Even though you have finally paid your balance, many of your recent payments have been late. I’m very concerned.
B : I know. Cash has been a little tight, but things have already picked up since the beginning of the new quarter. I’m pretty sure that by the end of the year, I’ll be back to paying off my full balance early, as I have done in years past.
S : I don’t think that’s going to cut it. I’ve got plenty of other customers I can sell to. I don’t want to stop doing business with you, but without a personal guaranty, I’ve got no other choice.
97
One case has hinted at an answer to this question. See Am. Research
Bureau, Inc. v. E-Systems, Inc., 663 F.2d 189, 196 n.10 (D.C. Cir. 1980).
Professor
White has pointed out that a careful reading of a footnote in ARB reveals the court’s belief that “it was the failure to comply with the assurances that gave the right to cancel,” not the failure to give assurances. White, supra note 5, at 846. This interpretation of the law stands in contrast with the standard reading of the statute that says that if assurances are given, the insecure party must continue to perform.
98
O LIVER W ENDELL H OLMES , J R ., T HE C OMMON L AW 227-30 (Howe ed., 1963)
(1881).
99
Id.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 187
B : A personal guaranty? Wow, that’s a pretty big step. You know, my company has been around for a long time. We’re in no real danger of insolvency. Why don’t you just give me until the end of the year?
S : I’m sorry, but without a personal guaranty, I’m going to have to stop sending you product.
B : Okay. I’ll give you the guaranty.
100
The existence of consideration is invariably a factsensitive inquiry. Depending on the factual assumptions we make, it may be somewhat difficult to argue there is consideration for this promise, at least under the bargain theory of consideration. Perhaps the consideration is rooted in the seller’s forbearing from suspending his performance. But for that to be a detriment (or a benefit to the buyer), we would have to conclude that the seller had a legal right to do so.
Under section 2-609, however, this right does not arise until there has been an actual breach or a breach by anticipatory repudiation (including a repudiation resulting from the promisee’s failure to respond to the demand for adequate assurances).
101 Thus, while it seems as though there might be a
100
Some readers might observe that if the seller had the right to stop delivering product, then the buyer must be in breach. This being the case, why doesn’t the seller simply sue? If this is not the case, then the seller would be in breach by not delivering. This observation, while logical on its face, is something of a misconception.
While it is true that there are many cases in which a promisor’s failure to perform will amount to a breach with a clear legal consequence, those are not the kinds of disputes in which adequate assurance doctrine is invoked. As Larry Garvin explains in his excellent article on adequate assurances:
Relational contract is pertinent because the sort of contract under which adequate assurance is invoked almost always is relational. By definition, neither party has performed in full, which removes at a stroke almost all cash sales or ordinary credit sales where the goods are picked up on the spot.
Rather, the usual sort of deal in these cases is a construction contract, or a long-term supply agreement, or a contract to manufacture specially-designed goods for some extended period—all potentially relational. In addition, adequate assurance normally comes about in part because the parties failed to define default in detail or otherwise provide expressly for allocating risks of the type that came about. In other words, the contracts are incomplete.
Garvin, supra note 5, at 117.
101
U.C.C. § 2-609(4) (revised 2003); see also Garvin, supra note 5, at 115-20.
The facts of Hornell v. Spry , 664 N.Y.S. 2d 698 (N.Y. Sup. Ct. 1997), fall neatly into one of Garvin’s categories of typical assurances cases. The parties had a long-term supply contract that was never memorialized in a writing and thus devoid of any provisions defining default. What the court characterized as the parties’ first round of assurances was their attempt to provide the types of terms that might have governed their agreement in the first instance. If those terms had been agreed upon, Hornell would not have had to resort to a demand for assurances. Rather, it could have sued Spry for breach, assuming his conduct (which was not well explained in the opinion) violated his credit terms.

188 BROOKLYN LAW REVIEW [Vol. 76:1 detriment to the promisee, careful analysis reveals that the insecure party didn’t have a right to suspend his performance at the moment the promisee gave the assurance. The time for performance had not yet passed and there had not been an unequivocal repudiation. Until the demand is rejected, or the assurances not given, there is no such right. So it would be circular to conclude that continuing to perform constitutes consideration, for it is only the refusal to give assurances that gives rise to the right to treat the promisor as in breach.
102
Maybe consideration can be found elsewhere.
Consideration doctrine is famously malleable, and courts are usually able to find consideration for a promise whenever they are inclined to do so.
103 Occasionally, this means reverting to the more easily satisfied test of Hamer v. Sidway , 104 which requires only a benefit to the promisor or a detriment to the promisee, but does not require the element of inducement.
105 Moreover, a well-counseled promisee would grant a concession in exchange for the assurance.
106 Perhaps, as with modifications under the common law, a horse, hawk, or robe would suffice.
107 Thus we
102
Even if this were legal detriment, it would be hard to argue that this detriment induced the promise to provide the guaranty. Rather, one imagines that the buyer gave the guaranty in order to ensure that the seller will continue to deliver product. In this we can begin to see the outlines of a claim of a modification made under duress. We shall pursue this idea shortly.
103
See, e.g
., Allegheny Coll. v. Nat’l Chautauqua Cnty. Bank, 159 N.E. 173
(N.Y. 1927) (finding consideration for a promise to donate to a college in the fact that the college, by accepting the pledge, had made an implied promise to create a named scholarship to memorialize the pledge); Wood v. Lucy, Lady Duff Gordon, 118 N.E. 214
(N.Y. 1917) (finding consideration in an implied promise to use best efforts to sell defendant’s fashions pursuant to an exclusive distribution agreement); DeCicco v.
Schweizer, 117 N.E. 807 (N.Y. 1917). In his classic book, The Death of Contract , Grant
Gilmore pointed out that in DeCicco , Chief Judge Cardozo found “consideration for a father’s promise to pay his engaged daughter an annuity after marriage in the fact that the engaged couple, instead of breaking off the engagement, had in fact married.”
G RANT G ILMORE , T HE D EATH OF C ONTRACT 69 (Ronald K.L. Collins ed., Ohio State
Univ. Press 2d ed. 1974).
104
27 N.E. 256 (N.Y. 1891).
105
Farnsworth asserts that “ Hamer is still very much alive, along with the notion that either a benefit or a detriment will suffice.” F ARNSWORTH , supra note 2,
§ 2.4, at 52 n.9; see also Weiner v. McGraw-Hill, Inc., 443 N.E.2d 441, 444 (N.Y. 1982)
(“[A]ny basic contemporary definition would include the idea that [consideration] consists of either a benefit to the promisor or a detriment to the promisee . . . [a]s elaborated in Hamer v. Sidway , the seminal case on the subject.”).
106
See F ARNSWORTH , supra note 2, § 4.23, at 295-98.
107
This is the famous dictum of Lord Coke, explaining what new consideration could be offered to make a modification enforceable in the face of the preexisting duty rule. To supplement his quaint locution with something more appropriate to a commercial setting, Coke suggested that accepting payment at a different location than originally agreed to would be sufficient consideration to make enforceable a

2010] ADEQUATE ASSURANCES OF PERFORMANCE 189 might say that the consideration is the insecure party’s implied promise not to suspend its performance. But can a tacit promise induce a return promise?
In some cases, however, consideration might be easier to find. For example, we might very plausibly assume that in our hypothetical, the contract included a term permitting the seller to cancel if the buyer is late in his payments. With this new fact, we can say with confidence that the seller’s willingness to stay in the contract—to waive his right to cancel—would be a bargained-for detriment, and would thus constitute consideration.
Depending on the facts of the particular case, then, there may not be any consideration for the promise of the assurance. But that does not mean that the assurances cannot comprise an enforceable promise; assuming the non-existence of consideration simply moves us along to another branch of our analysis.
Contract law has another significant justification for the enforcement of promises in the absence of consideration: reliance, i.e., the doctrine known as promissory estoppel.
108
Promissory estoppel, though not without its detractors, 109 has been firmly established in American contract law for nearly a century.
110 While there is some dispute at the theoretical level over whether promissory estoppel is properly understood as being rooted in promise or in the harm caused by one’s utterances, the legal requirements for the invocation of the doctrine are relatively clear. Under section 90 of the Second
Restatement, “[a] promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.” 111
Promissory estoppel should provide a basis for enforcing assurance-promises in many cases. For our present purposes, let us take the example discussed above of the buyer who promises to furnish a personal guaranty. The seller relies on modification lowering the price. Pinnel’s Case, (1602) 77 Eng. Rep. 237 (Q.B.); 5 Co.
Rep. 117a, 117b.
108
See R ESTATEMENT (S ECOND ) OF C ONTRACTS § 90 (1981).
109
G ILMORE , supra note 103, at 71.
110
Benjamin F. Boyer, Promissory Estoppel: Principle from Precedents: I , 50
M ICH .
L.
R EV . 639, 639-40 (1952) (explaining the development of promissory estoppel).
111
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 90 (1981).

190 BROOKLYN LAW REVIEW [Vol. 76:1 this promise by continuing to deliver goods on credit, just as the promisor expects. If a court were to find that there is no consideration for this promise (for the sorts of reasons we discussed above), could the seller avoid making good on the guaranty? It seems quite clear that injustice would be the result if the court refused to enforce the promise. The results in cases involving claims of promissory estoppel are invariably fact-sensitive, but this generic example should suffice to establish a basis for recognizing that adequate assurances, in particular cases, can take the form of enforceable promises.
But what if there is neither consideration nor actionable reliance? In such cases, we might argue that the promise is nevertheless enforceable by operation of statutory law—section
2-609. There are other examples in contract law of promises being made enforceable by virtue of a statute even in the absence of consideration.
112 For example, under section 2-209 of the Uniform Commercial Code, a promise to modify a contract is enforceable despite the absence of consideration.
113 So maybe there is consideration and maybe there’s no consideration, but the promise is enforceable nonetheless.
The presence of consideration, in conclusion, will be a questionable proposition in many cases. There may be good reasons to believe that the promise of the guaranty in our hypothetical was not given for consideration, but, given the right facts, there will be at least a colorable argument to be made to the contrary. If one concludes that there really can be no consideration for such a promise, then one must either conclude that absent detrimental reliance, there is no basis for enforcement or that enforcement is a possibility solely on the basis of the statutory scheme of section 2-609. Alternatively, one might take the position that the determination of whether consideration exists must be taken up on a case-by-case basis, and that in those cases where consideration is found, the promise of the assurance may form the basis of a contract.
Given the instability of grounding enforcement on consideration, it seems that the most promising basis for granting legal enforcement to the assurance promise would be that the promisee had relied on it to his detriment. In any event, it is not necessary for our analysis to be able to say
112
A Pennsylvania statute provides that a promise in writing may be enforceable even in the absence of consideration so long as the writing expresses the promisor’s intention to be legally bound. 33 P A .
S TAT .
A NN . § 6 (West 2008).
113
U.C.C. § 2-209(1) (revised 2003).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 191 categorically that all promises made when giving assurances are enforceable as contracts. It is enough to conclude that such treatment is possible, given the right facts. Moreover, the
“right facts” exist outside of jerry-rigged hypotheticals; they appear commonly in real cases, like Hornell , the Arizona Iced
Tea case.
Whether or not a promise can be said to be supported by consideration or enforceable because of reliance, such indicia of enforceability are merely necessary conditions, not sufficient ones. Even a promise that has been detrimentally relied on may not be enforceable if it was not freely given.
114 One of the foundational principles in contract law is consent; the law is careful not to impose contractual liability on persons who were in some sense coerced into entering a contract.
B.
Duress and Impaired Volition
On a conceptual level, a demand for adequate assurances involves duress. An assurance pursuant to section
2-609 is not really a promise freely given. The giver of the assurance does so not of his own volition, but rather because he is being threatened with legal sanction for failing to give it.
This is an argument that at least one court has weighed in on.
In Erwin Weller Co. v. Talon Inc.
, a buyer was having difficulty meeting his payment obligations to his seller.
115 The parties amended their agreement to provide the buyer “an extended period to make payments due or coming due . . . and granted
[the seller] a security interest in the [buyer’s] accounts receivable . . . .” 116 The buyer argued that the amended agreement “did not constitute a valid contract because [he] signed it under duress.” 117 The Supreme Court of North Dakota rejected this argument, stating that the promisee’s demand could not amount to duress because the insecure seller had a statutory right to the assurances.
118
So duress is an issue that theoretically could be marshaled as an argument against calling adequate assurances contracts, but doctrinally, it seems dubious. The legal
114
See R ESTATEMENT (S ECOND ) OF C ONTRACTS § 175 (1981) (“If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.”).
115
295 N.W.2d 172, 173 (S.D. 1980).
116
Id.
117 at 174.
118
Id.

192 BROOKLYN LAW REVIEW [Vol. 76:1 requirements for duress can be rather formidable 119 and don’t seem to be present in the kinds of promises we’re talking about here. But this is not to say that a promisor could never successfully assert duress as a defense to liability for failing to live up to his assurances. When policing contractual modifications, contract law relaxes the more stringent legal requirements for duress that are imposed when duress is asserted as a defense to formation of an original contract.
120
David Snyder has argued that in the modification context, courts ought to, and in fact do, consider a lower standard of
“coercion.” 121
Despite the doctrinal obstacles to characterizing a demand for adequate assurances as duress, Larry Garvin has argued forcefully that section 2-609 does, in fact, endorse duress.
122 Describing a demand for assurances as “an offer that the promisor can’t refuse,” Garvin explains:
One party to an agreement is placed in an awkward position; either it consents to an unwanted modification or it is held in breach and forced to pay damages. Though there is a choice here, it is most unpalatable, for the promisor cannot choose simply to go ahead with the contract originally agreed upon. Either way, the promisor will incur new liabilities, whether under the modified contract or under the breached contract. . . . That there is a choice does not eliminate duress; whether the choice was coerced is the real question.
123
119
Duress traditionally required proof of physical compulsion or a threat thereof. The law has evolved to allow simply an “improper threat” to serve as the evidentiary basis as it moved away from recognizing only physical duress to economic duress and undue influence. In any event, most courts require some sort of threat. In addition, courts commonly require that the duress “resulted from defendant’s wrongful and oppressive conduct and not by plaintiff’s necessities.” W. R. Grimshaw Co. v. Nevil
C. Withrow Co., 248 F.2d 896, 904 (8th Cir. 1957); see also Selmer Co. v. Blakeslee-
Midwest Co., 704 F.2d 924, 928 (7th Cir. 1983) (requiring a party claiming duress to show that its financial difficulties had been caused by the other party). So long as a promisee in fact had reasonable grounds for insecurity, it would be difficult to maintain that a demand for adequate assurances pursuant to section 2-609 could amount to wrongful and oppressive conduct.
120
Under section 89(a) of the Second Restatement, a modification is enforceable so long as it is “fair and equitable in view of circumstances not anticipated by the parties when the contract was made.” Thus attempts to avoid coerced modifications can succeed if they can be shown to be inequitable, irrespective of threats, or whether or not the complaining party’s difficulties were caused by the party seeking enforcement.
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 89(a) (1981).
121
David V. Snyder, The Law of Contract and the Concept of Change: Public and Private Attempts to Regulate Modification, Waiver, and Estoppel , 1999 W IS .
L.
R EV .
607, 684.
122 supra note 5, at 71, 135.
123
Id.
at 135-36.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 193
While duress may have some potential to limit the ability of an insecure party to extract additional undertakings from his counterpart, curiously, it also has the potential to afflict the insecure party as well. It is possible that the party giving the assurance is not the only one who may be under duress, not the only party with a somewhat impaired volition as relates to this supposed new contract arising out of the assurance. In several cases, courts have found that a demand was made and assurances were given, even though the parties didn’t realize that they had done so.
124 They were engaging in the normal negotiating activity of working out their troubled deal, trying to come to some accommodation. When they could not and eventually ended up in litigation, the court said that their efforts to reach an understanding amounted to assurances demanded and given.
125 For example, in AMF, Inc. v.
McDonald’s Corp ., AMF had agreed in 1968 to furnish
McDonald’s with a technologically innovative computerized cash register and twenty-three production models.
126 Plagued by technical problems, AMF struggled to produce the machines according to schedule.
127 After several accommodations,
McDonald’s asked AMF to suspend the production of the twenty-three units.
128 AMF agreed, but ultimately sued
McDonald’s for breach.
129 The court ruled that McDonald’s had a right to cancel the contract pursuant to section 2-609.
130
While this sketch of the facts of AMF suggests the normal application of 2-609, there is something rather curious about the court’s ruling. McDonald’s never made a formal written demand for adequate assurances. Indeed, the reported facts of the case do not suggest that McDonald’s even made a formal oral demand. Thus it appears that the court fashioned a
2-609 demand out of the parties’ routine attempts to work out their troubled contract.
131
So it is possible not only to be coerced by the insecure party into giving assurances, but also for the insecure party to receive assurances without him knowing it. The cases provide
124
Smyers v. Quartz Works Corp., 880 F. Supp. 1425, 1433 (D. Kan. 1995)
(demand for payment should be construed as a demand for assurances).
125
Id.
126
536 F.2d 1167, 1168 (7th Cir. 1976).
127 at 1169.
128
Id.
129
Id.
130 at 1171.
131
White, supra note 5, at 857-58.

194 BROOKLYN LAW REVIEW [Vol. 76:1 another way that adequate assurances can be less than fully consensual. In these cases, demand for assurances is ruled to be a compulsory prerequisite to canceling the contract.
132 For example, in National Farmers Organization v. Bartlett & Co.,
Grain , the parties entered into multiple contracts whereby
NFO was to deliver specified amounts of grain to Bartlett.
133 At some point, Bartlett began withholding payment “as protection against realized or potential loss caused by failure on the
Seller’s part to perform all contracts not yet fully performed.” 134
NFO informed Bartlett on January 26, 1973 that it would not perform the remaining contracts until Bartlett paid a significant portion of the amounts due for grain already delivered.
135 NFO never delivered any grain under the remaining contracts and Bartlett ultimately withheld some
$18,000.
136
In its suit to recover the $18,000, NFO argued that
Bartlett’s failure to pay in response to the statement was a repudiation.
137 The court, however, ruled that NFO’s statement of January 26 was a repudiation.
138 Although the court could have followed the example of the AMF court, finding the
January 26 statement to be a demand for adequate assurances it declined to do so, stating, “[p]lainly, the seller could have availed itself of a section 2-609 remedy on January 26. Equally plainly, however, it did not do so.” 139
In Harlow & Jones, Inc. v. Advance Steel Co ., the court took a similar position. Advance was to buy 1000 tons of
European steel in three installments from Harlow.
140 After accepting the first two shipments, the buyer expressed concern about the timeliness of the final delivery.
141 The contract called for the steel to arrive by “September-October shipment,” though there was evidence of a trade usage indicating that this term contemplated that delivery by November 30 would be
132 see GFSI, Inc. v. J-Loong Trading, Ltd., 505 F. Supp. 2d 935, 947 (D.
Kan. 2007) (no written demand thus no protection of section 2-609).
133
560 F.2d 1350, 1352 (8th Cir. 1977).
134
Id . at 1353.
135
Id.
136
Id.
at 1354.
137 at 1356.
138 at 1358.
139
Id.
at 1355.
140
424 F. Supp. 770, 772 (E.D. Mich. 1976).
141
Id.
at 773.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 195 acceptable.
142 On October 29, Advance sent a letter notifying
Harlow of its intention to reject the final shipment because of late delivery.
143 The steel arrived in mid-November.
144
In ruling that Advance’s rejection of the shipment amounted to a repudiation, the court asserted that “[h]ad
Advance taken the course prescribed by sec. 2-609, Harlow would have had the opportunity to effect a timely delivery and so cure any delay in shipment. In light of this available remedy, Advance’s outright rejection of the contract on October
29 . . . was unjustified.” 145
Under cases like NFO and Harlow , an insecure party appears not to have the option of treating defective performance as a breach or repudiation until he has asked for adequate assurances. Thus we might view the situation as one in which the insecure promisee can be seen as making a coerced demand for assurances and the underperforming promisor making a coerced promise.
But even if one accepts this reading of these cases, it is important not to overstate their significance. For it would be revolutionary indeed to claim that all obligees must pass through section 2-609 (or section 251) on their way to treating an obligor’s delinquency as a breach entitling them to suspend performance. This is not the law, for if it were, it would render the doctrine of present breach by anticipatory repudiation meaningless.
146 Rather, the broadly accepted view is the one propounded by the Restatement, that where a promisor has committed a total breach, the promisee is entitled to suspend performance and sue for damages.
147 Nevertheless, in all of this, we can see that there are significant issues of consensuality that might affect our view of the promissory character of adequate assurances. But the doctrines of consent and duress will not serve as a total bar to enforcement.
This Part has shown that there is a substantial doctrinal basis for the claim that a promise made in response to a demand for adequate assurances could be treated in law as an enforceable contract. Although there is some theoretical
142
Id.
143
Id.
at 776.
144
Id.
145
Id.
at 778.
146 see Hillman, supra note 5, at 559 (arguing that making recourse to § 2-
609 a mandatory predicate to cancelling a contract would best serve the purposes of
Article 2).
147
R ESTATEMENT (S ECOND ) OF C ONTRACTS §§ 237, 242 (1981).

196 BROOKLYN LAW REVIEW [Vol. 76:1 basis for questioning the consensual nature of such a promise, no court has taken such a duress argument seriously. In Parts
IV and V, we will consider the consequences of treating the assurance-promise as a distinct contract.
IV.
C ONSEQUENCES OF T REATING A SSURANCES AS
E NFORCEABLE P ROMISES —D URATION
If we are to treat assurances as a distinct promise comprising an enforceable contract, we must address the ramifications of such a classification. One particularly significant consequence would be the effect on remedies, a topic we explore below in Part V. A related question relates to the duration or life span of the assurance: How long must the promisor continue to perform the undertakings of the assurances? Should the promises contained in the assurances continue to bind the promisor even after the original contract has come to an end, whether it has been breached, cancelled, or otherwise terminated? If the assurance amounts to an enforceable contract, then it stands to reason that the duration of the promisor’s obligation to perform should not necessarily be yoked to the duration of the original contract. We might ask whether, in a case like Hornell 148 (the Arizona Iced Tea case), a party in Spry’s position would have been bound to continue performing in accordance with his assurances for the life of the contract and beyond, had the parties continued in their contractual relationship after agreeing to more restrictive terms. Or would he be entitled to enjoy the parties’ original financing arrangement once he had established a track record of responsible behavior, thus putting an end to Hornell’s grounds for insecurity?
To begin to answer these vexing questions of duration, let us return to the example of the personal guaranty given in response to a demand for adequate assurances. It is not controversial to say that a guaranty often endures beyond the lifespan of the original contract. Indeed, on some level, the guaranty doesn’t really even spring to life until the original contract has come to an end (at least from the unpaid obligee’s perspective).
149 To be sure, a guaranty serves an important role
148
Hornell v. Spry, 664 N.Y.S.2d 698 (N.Y. Sup. Ct. 1997).
149
In the terminology of the Third Restatement of Suretyship and Guaranty, the contract of guaranty involves three parties: a creditor who is owed a duty, termed the obligee; a debtor who owes the duty, the primary obligor; and a guarantor or surety who

2010] ADEQUATE ASSURANCES OF PERFORMANCE 197 from the moment it is given, for it gives the obligee the security to continue performing; indeed this is one of its primary raisons d ’ etre .
150 But on the other hand, a guaranty is in some sense dormant until the primary obligor defaults on his obligation. It is at that moment that the guaranty fully actualizes. Often, though not in all cases, this moment will roughly coincide with the underlying contract coming to an end, whether through breach, termination or cancellation. Thus, in many instances, a guaranty will outlive the contractual relationship from which it arose. On this basis, we can assert that in some cases, the promise of an assurance can endure beyond the life of the original contract, and be seen as a distinct contract.
But the question of duration is not always so clear.
Consider the example of the assignment of receivables. The buyer buys on credit from the seller and is falling behind in his payments. Ultimately, in response to a demand for adequate assurances, the buyer agrees to assign his receivables to the seller. For a while, both parties find this plan agreeable; the seller is getting his money and the buyer is willing to assign the receivables as long as he is getting the goods. Imagine, however, that after some period of time, the buyer realizes that he no longer wants to continue in this arrangement, though he is still in arrears. Under these circumstances, with the seller still insecure about getting paid both for amounts past due and those due on shipments he continues to make, it makes sense to support a rule requiring that the assignment must persist.
But what if the contract terminates while the buyer is still in arrears? This scenario presents us with a different and more interesting question. Assume that the buyer terminates the principal purchase agreement in accordance with the contract’s termination provisions, and wants his cash flow back. Does the assignment live on beyond the life span of the contract, or must the seller resort to legal process in order to get paid? The seller would like to continue with the assignment as a sort of self-help remedy, and the buyer wishes he had never made the promise. Does the assignment arrangement continue on for some duration, such as until the contract payments are all made? Or is it a sort of appendage to the principal contract, relying on that contract for its heartbeat promises to perform, or pay damages on the primary obligor’s behalf, the secondary obligor. R ESTATEMENT (T HIRD ) OF S URETYSHIP AND G UARANTY § 1 (1996).
150
Avery Wiener Katz, An Economic Analysis of the Guarantee Contract ,
66. U.
C HI .
L.
R EV . 47 (1999).

198 BROOKLYN LAW REVIEW [Vol. 76:1 and blood supply? Is the answer any different if the contract comes to an end because of an unrelated breach, for example, if the buyer fails to place minimum orders. What if the seller breaches?
Although the case law provides precious little guidance in choosing between these two approaches to the duration question, one exception can be found in Hornell . Recall that in
Hornell , Spry, the buyer, agreed to tighter credit terms in response to Hornell’s initial demand for adequate assurances.
151
These included capping any outstanding credit at $300,000 and requiring Spry to repay all amounts loaned with fourteen days.
152 Shortly after the parties reached this agreement, Spry arranged to have his balance paid in full, but proceeded immediately to place an order for somewhere between $390,000 and $450,000.
153 Hornell refused to fill this order without further assurances, including a personal guaranty.
154 The court noted that Spry’s order not only exceeded the agreed limit, but also “placed Hornell in a position where it would have no opportunity to learn whether Spry would meet the 14-day payment terms, before Spry again became indebted to Hornell for a very large sum of money.” 155 The court further stated that the “arrangement, by its terms, clearly contemplated an opportunity for Hornell to test out defendants’ ability to make payment with 14-day periods.” 156
Although the facts of Hornell do not mesh perfectly with those of the hypothetical, the court’s comments can be read to suggest a flexible approach to duration aimed at making certain that the assurance lasts as long as needed to assuage the insecurity. They also suggest that the assurance is intended to protect the insecure party against further loss.
These dicta from Hornell thus shed some light on our question about duration. Yet, to arrive at a more satisfying answer, we must look beyond the case law to the Official Comments to section 2-609, which articulate the purposes of the doctrine.
151
Hornell , 664 N.Y.S.2d at 701.
152
Id.
153
Id.
154
Id.
155
Id.
at 703 (emphasis omitted).
156
Id.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 199
A.
The Purposes that Animate the Doctrine of Adequate
Assurances
Further insight into the question of duration may be found in a careful examination of the purposes of adequate assurances, as conceived by Llewellyn and the other drafters of
Article 2. Their view, broadly stated, is that assurances are given to ensure that the insecure party might continue performing free from insecurity. Let us once again take a look at the Official Comment to section 2-609, which states:
The section rests on the recognition of the fact that the essential purpose of a contract between commercial men is actual performance and they do not bargain merely for a promise, or for a promise plus the right to win a lawsuit and that a continuing sense of reliance and security that the promised performance will be forthcoming when due , is an important feature of the bargain . If either the willingness or the ability of a party to perform declines materially between the time of contracting and the time for performance, the other party is threatened with the loss of a substantial part of what he has bargained for . A seller needs protection not merely against having to deliver on credit to a shaky buyer, but also against having to procure and manufacture the goods, perhaps turning down other customers.
Once he has been given reason to believe that the buyer’s performance has become uncertain, it is an undue hardship to force him to continue his own performance . Similarly, a buyer who believes that the seller’s deliveries have become uncertain cannot safely wait for the due date of performance when he has been buying to assure himself of materials for his current manufacturing or to replenish his stock of merchandise .
157
A close reading of this paragraph reveals several rationales for the doctrine. Taken roughly in the order presented, the first appears to be an affirmation of the expectation interest. In saying that “commercial men . . . do not bargain merely for a promise, or for a promise plus the right to win a lawsuit,” 158 the Comment appears to view a principal purpose of section 2-609 as being to ensure that the promisee receives what he has been promised without resorting to judicial process. The Comment can also be read as expressing a concern for the psychological state of the insecure party. There is disutility in fearing that the promisor will not perform and assurances go some way to assuage that fear. Next, the
Comment suggests a desire to minimize the insecure promisee’s potential reliance loss or opportunity cost that may
157
U.C.C. § 2-609 cmt. 1 (revised 2003) (emphasis added).
158
Id.

200 BROOKLYN LAW REVIEW [Vol. 76:1 result from staying in a contract with a shaky or flaky counterpart. If the promisor is unwilling to give the assurances, the insecure party can cut its loss by refusing to manufacture or deliver goods to the promisor or by arranging to sell them elsewhere.
159 A fourth rationale, expressed in terms of the “undue hardship” to the promisee who must “continue his own performance” when the promisor’s “performance has become uncertain,” can be characterized as a concern for holding the deal together. The implication is that if the assurances are given, the promisee is relieved of an undue hardship and will be more likely to continue in the contractual relationship. While the Official Comment does not explicitly state this as a value, commentators have recognized this purpose of the doctrine 160 and it comports with one of
Llewellyn’s overarching purposes in shaping Article 2.
161
Other purposes, also not suggested by the text of the
Comment, are served by the doctrine. Among these are: fostering communication between the parties, 162 encouraging dispute resolution outside of the courts, 163 and serving as a selfhelp enforcement mechanism.
164 I will discuss these purposes in turn, considering whether they offer any support for the view that assurance promises ought to be enforced even after the underlying contract ceases to be in effect.
B.
Are the Purposes of the Doctrine Furthered by Enforcing
Assurance Promises After the Underlying Contract Has
Been Terminated?
If we view adequate assurances as being primarily concerned with holding the deal together, then it hardly makes sense to require the promisor to continue in the assignment of
159
If the promisor gives the assurances, then either he will make good on the contract (the increased probability of which he has signaled by giving the assurance), or he will breach. If he breaches, then the promisee’s reliance loss in a given case may not have been reduced by the assurances (though he still might have acted to minimize his reliance despite the assurances), but the ex ante reliance loss has decreased as a result of the use of section 2-609.
160
Garvin, supra note 5, at 124-27; Taylor, supra note 5, at 883-85.
161
Richard A. Danzig, A Comment on the Jurisprudence of the Uniform
Commercial Code , 27 S TAN .
L.
R EV . 621, 621 (1975); Ingrid Michelsen Hillinger, The
Article 2 Merchant Rules: Karl Llewellyn’s Attempt to Achieve The Good, The True, The
Beautiful in Commercial Law , 73 G EO .
L.J. 1141, 1149 (1985).
162
Taylor, supra note 5, at 884.
163
Id.
164
Id.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 201 his receivables once the contract has been terminated. This much seems self-evident. Similarly, if we are concerned about the psychological dimension of insecurity, nothing on this score is gained if we require assurances to remain in effect after the contract is terminated. These rationales together seem to offer little to the promisee who seeks to use adequate assurances to further his interest in being made whole.
The doctrine of adequate assurances has been applauded for its functions of fostering communication. It may be difficult to see how the communication-inducing function of the doctrine could be used to support extended duration of the assurance promise. But Professor Taylor points out that section
2-609 is useful because it provides a legal reason and framework for a promisee to notify a promisor of valuable information:
Often [the underperforming promisor] may be unaware that the
PFB
165
has serious concerns about its performance. By seeking assurances the PFB gives notice of its perception of problems. Upon such notice, the potentially breaching party can take steps to either clarify that the PFB is mistaken or to remedy problems that do exist.
Demanding assurance that performance will be forthcoming thus forces both parties to assess the status of the contract and to communicate their understanding to each other. Assurances encourage organic solidarity between parties by ensuring that each remains vested in the contract. Finally, adequate assurances protect the benefit of the bargain by recognizing the importance of the interest in future performance and thereby promote commercial certainty.
166
Taylor’s commentary on the communication-fostering aspect of adequate assurances is important to our understanding of the functions and purposes of the doctrine, but despite its elegant support for the doctrine as a whole, it fails to provide any basis for using this aspect to assist in answering our question about duration.
Taylor has also argued that section 2-609 can be effective as an alternative dispute resolution device.
167 If the parties are inclined to cooperate, they can resolve their conflict by using the mechanism of assurances. Successfully avoiding litigation will depend on the promisor both acknowledging his own problematic course of performance and agreeing that the
165
In Professor Taylor’s terminology, a PFB is a “party facing breach”—an insecure party. See id. at 859.
166
Id . at 884.
167
Id.

202 BROOKLYN LAW REVIEW [Vol. 76:1 assurances requested are reasonable. Of course these conditions are not always present, as there has been no dearth of reported cases involving disputes over the grounds for insecurity and the adequacy or excessiveness of the assurances demanded.
168 But even where the parties have been able to agree on both the cause of the insecurity and the appropriateness of the demand, there is little reason to believe that the promisor will find anything in section 2-609 to induce him to continue to assign his receivables after the original contract has been terminated, without a mandate from a court.
The very absence of judicial precedent on this issue makes it hard to imagine that a promisor would believe that he was under any obligation to do so.
However, it is important at this point to note that we are not here striving for a principle that will make a promisor wish to continue to adhere to his assurances. Rather, we seek a compelling rationale to support a particular legal rule. We do not imagine that our arguments will in fact cause the promisor to continue diverting his cash flows to the insecure party, but aim to construct an obligation to do so. Moreover, the purpose of this entire article is not simply to divine the intention of the drafters of section 2-609, but rather to arrive at appropriate answers to questions which, by hypothesis, the drafters have not considered. The breach of this obligation, which we may very well expect, will cause a legally cognizable harm, the remedy for which will be discussed in the next Part. As we will see, if indeed the law requires the promisor to continue to perform the assurance promise, a very interesting question of damages arises.
In light of this analysis, a rule supporting continued enforcement of the assurance promises beyond the life of the underlying contract can be said to further the purpose of encouraging alternative dispute resolution, if in a somewhat diffuse way, by notifying future promisors of the consequences of failing to fully perform their assurance promises.
To a significant degree, much of the same can be said of the view of adequate assurances as a self-help measure.
Professor Taylor has written that “section 2-609 is a powerful statutory incorporation of self-help.” 169 Taylor defines self-help as “private actions taken by those interested in the controversy
168 supra notes 46-47 and accompanying text.
169 supra note 5, at 883.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 203 to prevent or resolve disputes without official assistance of a governmental official or disinterested third party.” 170 Taylor’s definition thus distinguishes self-help from alternative dispute resolution (“ADR”) by excluding from the category of self-help mediation, arbitration, court guided settlement efforts and the like. But there is another important difference in the context of adequate assurances that makes self-help a more central rationale for the doctrine than ADR. ADR is a consensual phenomenon. Recourse to the courts is always an option for parties to a contractual dispute unless they have mutually agreed, either at the time of formation or at the time of the dispute, to pursue ADR. By contrast, self-help is more onesided; it is a mechanism for an aggrieved party to enforce his rights without the assistance of the judiciary. With adequate assurances, the mechanism is provided by statute and, as we have seen, entitles the insecure promisee to extract a promise that will allow him to receive the benefit of his bargain without the cost, trouble, and relational harm that litigation entails.
Thus, as a matter of both judicial economy and the convenience of the parties, the self-help function of the doctrine of adequate assurances supports the conclusion that courts ought to rule that the assurance promise is enforceable beyond the life-span of the underlying contract.
We are left, then, with two final candidates to support extended duration: the purpose of making the promisee whole and the purpose of helping the promisee avoid excessive reliance costs. I have saved the best for last. These final two purposes of adequate assurances unambiguously support an expansive view of the duration of the assurance. It bears remembering that section 2-609 is, in fact, a remedial provision. As such, its application ought to be informed by the so-called “spirit of the remedies” provision of section 1-103.
This provision states that “[t]he remedies provided by this Act shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed . . . .” 171
These two rationales for the doctrine must be seen as carrying greater weight than many of the others that have been discussed. Communication and assuaging psychological insecurity seem flighty and insignificant when measured
170
Id.
at 841. I do not adhere strictly to this scheme of classification.
171
U.C.C. § 1-106 (revised 2001).

204 BROOKLYN LAW REVIEW [Vol. 76:1 against the bottom line economic realities of the parties’ relationship. Avoiding litigation, while an important function of the doctrine, cannot be seen as more than a secondary function in the context of a legal code that purports to provide rules binding on the courts. Similarly, while self-help may be the primary purpose of some legal provisions, such as those relating to the execution of liens pursuant to a perfected security interest, it cannot be as important as the goal of sorting out economic rights and entitlements in a contractual relationship. The only other rationale of comparable importance is holding the deal together. Taken together, making the insecure party whole and holding the deal together are thus the two most important purposes of the doctrine. But as we have observed, once we have limited our focus to situations in which the underlying contract is no longer in force, the importance of holding the deal together evaporates.
When we talk about making the insecure party whole, we must consider two related concepts. The first is the reduction of costs associated with the insecurity. The Official
Comment alludes to these costs, as do many commentators.
172
The second, which is the immediate focus of our attention, is the protection of the expectation or reliance interests implicated by the promise of the assurance. These two amounts are sometimes, but not always, the same. In our present example of the assignment of receivables, they are the same.
When the promisee seeks to continue in the assignment arrangement, he seeks not only the satisfaction of the promise of the assurance, but also to receive amounts due under the original contract.
173 We will see examples in the next Part where the assurance promise creates the possibility that the promisor will become obligated to the promisee for amounts in excess of any due under the original contract.
But if we acknowledge—as we must—that the drafters of section 2-609 were concerned with the promisee’s economic loss, and we take full account of the spirit of the remedies section, it is hard to see why the assignment of receivables should not continue until the promisor’s obligation is satisfied, irrespective of the termination of the contract. The promisor has promised to commit those cash flows to the repayment of
172
Craswell, supra note 5, at 410-14; Garvin, supra note 5, at 112-16.
173
The promisee’s reliance costs are equal to the amounts he advanced to the promisor in reliance on his promise to assign receivables. His expectation interest is the same amount: he expects to be paid for his goods under the principal contract.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 205 the obligation, and if we are to take seriously the promissory character of adequate assurances, then until that promise has been fulfilled, it should be enforced.
If it is not to be enforced, the law ought to impose upon the promisor the burden of explaining why. As we have already discussed in Part III, the reason might be a want of consideration. But if the insecure promisee was well-counseled, he may have had the forethought to offer something in exchange for the promise. Alternatively, the promisee may have detrimentally relied on the promise (a wrinkle we will revisit in the next Part). The promisor might argue that his promise was coerced, but absent strong facts suggesting duress, he is not likely to succeed on that issue. Finally, the strongest possibility for categorically denying enforcement of the assurance promise once the original contract has come to an end lies in the possibility of treating the assurance promise as a modification of the original contract, rather than as a separate contract. We shall explore that possibility in the Epilogue.
In sum, there appears to be no reason to categorically deny enforcement of the assurance promise under the circumstances presented by our hypothetical. It is possible that the facts of the particular case will furnish reasons to do so, but at this point, there remains a strong case to be made for embracing the promissory character of adequate assurances and enforcing the assurance promise as a contract in its own right.
To the extent that we view adequate assurances as a doctrine whose primary purpose is to hold the deal together, we would be disinclined to conclude that certain assurance promises should endure in force after termination or breach, for once the promisee’s own performance obligations have come to an end, the insecurity, and thus the need for the assurances, vanishes.
Yet, as the language of the Official Comment makes clear, holding the deal together is not the only rationale for the doctrine.
174 It fosters other values, such as promoting communication between parties, encouraging dispute resolution, creating a self-help mechanism, and, above all, minimizing the promisee’s economic loss.
175 When we consider these other purposes, particularly ensuring that an injured party is compensated for his loss, it makes less sense to conclude that the assignment should stop once the contract is
174
U.C.C. § 2-609 cmt. 1 (revised 2003).
175
Id.

206 BROOKLYN LAW REVIEW [Vol. 76:1 terminated. If we treat the new promise as enduring even after the original contract has terminated, then we are embracing a view of adequate assurances as a sort of self-help remedy. The insecure party has been harmed and is empowered by law to extract a promise that will help make him whole. Until he has been made whole, the promise should retain its legal effect.
The question of duration is evidently a complicated one, which the courts have not yet adequately addressed. I hope I have presented a framework for thinking about how to resolve it. Ultimately, it probably ought to be answered with reference to the facts of an individual case, and will depend upon the courts coming to a clearer view of which of the competing rationales for adequate assurances is the most compelling.
Whichever view of duration eventually prevails, there remains one final set of issues—indeed the most important set for litigants—to be addressed.
V.
C ONSEQUENCES FOR D AMAGES
Apart from—and probably more important than—the implications for the duration of the promise, treating an assurance as an independently enforceable contract raises the question of what damages might be available for its breach.
Specifically, can the injured party recover the full measure of damages for the breach of the assurance promise even where the original contract provided for some limitation on remedies?
Such restrictions can take many forms, including stipulated damages, limitation to repair or replacement of defective parts, and exclusion of consequential damages.
In this part, I would like to explore the proposition that if the assurances comprise an enforceable promise, then the limitations on damages from the original contract should not apply to the new contract. The appeal of this position rests in logic, but there may be doctrinal or theoretical reasons that militate against it. To aid in our discussion of these considerations, consider the following hypothetical conflict that illustrates how the issue might arise.
Suppose we have a buyer and a seller who enter into a contract for the manufacture and sale of a specialized piece of machinery. The buyer has notified the seller about special losses he will suffer if the goods are not delivered in working order by a certain date. Despite the buyer’s disclosure that he will lose significant amounts of profitable business with each week the machine is late, the parties’ contract limits

2010] ADEQUATE ASSURANCES OF PERFORMANCE 207 consequential damages to one thousand dollars per week for lateness. Alternatively, we might imagine that the damages are simply limited to the cost of repair or replacement. As things turn out, before the time for delivery has arrived, the seller is having trouble getting the machine to work properly and announces that delivery will be delayed. The buyer, feeling insecure, demands assurances from the seller, specifically, retaining a special consultant to redesign the machine and troubleshoot the manufacturing process. The seller promises to do this. It comes to pass that the seller, confident that she will be able to solve the problem herself, and wishing to avoid the added expense of the expert consultant, never actually enlists the help of the expert, and the machine is never properly delivered.
The seller has thus conceivably breached two contracts.
Can the buyer sue on that second promise and avoid the limitation of damages that is contained in the principal contract, but not agreed to in the context of the assurances? If the promise of the assurance is treated as a contract, and the buyer suffers damages that are ordinarily recoverable under law, then the buyer ought to recover his full loss. Yet this conclusion may strike some readers as wrong at an intuitive level.
As we consider whether some legal principle informs our uneasiness with this conclusion, we should acknowledge a fundamental factual assumption built into this hypothetical.
This story assumes that the parties never bothered to work out the details of their assurances agreement. This is a completely realistic assumption; the cases reveal that parties pay relatively little attention to their assurances. In fact, as we have seen, parties sometimes do not even realize that they have actually demanded and given assurances.
176 Indeed, in his study of a sampling of cases on adequate assurances, Professor
James J. White reached this very conclusion, asserting that most cases do not involve a highly conscious or formal process of demanding and giving assurances; rather, they are decided on the basis of a judge’s construction of the parties’ haphazard, even unintentional, invocation of the doctrine.
177
Thus, another way of looking at this problem of damages is that it is one of incomplete contracts and default
176 supra notes 121-43 and accompanying text.
177
White, supra note 5, at 857-59.

208 BROOKLYN LAW REVIEW [Vol. 76:1 rules.
178 In other words, we can say that the problem for our buyer and seller is that, in agreeing to the assurances, they failed to negotiate and memorialize any agreement about the availability of consequential damages or damages otherwise in excess of those recoverable under the original contract.
The theory of default rules proceeds from the recognition that a fully specified contract—one in which the parties contemplate all possible contingencies and negotiate their contract to provide for them—is an impossibility.
179 Parties economize on transaction costs by negotiating only the most important terms, employing boilerplate, and leaving the resulting gaps to be filled by contract law, which supplies the default rules that will govern the situations that the parties themselves have not provided for.
180 Default rules can be broadly classed into two groups: majoritarian defaults and penalty defaults. A majoritarian default is one designed to approximate the rule most parties would have agreed to, had they taken the time to negotiate over the issue.
181 Majoritarian defaults thus are intended to be intuitive and unobjectionable, and often involve standards of reasonableness.
182
Contract theorists have identified a second form of default rule, described as a penalty default. A penalty default, as the name suggests, is designed to penalize one party or another, creating a winner and loser ex ante.
183 This sort of rule may be desirable to the extent that it has its intended effect: forcing parties to reveal information and bargain over the term in question before entering into the contract.
184 This
“information-forcing” effect, in turn, can increase the value of the contract to the parties and reduce the likelihood of litigation.
185 Also, since the information the parties have revealed to each other is often memorialized in the contract,
178
Barry E. Adler, The Questionable Assent of Hadley v. Baxendale, 51
S TAN .
L.
R EV . 1547 (1999); Ian Ayres & Robert Gertner, Strategic Contractual
Inefficiency and the Optimal Choice of Legal Rules , 101 Y ALE L.J. 729 (1992)
[hereinafter Ayres & Gertner, Contractual Inefficiency ]; Ian Ayres & Robert Gertner,
Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules , 99 Y ALE
L.J. 87 (1989) [hereinafter Ayres & Gertner, Filling Gaps ].
179
Ayres Gertner, , supra note 178, at 730.
180
Id.
at 731.
181
Id.
182
Ayres & Gertner, Filling Gaps , supra note 178, at 91.
183
Id . at 95-100.
184 at 97.
185
Ayres & Gertner, Contractual Inefficiency , supra note 178, at 735.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 209 the parties are ultimately revealing more information to the courts, which reduces the costs of litigation should any ensue.
186
In the context of this discussion, the question then becomes, what is the best default rule to govern the question of whether the insecure party can recover damages from the breach of the assurance promise in excess of those available under the principal contract? Let us first consider the best majoritarian default. The primary explanation for the incompleteness of contracts is, as mentioned above, economizing on transaction costs. It seems rather obvious to suppose that the damages rule most parties would prefer would be one that carries over the damages rule the parties had agreed to in their principal contract (I will call that the
Carryover Rule). Having expended the time and resources to negotiate limitations on damages when forming their contract
(recall the hypothetical), the parties would not agree ex ante to a rule that nullifies the effect of their earlier effort and requires them to renegotiate the same issue in the stressful context of their deteriorating relationship (which I will call the
Independent Damages Rule). I take this line of reasoning to be the basis for any intuitive discomfort we might have with an
Independent Damages Rule. The Carryover Rule would also have the advantage of being a rule that most business persons would expect to govern. As they are not excessively focused on obscure questions of law, we might expect them to think, why would the law disregard the agreement we have already reached on the availability of damages?
187
The Independent Damages Rule, on the other hand, would make an appropriate penalty default. Since the underperforming promisor would be liable for greater damages under this rule, she would have an incentive to negotiate with the insecure party over this term at the time she gives the assurances. This is not to say that she would necessarily
186
Ayres & Gertner, Filling Gaps , supra note 178, at 97.
187
Imputing this sort of common-sense reasoning to business persons comports with Llewellyn’s view of what a body of commercial law ought to be. See
Snyder, supra note 43, at 22-25. Llewellyn wrote:
The legal profession needs to have the men of commerce think of law and legal work, not as a baffling intricacy of ununderstandable [sic] technicality, but as a helpful device which can be seen, directly, to be helpful though safety requires the use of a lawyer’s skills in developing its help. . . . Commercial law requires to be for consumption by commercial men, as well as lawyers.
Memorandum from Karl Llewellyn on The Reasons for a Uniform Commercial Code (c.
1940), in W ILLIAM T WINING , K ARL L LEWELLYN AND THE R EALIST M OVEMENT 524-35 (1973).

210 BROOKLYN LAW REVIEW [Vol. 76:1 convince her counterpart to agree to alter the rule, but it might have the beneficial effect of inducing her to reveal information about the likelihood of her actually performing the new obligation she has undertaken. It would also cause her to compare the cost of non-performance with the cost of performance. This, in turn, could lead either to a more complete negotiation of the assurances, or to a reconfiguration of the original damages arrangement. Information about the likelihood of her compliance with the assurances would also assist the insecure party in determining the extent to which he should continue to rely on the principal contract and her assurances. Perhaps he has the opportunity to seek substitute goods elsewhere, make alternative arrangement with his customers, or hedge in some other manner. Finally, the information-forcing nature of the Independent Damages Rule would create greater certainty and predictability in any future litigation, for the parties would likely have memorialized any understanding they reached during their negotiations, and this documentation would aid a court in determining and enforcing the parties’ intentions.
To appreciate another way that the information-forcing character of a penalty default could be useful, consider a variation to our hypothetical. Assume now that in negotiating the original contract, the buyer had not spelled out the likely loss he would realize if the seller were to deliver the machine late and that the only limitation on damages is a repair or replacement clause. Suppose also that the buyer has received substantial orders for goods that will be made with the seller’s machine. If the Independent Damages Rule were in place, it would operate to induce the buyer to reveal to the seller the potential loss if she does not deliver the machine promptly.
Armed with this information, and the knowledge that she will be liable under the rule of Hadley v. Baxendale 188 for lost profits incurred by the buyer, the seller will be able to make a betterinformed judgment about how much effort to put into performing. This knowledge might also cause her to reevaluate whether in fact it is efficient for her to give the assurances the buyer requested; perhaps it would be better for her to breach the original contract and either settle with the buyer or leave herself liable only for the damages set out in the original contract.
188
(1854) 156 Eng. Rep. 145 (Ct. Exch.); 9 Exch. Rep. 341.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 211
The foregoing discussion suggests that while the
Carryover Damages Rule may comport with our intuition about what damages ought to be available, it tends to reinforce a problem that seems endemic to the adequate assurances process: the fact that parties appear not to pay sufficient attention to it.
Our discussion of the damages rule has, to this point, proceeded in reference to a hypothetical involving the availability of expectation damages. I consider this to be, in general, the weaker case for invoking the Independent
Damages Rule.
189 I will now introduce a hypothetical that presents detrimental reliance as the basis for imposing such a rule. Suppose an individual has hired an architect to design and build an architecturally significant house. The architect is running into a variety of problems, giving the landowner reasonable grounds for insecurity. In response to the buyer’s demand, the architect promises to bring in Frank Gehry as a consultant to solve the design problems. The buyer is delighted at having extracted this promise, and perceives that his house will be much more valuable when it becomes known that Frank
Gehry was a design consultant for the house. He informs other wealthy architecture enthusiasts about his soon-to-be-built
Frank Gehry home. He then enters into a contract to sell the home. As it turns out, the architect completes the house on time and perfectly according to specification. But, as you have probably guessed, he never hired Frank Gehry.
189
My sense of the comparative weakness of the case of expectation damages is of a piece with Fuller and Perdue’s classic evaluation of the relative strength of the moral claims of the expectation, reliance, and restitution interests in contract law. As
Fuller and Perdue explain:
[T]he promisee who has actually relied on the promise, even though he may not thereby have enriched the promisor, certainly presents a more pressing case for relief than the promisee who merely demands satisfaction for his disappointment in not getting what was promised him. In passing from compensation for change of position to compensation for loss of expectancy we pass, to use Aristotle’s terms again, from the realm of corrective justice to that of distributive justice. The law no longer seeks merely to heal a disturbed status quo, but to bring into being a new situation. It ceases to act defensively or restoratively, and assumes a more active role. With the transition, the justification for legal relief loses its self-evident quality. It is as a matter of fact no easy thing to explain why the normal rule of contract recovery should be that which measures damages by the value of the promised performance.
Lon L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages (Pt.
I) , 46 Y ALE L.J. 52, 55-56 (1936).

212 BROOKLYN LAW REVIEW [Vol. 76:1
This hypothetical presents two important features that challenge our understanding of the promissory character of adequate assurances of performance. First, we have a promisor who has fully performed his contract without any breach whatsoever. Second, the promisee’s reliance loss seems to be unrelated to the undertakings of the original contract. I have designed this hypothetical to strain the view of adequate assurances I have endorsed throughout this article. In this scenario, almost all of the values that adequate assurances aims to further are out the window. We are not holding the deal together. The promisee’s opportunistic reselling of his
Frank Gehry house has nothing to do with either the psychological or economic dimensions of insecurity. In performing the principal contract, the builder has made the promisee whole. Finally, we may have a residual intuitive sense that enforcing this promise simply is not what the doctrine of adequate assurances is all about.
However, at a certain level, none of these considerations is really relevant at all. For what we have is a promise—a promise that was detrimentally relied upon. We enforce promises either because they were given for consideration, or because they were detrimentally relied upon. In fact, as Fuller and Perdue (not to mention Aristotle) 190 have argued, we are more concerned with enforcing promises when the promisor, by making the promise, has caused harm to the promisee. Now certainly, in this case, the promisee might have trouble with some of the doctrinal requirements of promissory estoppel. This might not be a winning case because a court might conclude that nonenforcement would not be unjust; or perhaps that this sort of reliance was not foreseeable by the promisor. But all we would have to do is change a few facts (and not in a terribly unrealistic way) to bring this hypothetical within the ambit of section 90.
191 In any event, though the details of this hypothetical may make it an inappropriate case for enforcement, its structure forces us to confront the fact that adequate assurances often involve promises that can be relied upon, and that there is no obvious reason why the harm caused
190
A RISTOTLE , T HE N ICOMACHEAN E THICS eds., David Ross trans., Oxford Univ. Press 1998).
109-14 (J. A. Ackrill & J. O. Urmson
191
For example, if the builder simply knew that the landowner was not planning to live in the house, but to sell it for a profit, the chances for success under section 90 would be significantly higher.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 213 by such promises should be treated differently under law than other promises.
In this Part, I have shown that if we take seriously the promissory character of adequate assurances—if we accept that they can be enforceable promises—then we must confront practical considerations of the highest order, namely, the availability of damages for breach of contract. I have shown the practical significance of this issue through the exposition of realistic hypotheticals that demonstrate that real-world litigants would have a serious financial interest in the conflicts
I have constructed. Although I do not claim that principles of contract law require the adoption of the Independent Damages
Rule, I have provided a factual and theoretical framework for thinking about the question and have given meaningful reasons in support of the rule.
C
ONCLUSION
The doctrine of adequate assurances of performance has, since its inception, been relegated to the periphery of contract law. By highlighting the promissory character of adequate assurances, I hope to have convinced readers that the doctrine implicates the issues that rest at the very heart of contract theory. I have demonstrated that assurances can take the form of promises that deserve to be treated by the law as enforceable contracts. I have also explored the consequences that would follow from such a treatment, and most importantly, its effect on damages flowing from the breach of the assurance promise.
If one accepts my basic claim about the enforceability of these promises, then the difficult questions of duration and damages addressed in this article ought to provoke more attention from scholars. The next step in resolving these issues involves moving beyond the doctrinal, logical, and functional analyses that were the modalities of this article, and engaging in a more thoroughgoing theoretical analysis focusing on theories of promise and damages.
E PILOGUE
The purpose of this article has been to present an account of assurances that takes their promissory character seriously. A significant implication of such a treatment is that it forces us to consider the impact on damages if the promise of

214 BROOKLYN LAW REVIEW [Vol. 76:1 the assurances is breached. Specifically, if the assurance is treated as a promise giving rise to a contract, then logically, the breach of that promise would give rise to damages independent of those available under the original contract.
Similarly, we have seen that treating the assurance promise as a contract would lead us to think that the promise would remain enforceable even after the original contract was no longer in force. We have marshaled a variety of arguments— pro and con—on the questions of duration and damages, but in each case, we were working without the benefit of a clear legal rule that could neatly resolve these issues.
We have, however, hinted at the existence of such a simple means of resolution. Although the courts have not addressed the question, one can easily imagine a court treating the promise of the assurance as a modification of the original contract. Such a maneuver would obviate (or at least greatly simplify) the inquiry into whether the breach of the assurance promise could give rise to damages different from those available for breach of the underlying contract, or how long the assurance promise was to remain in effect. If the courts categorically treated assurances as modifications, then there would be no question of damages under a separate contract and no confusion over duration.
But it is not clear that the courts would disfavor treating the promise of the assurance as a distinct promise, one with its own integrity and one whose breach could give rise to damages that might not be available under the initial contract.
This line of inquiry requires consideration of a slightly modified question; namely, which new promises between parties to a contract amount to a modification and which amount to a new contract? Unfortunately, the law of modification does not provide a clear doctrinal framework for answering that question. Moreover, there exists an ample scholarly literature on modification that completely overlooks this question.
192 Yet this omission cannot be ascribed to the notion that the question is too rarefied or esoteric to merit an applicable legal rule.
192
See, e.g.
, Robert A. Hillman, Contract Modification Under the Restatement
(Second) of Contracts , 67 C ORNELL L.
R EV . 680 (1982); Thomas J. Miceli, Over a Barrel:
Contract Modification, Reliance and Bankruptcy , 22 I NT ’ L .
R EV .
L.
& E CON . 41 (2002);
John E. Murray, Jr., The Modification Mysters: Section 2-209 of the Uniform Commercial
Code , 32 V ILL .
L.
R EV . 1 (1987); Irma S. Russell, Reinventing the Deal: A Sequential
Approach to Analyzing Claims for Enforcement of Modified Sales Contracts , 53 F LA .
L.
R EV . 49 (2001); Snyder, supra note 121; Richard E. Speidel, Contract Formation and
Modification Under Revised Article 2 , 35 W M .
& M ARY L.
R EV . 1305 (1994).

2010] ADEQUATE ASSURANCES OF PERFORMANCE 215
Indeed, multiple promises are a very common occurrence between contracting parties. Consider the following example.
Buyer and seller have a contract under which buyer agrees to purchase all of its requirements of soda from the seller, with a minimum quantity of one thousand cases of soda per month for a year. Buyer and seller agree that the varieties of soda will be determined at the time of the placement of each purchase order, once a week, at seller’s posted wholesale price.
In the middle of the contract, seller introduces a new item to its product lineup: iced tea. If the parties agree that buyer will start purchasing iced tea, have they made a new contract or modified their original agreement?
As this hypothetical suggests, there is nothing exceptional about parties to an executory contract making new promises. There are several ways the parties might address these new promises that bear on the question at hand. They might document the new promise with a new form agreement, indicating a subjective intention that the new promise constitutes a new contract. They might explicitly indicate their intention that the new promise acts as a modification of their original agreement. Parties with ongoing relationships also commonly execute master contracts which contemplate new undertakings and provide for easy documentation, such as purchase orders, for any subsequent orders. Alternatively, the parties might not give any thought whatsoever to the classification of the new promise as a modification or separate contract.
The Restatement offers some insight into the question, but it does not necessarily answer our question. A somewhat obscure Comment to section 231 of the Second Restatement provides some doctrinal guidance.
When each party gives more than one promise, or gives some performance in addition to a promise, it may not be clear whether there is a single exchange of promises resulting in a single contract or separate exchanges resulting in separate contracts. If every promise by one party is at least part of the consideration for every promise by the other party, there is a single exchange in which all of the promises on each side are exchanged for all of those on the other side. . . . The form of the agreement is not controlling, and the actual bargain of the parties is not to be determined merely by reference to such criteria as whether separate performances are made the subject of a single promise or of separate promises, whether separate promises are contained in a single writing or in separate writings, or

216 BROOKLYN LAW REVIEW [Vol. 76:1 whether the understanding of the parties is entirely written or oral or is partly written and partly oral.
193
While, on first reading, this text seems to offer the promise of some guidance for our question, this impression largely dissolves when one grasps the actual purpose of this complex passage. The purpose of this rule is to resolve disputes over whether two contracts, executed essentially simultaneously, but in separate documents, ought to be treated as a single contract or as two contracts. While the factual scenario contemplated by the rule is distinct from the one under consideration in this article, it is conceptually related, and therefore worthy of some further discussion.
Consider the following scenario and commentary: X owns a bowling alley and would like to sell it, but wishes to continue working after he sells his business. He agrees to sell the business to Y for an amount that reflects the fair value of the business. The two parties execute an agreement of sale at a lawyer’s office, and at the same time execute another written agreement under which X will work for Y as a manager for
$75,000 per year. Three weeks later and before the sale transaction closes, Y unjustifiably fires X . May X refuse to complete the sale of the business to Y ? As Professor John
Murray’s treatise explains,
The determination of whether there is one contract or two contracts is highly significant. If there are two contracts, Y has breached the employment contract and X has breached the sales contract.
However, if there is only one contract, Y has breached the single contract and X has not breached since X was excused from any further performance of his duties to complete the transfer of the business upon the breach of duty by Y.
194
The test offered by the Restatement requires a court to focus on the intent of the parties, rather than the form of the agreement.
195
So we have here a legal rule that to some degree addresses the question of whether a subsequent promise constitutes a separate contract. But we also must recognize that the rule is meant to apply to separate promises that were made at the time of formation. Still, the consequence of the classification (one contract or two) affects the very question
193
R ESTATEMENT (S ECOND ) OF C ONTRACTS § 231 cmt. d (1981).
194
J OHN E DWARD M URRAY , J R ., M URRAY ON C ONTRACTS § 105, at 659 (4th ed. 2001).
195
Id.

2010] ADEQUATE ASSURANCES OF PERFORMANCE 217 about damages that is fundamental to the problem of assurances we are exploring in this article. Regrettably, by making the parties’ intent the key to resolving the question, the Restatement effectively abstains from providing any meaningful guidance that might be of use in distinguishing a modification from a new contract.
Contract law has other minor doctrines that, when viewed at a distance, appear promisingly to address issues analogous to ours. Among these are accord and satisfaction, novation, and the doctrine of substituted contracts. Yet these too prove to be dead ends. In the absence of a clear, comprehensive method of distinguishing between modifications and new contracts, a court interested in classifying assurance promises as modifications would be left to resort either to an intention-of-the-parties analysis, or a functional analysis of the sort we engaged in in Parts IV and V.

*
Judith M. Stinson †
I cannot tell you how many times I have read briefs asserting an improbable proposition of law and citing a case as authority. The proposition sounds so dubious that I immediately look it up to see if the cited court can really have made this ruling. So often I find the proposition is indeed there, but was uttered in dictum—where the court paid no price, and consequently paid little attention.
1
I
NTRODUCTION
For close to a century, members of the legal profession have debated the distinction between holding and dicta.
2
Even
*
© 2010 Judith M. Stinson. All rights reserved.
†
Clinical Professor of Law, Sandra Day O’Connor College of Law at Arizona
State University. J.D., University of Arizona College of Law. B.A., University of
Arizona. I would like to thank the Sandra Day O’Connor College of Law for its generous support of this article, and also thank Bob Bartels, Beth Brennan, Sue
Chesler, Daniel Dabney, Kirsten Davis, Ira Ellman, Peter Friedman, Andrea Susnir
Funk, Christi Klein, Tamara Herrera, Andy Hessick, Carissa Hessick, Marcy Karin,
Nancy Kippenhan, Amy Langenfeld, The Honorable Pierre Leval, Senior Judge, United
States Court of Appeals for the Second Circuit, Kelley Mauerman, Lisa Mazzie, Terry
Pollman, Brian Sawers, George Schatzki, Mary Sigler, Karen Sneddon, Carrie
Sperling, Doug Sylvester, Lisa Taylor, Tory Trotta, and participants at the ALWD
Scholars’ Workshop held at the James E. Rogers College of Law for their helpful comments and suggestions on this project. Thanks also to Laura Curry, Beth DiFelice, and Amy Levine for their outstanding research assistance. Finally, I would like to thank the editors of the Brooklyn Law Review for their outstanding editorial work on this article.
1
Pierre N. Leval, Judging Under the Constitution: Dicta About Dicta , 81
N.Y.U.
L.
R EV . 1249, 1263 (2006).
2
See, e.g.
, Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 66-67 (1996);
Ingram v. Comm’r of Soc. Sec. Admin., 496 F.3d 1253, 1265-66 (11th Cir. 2007); Tate v.
Showboat Marina Casino P’ship, 431 F.3d 580, 582 (7th Cir. 2005); Cetacean Cmty. v.
Bush, 386 F.3d 1169, 1173-74 (9th Cir. 2004); People v. Williams, 788 N.E.2d 1126,
1135-37 (Ill. 2003); State v. Baby, 946 A.2d 463, 495-99 (Md. 2008) (Raker, J., dissenting); R ICHARD A.
P OSNER , T HE F EDERAL C OURTS : C HALLENGE AND R EFORM 177-
78 (1996); Michael Abramowicz & Maxwell Stearns, Defining Dicta , 57 S TAN .
L.
R EV .
953 (2005); Ruggero Aldisert, Precedent: What It Is and What It Isn’t; When Do We Kiss
It and When Do We Kill It?
, 17 P EPP .
L.
R EV . 605 (1990); Larry Alexander, Constrained by Precedent , 63 S.
C AL .
L.
R EV . 1, 25 (1989); David Coale & Wendy Couture, Loud
Rules , 34 P EPP .
L.
R EV . 715, 716 (2007); Dictum Revisited , 4 S TAN .
L.
R EV . 509 (1952);
Michael Dorf, Dicta and Article III , 142 U.
P ENN .
L.
R EV . 1997, 1998 (1994); Thomas
Fowler, Holding, Dictum . . . Whatever , 25 N.C.
C ENT .
L.J. 139 (2003); Henry J.
219

220 BROOKLYN LAW REVIEW [Vol. when judges and scholars have articulated seemingly workable definitions, difficulty still remains in applying them to real cases. This debate has gone on for so long that one questions whether the problem can ever be resolved. But most of the debate to date has focused on determining what qualifies as holding—and therefore by negative inference—what qualifies as dicta. Some authors have attempted to clarify existing definitions, 3 while others have proposed new definitions.
4 Yet little attention has been paid to why , even after substantial consideration, lawyers and judges continue to confuse dicta for holding and holding for dicta. No doubt, the distinction is difficult to articulate, and that alone suggests that confusion in the application is inevitable. However, even if such confusion is unavoidable, understanding the reasons that underlie it may allow us to establish practices that would help clarify the holding/dicta distinction.
Because of the rule-making power judges enjoy under principles of stare decisis,
5
our judicial system depends on
Friendly, In Praise of Erie —and of the New Federal Common Law , 39 N.Y.U.
L.
R EV .
383, 385-86 (1964); Arthur Goodhart, Determining the Ratio Decidendi of a Case , 40
Y ALE L.J. 161 (1930); Kent Greenawalt, Reflections on Holding and Dictum , 39 J.
L EG .
E D . 431 (1989); Leval, supra note 1; Adam Steinman, A Constitution for Judicial
Lawmaking , 65 U. P ITT . L. R EV . 545 (2004); Lisa M. Durham Taylor, Parsing Supreme
Court Dicta to Adjudicate Non-Workplace Harms , 57 D RAKE L.
R EV . 75 (2008); Patricia
M. Wald, The Rhetoric of Results and the Results of Rhetoric: Judicial Writings , 62 U.
C HI .
L.
R EV . 1371, 1408 (1995).
3
See, e.g.
, Alexander, supra note 2; Dorf, supra note 2.
4
See, e.g.
, Abramowicz, supra note 2, at 1044-94.
5 e.g.
, P OSNER , supra note 2, at 371-82; Leval, supra note 1, at 1258-59;
Steinman, supra note 2, at 552; Aldisert, supra note 2, at 607, 628; Frederick Schauer,
Do Cases Make Bad Law?
, 73 U.
C HI .
L.
R EV . 883, 886 (2006); Erwin Chemerinsky,
Seeing the Emperor’s Clothes: Recognizing the Reality of Constitutional Decision
Making , 86 B.U.
L.
R EV . 1069, 1069 (2006) (“[A]ny first year law student knows that judges make law constantly.”).
The subject of stare decisis continues to capture attention. Stephen Colbert recently dedicated a segment of The Colbert Report to the principle of stare decisis.
That segment, “The Word—Prece-Don’t” (mocking “precedent”), began with Colbert saying: “I believe in America’s legal system, except when it makes rulings I don’t like.”
The Colbert Report , The Word—Prece-Don’t (Comedy Central television broadcast Jan.
27, 2010), available at http://www.colbertnation.com/the-colbert-report-videos/262612/ january-27-2010/the-word---prece-don-t [hereinafter Colbert Report ]. He added that those decisions are lasting because of stare decisis. Id.
He then noted, however, that
“Chief Justice John Roberts has a brilliant legal strategy to get around following precedent.” Id.
Colbert criticized Chief Justice Roberts’s concurring opinion in Citizens
United v. Federal Election Commission , 130 S. Ct. 876 (2010) (Roberts, C.J., concurring). Colbert Report , supra . Colbert claimed that Justice Roberts’s reliance on the “two ‘spirited dissents’” in a 1990 decision as a reason to overrule that authority,
Citizens United , 130 S. Ct. at 922, will disrupt stare decisis .
Colbert Report , supra .
Although Colbert acknowledged that there is “ample precedent for ignoring precedent”
(citing Bush v. Gore , 531 U.S. 98 (2000)), “[a]ccording to Chief Justice Roberts, any
Supreme Court precedent that was not unanimous is now in question.” Id.
Colbert

2010] WHY DICTA BECOMES HOLDING 221 understanding what is and what is not a holding. Everyone agrees that subsequent courts are bound only by a prior case’s holding.
6 But too often lawyers argue for, and judges treat, extraneous statements made in a prior case—that is, dicta—as holding. This ratcheting up of persuasive law into binding law is problematic on a number of fronts. To the extent that courts treat dicta as holding, they are more likely to reach incorrect decisions, to exceed their judicial authority, and to generate illegitimate results.
This article aims to identify the causes that lead to the repeated conflation of dicta with holding. Based on these underlying causes, it advances a few tentative proposals to reduce the confusion between holding and dicta and its detrimental impact on the judicial system. Part I discusses the distinction between holding and dicta. It also identifies the major justifications for the distinction: accuracy, judicial authority, and legitimacy. Part II provides a series of concrete examples to demonstrate the problems that ensue when courts blur holding and dicta and how that results in dicta being elevated to holding.
Part III identifies three potential culprits for the holding/dicta confusion, which remains despite the vast quantity of ink spilt attempting to clarify the distinction. The first cause is the recursive nature of the legal system, which essentially causes a “ripple effect.” Judges confuse holding and dicta, which then confuses lawyers; lawyers blur holding and dicta, which then confuses judges.
7 And both groups may be confused even further by the unresolved scholarly debate on the topic.
8
The second cause of confusion is the tendency of courts to mimic the Supreme Court.
9 The purpose, structure, and practice of the Supreme Court differ greatly from those of other federal courts and of state courts. The Supreme Court sets broad policy, which invites espousing dicta that would be unnecessary if the Court’s sole function were to narrowly resolve litigants’ disputes.
10 The Court also issues less than one concluded that “[f]uture courts must respect Justice Roberts’s decision that he doesn’t have to respect previous decisions.” Id.
6
See, e.g.
, Abramowicz, supra note 2, at 957; Aldisert, supra note 2, at 607;
Leval, supra note 1, at 1259.
7
See infra Part III.A.
8
See infra note 111.
9
See infra Part III.B.
10
See infra note 119 and accompanying text.

222 BROOKLYN LAW REVIEW [Vol. hundred opinions each year, and those opinions tend to be lengthy, allowing more space for extraneous commentary— which, in judicial terms, means dicta.
11 Yet other courts look to the Supreme Court in formulating their own judicial opinions.
12
This exacerbates the confusion between holding and dicta.
The third cause is the overemphasis on words, phrases, and quotations to the exclusion of legal principles.
13 Holdings are rarely presented in neatly packaged statements. To determine the holding of a case, the reader must analyze the facts, issues, rationales, and result of that case.
14 In contrast to the difficult task of determining a case’s holding, it is often easy to locate language in an opinion that, on its face, supports a particular position, even when the case itself does not stand for that proposition.
15 This reliance on words, phrases, and quotations increases the likelihood that dicta will be confused for a court’s actual holding. This overemphasis has evolved for a number of reasons. First, the changing nature of opinion writing—caused by increasing case loads and the greater reliance on law clerks—plays a part.
16
Second, the ability via electronic legal research to search for key words rather than broader concepts contributes as well.
17
Third, current citation rules reflect a bias toward statements made by courts over case holdings.
18
And fourth, changes in broader society—changes to which the legal community is not immune—suggest an overemphasis on words, phrases, and quotations.
19
Finally, Part IV concludes, suggesting some potential solutions to minimize the confusion between holding and dicta, and ways to mitigate its negative consequences. First, education is perhaps the single most promising antidote to this problem.
20 Second, increasing judicial resources would allow for more time to be spent on each opinion, also reducing the confusion between holding and dicta.
21 Finally, changes to key citation and ethical rules would provide a mechanism for
11
See infra notes 120-22 and accompanying text.
12
See infra notes 126-30 and accompanying text.
13
See infra Part III.C.
14
See infra note 132 and accompanying text.
15
See infra notes 155-72 and accompanying text.
16
See infra Part III.C.1.
17
See infra Part III.C.2.
18
See infra Part III.C.3.
19
See infra Part III.C.4.
20
See infra notes 197-210 and accompanying text.
21
See infra notes 211-13 and accompanying text.

2010] WHY DICTA BECOMES HOLDING 223 lawyers and judges to make it explicit when they were relying on dicta and ensure that they would be properly motivated to pay attention to the distinction between holding and dicta.
22
I. R EASONS FOR THE H OLDING /D ICTA D ISTINCTION
Much has been written about the holding/dicta distinction, both by judges and by scholars.
23 A holding is generally thought of as those parts of a judicial opinion that are
“necessary” to the result.
24 Dictum, on the other hand, is anything in a judicial opinion that is not the holding.
25 But the distinction is more difficult to capture in practice than these narrow definitions suggest.
26 In light of the problems created by the blurred holding/dicta distinction, a number of judges and scholars have attempted to create a more workable definition of
“holding” than those parts of the opinion “necessary to the result.” 27 The majority of attempts fall within one of two camps:
(1) a holding is limited to the facts plus the outcome; 28 and (2) a
22
See infra notes 214-23 and accompanying text.
23
See debate, see Taylor, supra note 2, at 97-100.
24
See, e.g.
, Greenawalt, supra note 2, at 435; Coale, supra note 2, at 726;
Dorf, supra note 2, at 2003.
Abramowicz and Stearns propose a new definition: “A holding consists of those propositions along the chosen decisional path or paths of reasoning that (1) are actually decided, (2) are based upon the facts of the case, and (3) lead to the judgment.
If not a holding, a proposition stated in a case counts as dicta.” Abramowicz, supra note
2, at 961.
25
See, e.g.
, Greenawalt, supra note 2, at 435; Leval, supra note 1, at 1257
(“To say that a court’s statement is a dictum is to say that the statement is not the holding.”).
26
See, e.g.
, Alexander, supra note 2, at 25 (“I should add a word about the distinction between holding and dictum, the existence of which all lawyers are trained to acknowledge, but the determination of which proves in practice to be quite controversial.”); Dictum Revisited , supra note 2, at 509 (“Every lawyer thinks he knows what [dictum] means, yet few lawyers think much more about it. Nonthinking and overuse combine to make for fuzziness.”); Dorf, supra note 2, at 2003, 2028; Leval, supra note 1, at 1258; see also Cetacean Cmty. v. Bush, 386 F.3d 1169, 1173 (9th Cir.
2004) (noting the “line is not always easy to draw” but concluding in that case that the statement at issue was non-binding dicta). The distinction may be difficult in part because, as some have argued, precedent is a “matter of degree.” See, e.g
., Dorf, supra note 2, at 2050; Dictum Revisited , supra note 2, at 518.
27 e.g
., Aldisert, supra note 2; Alexander, supra note 2; Dorf, supra note
2; Goodhart, supra note 2, Leval, supra note 1.
28
See, e.g.
, Alexander, supra note 2, at 29-30. Under the “facts plus outcome” theory, limiting the holding to the underlying facts and the final result ensures courts do not go beyond the particular case before them and create broad or prospective rules that bind others. See, e.g
., Aldisert, supra note 2, at 607; Goodhart, supra note 2, at
162, 179, 182. This approach is appealing, most significantly because it is arguably easier to identify the facts and outcome of a given decision than it is to articulate the rationale/reasoning. However, judges rarely state every relevant fact in an opinion, and

224 BROOKLYN LAW REVIEW [Vol. holding includes the rationale or reasoning a court employs to reach a particular result.
29
For purposes of this article, the precise definition of holding (and therefore dicta) is immaterial. Even using a liberal definition of holding, which would include the rationale supporting the court’s decision, lawyers and judges regularly treat dicta like a case’s holding.
30 Many have pointed out the plethora of problems that ensue when the distinction is not preserved.
31 In addition to the general instability that arises judicial efficiency suggests this might be justified, especially when the outcome is a relatively foregone conclusion, as in many criminal appeals. Additionally, the facts in a particular case are almost never identical to the facts in a subsequent case. See
Aldisert, supra note 2, at 613-17.
29
Dorf, supra note 2, at 2024. Under the rationale/reasoning approach, courts are more able to determine how broadly or narrowly the facts from a previous case should be interpreted. See, e.g.
, Friendly, supra note 2, at 385-86; Leval, supra note 1, at 1256-57; see also Hart v. Massanari, 266 F.3d 1155, 1170-71 (9th Cir.
2001). Under this theory, the underlying principles in a judicial opinion are binding. In addition to resolving concerns about the level of factual abstraction, the main benefit of this approach is stability: judges have less ability to distinguish binding precedent simply because they do not wish to follow it. Dorf, supra note 2, at 2024. If the rationale is the same, the later court is bound. Tate v. Showboat Marina Casino P’ship,
431 F.3d 580, 582 (7th Cir. 2005) (concluding that “the holding of a case includes, besides the facts and the outcome, the reasoning essential to that outcome”). However, discerning the rationale or reasoning from a prior case is not always easy to do. Dorf, supra note 2, at 2040.
30
See infra notes 81-102 and accompanying text. Literary critics, however, would challenge even the underlying distinction between holding and dicta. They argue that “there are no determinate meanings and that the stability of the text is an illusion.” S TANLEY F ISH , I S T HERE A T EXT IN T HIS C LASS ?: T HE A UTHORITY OF
I NTERPRETIVE C OMMUNITIES 312 (1980). Applying this principle to the law, case holdings are neither firm nor universally determinable. Instead, literary critics argue that each reader’s interaction with the text is what creates meaning, and that meaning is necessarily influenced by the reader’s experiences and perspectives. See, e.g.
, id.
at 2
(arguing that meaning is not “embedded in the text” leaving the reader to simply accurately identify that meaning; instead, “meaning develops . . . in a dynamic relationship with the reader’s expectations, projections, conclusions, judgments, and assumptions”); James Boyd White, Legal Knowledge , 115 H ARV .
L.
R EV . 1396, 1398
(2002) (“Any claim that the law is this or that, or should be read in this or that way, must be made with the awareness that someone else, with adverse interests, may challenge it.”). And even if holdings can be determined, “all readers of legal texts, judges as well as law students, subconsciously supply multiple contexts when they read, whether they believe they do or not.” Elizabeth Fajans & Mary R. Falk, Against the Tyranny of Paraphrase: Talking Back to Texts , 78 C ORNELL L.
R EV . 163, 166 (1993).
For a good summary of this debate, see Terrill Pollman, Building a Tower of Babel or
Building a Discipline? Talking About Legal Writing , 85 M ARQ .
L.
R EV . 887, 900-03
(2002). These criticisms have some merit but are beyond the scope of this article, which presumes for the sake of argument that case holdings are determinable, and therefore the distinction between holding and dicta is valid.
31 e.g.
, Ingram v. Comm’r of Soc. Sec. Admin., 496 F.3d 1253, 1266 (11th Cir.
2007); State v. Baby, 946 A.2d 463, 495 (Md. 2008) (“Whether the statement is dicta or a holding is not merely an academic exercise, but instead, has real significance in the event there is a retrial of this case, for several reasons.”) (Raker, J., dissenting); Abramowicz, supra note 2, at 958; Dorf, supra note 2, at 2004; Leval, supra note 1, at 1250.

2010] WHY DICTA BECOMES HOLDING 225 when rules are unclear,
32
certain legal claims require that we be able to readily determine holdings.
33
To combat these general and specific problems, the three most persuasive rationales for maintaining the distinction between holding and dicta are: (1) accuracy, (2) judicial authority, and (3) legitimacy.
A. Accuracy
Accuracy refers to the likelihood that a court’s decision is actually correct.
34 In a judicial system based upon stare decisis, reaching the “correct” result is important because holdings bind future courts, so the impact of a single decision is often magnified. And a court is simply more likely to be right when all the arguments relevant to a particular point are articulated, when a judge thoroughly considers all of those arguments, and when the point is essential to the outcome or decision.
35 Statements without full consideration of the merits 36 are more likely to be wrong for obvious reasons: counsel may not have argued the issue or fleshed out the range of options, and the court may not have devoted much time or effort to resolving the problem.
Even when a court has thoroughly considered the issue,
37
if the statement has no impact on the merits, a court is
32 e.g.
, Dorf, supra note 2, at 2004-05; Leval, supra note 1, at 1255.
33
For example, in order to pierce a public official’s qualified immunity, the plaintiff has to demonstrate both that the defendant violated her constitutional right and that “the right at issue was ‘clearly established’ at the time of defendant’s alleged misconduct.” Pearson v. Callahan, 129 S. Ct. 808, 815-16 (2009). When holdings and dicta are indistinguishable, it is difficult to imagine any “clearly established” rights.
34 supra note 2, at 2000; see also Coale, supra note 2, at 725.
35 supra note 1, at 1255 (“The distinction [between holding and dicta] is not a mere technicality. . . . [C]ourts are more likely to exercise flawed, ill-considered judgment, more likely to overlook salutary cautions and contraindications, more likely to pronounce flawed rules, when uttering dicta than when deciding their cases.”); see also Greenawalt, supra note 2, at 434 (“Courts are most to be trusted when they focus on particular disputes. . . . What courts decide, therefore, is much more reliable than their passing comments on peripherally related legal subjects.”).
36
These statements are termed “obiter dicta” and they tend to be the most suspect in terms of accuracy. See, e.g.
, Phelps Dodge Corp. v. Ariz. Dep’t of Water Res.,
118 P.3d 1110, 1116 n.9 (Ariz. Ct. App. 2005); People v. Williams, 788 N.E.2d 1126,
1136 (Ill. 2003); Aldisert, supra note 2, at 609; Leval, supra note 1, at 1260.
Some courts suggest that even obiter dicta, when issued by “a court of last resort,” can be binding absent contrary authority. Williams , 788 N.E.2d at 1136
(quoting the dissenting opinion of the lower court judge questioning “why the Supreme
Court bothered to publish the dicta that we have decided to ignore”).
37
These statements, termed “judicial dicta” or “considered dicta,” are those statements made after full and careful consideration of the issues but that are not

226 BROOKLYN LAW REVIEW [Vol. more likely to be wrong.
38
In these instances, the court has less incentive to ensure the “correct” decision because it is not binding on the parties before the court, 39 much less future litigants.
40 essential to the result. See, e.g.
, Coale, supra note 2, at 727-28; Taylor, supra note 2, at
93-94; see also Williams , 788 N.E.2d at 1136.
Courts and commentators are less concerned with the accuracy of judicial dicta because it was more thoroughly considered than obiter dicta. See, e.g
., Red 11,
LLC v. Conserv. Comm’n of Fairfield, 980 A.2d 917, 927 n.9 (Conn. App. Ct. 2009)
(stating that considered dicta is binding). The Red 11, LLC court justified reliance on dicta in a previous opinion by the Appellate Court of Connecticut with this language:
“As we have previously recognized, . . . it is not dictum when a court of [appeal] intentionally takes up, discusses, and decides a question germane to, though not necessarily decisive of, the controversy . . . . Rather, such action constitutes an act of the court which it will thereafter recognize as a binding decision.” Id.
(alteration in original) (citations omitted).
The quoted passage, although cited to an earlier Connecticut case, originated in a 1922 Wisconsin case, Chase v. American Cartage Co.
, 186 N.W. 598, 599
(Wis. 1922). That court stated, however, not that the considered dicta of any court of appeal (the bracketed language above) is binding, but that the considered dicta from a court of last resort was binding. Id.
Furthermore, the decision in Chase relied on rulings in the alternative (first that the court would not extend a rule, and second that the court would overrule the principle to begin with), and most courts recognize alternative rulings as binding holdings, not dicta, in the first place. Id.
Similarly, some argue that judicial dictum is binding “absent a cogent reason for departing from it.” Phelps Dodge Corp.
, 118 P.3d at 1116; see also Williams ,
788 N.E.2d at 1136 (arguing judicial dicta “should receive dispositive weight in an inferior court”). Yet because it is not necessary for the result, even if thoughtfully contemplated, most posit that it remains dicta and has no binding power over future courts. Coale, supra note 2, at 727-28 (but noting that because the accuracy concerns are absent, judicial dicta is afforded “greater deference” than “ordinary dicta,” with courts treating judicial dicta “almost like holdings”). Furthermore, dicta in this category still suffer from the second and third reasons articulated for rejecting its ability to bind future courts: the issuing court exceeded its judicial authority to promulgate the statement unless it was necessary to the case before the court, and its promulgation is arguably illegitimate. See infra notes 48-71 and accompanying text.
38
Judge Leval points out that when a declared rule has “no consequence for the case”—i.e., it is dicta—courts are unlikely to pay much attention to the rule. “In my experience, when courts declare rules that have no consequence for the case, their cautionary mechanism is often not engaged. They are far more likely in these circumstances to fashion defective rules, and to assert misguided propositions , which have not been fully thought through.” Leval, supra note 1, at 1263 (emphasis added).
39
Although this argument is somewhat circular—considered dicta is less likely to be accurate because the court knows it is non-binding dicta, and the holding/dicta distinction should be preserved to prevent inaccurate decisions—it remains true that courts should bind future parties only when there exists the highest level of confidence in those decisions. For example, courts regularly exercise their discretion to denote opinions as “unpublished,” eliminating any binding effect on future litigants. Amy E. Sloan, The Dog that Didn’t Bark: Stealth Procedures and the Erosion of Stare Decisis in the Federal Courts of Appeals , 78 F ORDHAM L.
R EV . 713, 765 (2009).
40
Even for case holdings, the widespread practice of designating judicial opinions as “unpublished,” and therefore non-binding, demonstrates the need to restrict the reach of judicial decisions when there is less confidence in their accuracy.
J. Thomas Sullivan, Unpublished Opinions and No Citation Rules in the Trial Courts ,
47 A RIZ .
L.
R EV . 419, 421 (2005); cf.
Scott E. Gant, Missing the Forest for a Tree:
Unpublished Opinions and New Federal Rule of Appellate Procedure 32.1
, 47 B.C.
L.

2010] WHY DICTA BECOMES HOLDING 227
This result is not unique to dicta; courts similarly cannot rule, and therefore cannot create binding precedent, in cases absent standing 41 or when the decision is moot.
42 When a party does not have standing or a decision would be moot, the opportunities and incentives for a full adversarial process are lessened; the same holds true when a court espouses dicta. In addition to ensuring the court is within its authority by deciding an actual case or controversy, 43 these requirements are more likely to result in the “right” decision.
44
Some courts seem to defer to the deciding court, granting special consideration to the intent of the court issuing judicial dicta.
45 Rarely, though, does a court’s intention appear to be dispositive.
46 As Judge Leval so clearly articulated,
R EV . 705 (2006) (arguing that courts should have addressed the propriety of issuing unpublished opinions in the first place when they debated whether to adopt a rule allowing citation to unpublished opinions).
41 e.g.
, Cass R. Sunstein, What’s Standing After Lujan ?
Of Citizen Suits,
“Injuries,” and Article III , 91 M ICH .
L.
R EV . 163, 168-82 (1992); see also Flast v. Cohen,
392 U.S. 83, 101 (1968) (standing focuses on “whether the party invoking” jurisdiction has “‘a personal stake in the outcome of the controversy,’ and whether the dispute touches upon ‘the legal relations of parties having adverse legal interests’”) (citations omitted). The Court added that “personal stake and interest . . . impart the necessary concrete adverseness” to the litigation, conferring standing. Id.
The “nexus” requirement in turn provides confidence in the final decision. Id.
at 101-06.
42
See generally Evan Tsen Lee, Deconstitutionalizing Justiciability: The
Example of Mootness , 105 H ARV .
L.
R EV . 603 (1992). And although mootness has an
Article III component, that cannot be the exclusive justification, as exceptions are somewhat routinely granted. See, e.g.
, id.
at 609; see also Honig v. Doe, 484 U.S. 305,
330 (1988) (Rehnquist, C.J., concurring).
43 infra notes 48-66 and accompanying text.
44
See, e.g
., Amanda Frost, The Limits of Advocacy , 59 D UKE L.J. 447, 460
(2009) (standing ensures “that courts decide only those issues that are briefed and argued by stakeholders with an incentive to adequately represent their interests to the court, which in turn will produce better judicial decisions”). But see Schauer, supra note 5, at 918 (noting “real events, real parties, real controversies, and real consequences may have distorting effects as well as illuminating ones”).
45
Phelps Dodge Corp. v. Ariz. Dep’t of Water Res., 118 P.3d 1110, 1116 n.9
(Ariz. Ct. App. 2005) (“‘Judicial dictum’ is a statement the court expressly declares to be a guide for future conduct and is therefore considered authoritative.”).
46
See, e.g.
, E DWARD H.
L EVI , A N I NTRODUCTION TO L EGAL R EASONING 2
(1949) (noting it “is not what the prior judge intended that is of any importance; rather it is what the present judge, attempting to see the law as a fairly consistent whole, thinks should be the determining classification”); Abramowicz, supra note 2, at 955.
But see Bush v. Gore, 531 U.S. 98, 109 (2000) (stating the Court’s “consideration is limited to the present circumstances”). The anticipated breadth or limits of a court’s decision arguably are of no consequence; the holding is binding, and the remainder, although it may be highly persuasive, is not binding. But see Teresa Godwin Phelps &
Jenny Ann Pitts, Questioning the Text: The Significance of Phenomenological
Hermeneutics for Legal Interpretation , 29 S T .
L OUIS U.
L.J. 353, 355-62 (1985); Wald, supra note 2, at 1398 (“The way in which the court describes its own holding may also be important for its future precedential status. Sometimes the court emphasizes the narrowness of what it is deciding; at other times it tells the audience that this is a broader benchmark opinion, putting other prior cases in perspective.”). Authorial

228 BROOKLYN LAW REVIEW [Vol.
“dictum is not converted into holding by . . . preceding it with
‘We hold that . . . .’” 47
B. Judicial Authority
Courts can only create binding law when they actually have the power to do so.
48 Several authors have commented on the potential constitutional problems created by federal courts espousing dicta.
49 Article III’s 50 Case-or-Controversy Clause limits the courts’ power to issue rulings by requiring that an actual dispute exist between two or more adverse parties before the matter can be decided. Courts are specifically precluded from legislating, 51 as that power is reserved to Congress.
52
When a court suggests what the proper result should be under circumstances not before that court, the case-or-controversy requirement is violated. Even for state courts, separation of powers necessarily limits courts to resolving the dispute before them.
53 Legislatures should legislate and courts should decide only the cases they are presented with, not future disputes. intent posits that a text should be interpreted consistent with the intent of the author.
Phelps & Pitts, supra , at 357-62. In an article comparing text-centered interpretation with interpreter-centered interpretation, Phelps describes the view of Italian legal historian Emilio Betti as follows: “the author’s meaning is the norm by which the validity of any interpretation is measured.” Id . at 359.
47 supra note 1, at 1257.
48 e.g.
, Dorf, supra note 2, at 2000; Coale, supra note 2, at 726. But see
Peter Schanck, Taking Up Barkan’s Challenge: Looking at the Judicial Process and
Legal Research , 82 L AW L IBR .
J.
1, 5 (1990) (“There is, of course, disagreement among the theorists about the degree of discretion available to judges.”).
Some authors refer to this concept as “legitimacy.” See, e.g.
, Dorf, supra note 2, at 2000, 2002. This article uses the term “legitimacy” to refer to a different rationale supporting the holding/dicta distinction. See infra notes 67-71 and accompanying text.
49
See supra note 2; see also Leval, supra note 1, at 1259-60.
50
U.S.
C ONST . art. III, § 2.
51
F. Andrew Hessick III, The Common Law of Federal Question Jurisdiction ,
60 A LA .
L.
R EV . 895, 902-03 (2009). Despite this, judges create binding rules by virtue of stare decisis, Leval, supra note 1, at 1258-59, and as a result of the “canonical role” of the words in their judicial opinions. Frederick Schauer, Opinions as Rules , 53 U.
C HI .
L.
R EV . 682, 684 (1986).
52
U.S.
C ONST . art. I, § 1.
53
Ellen A. Peters, Getting Away from the Federal Paradigm: Separation of
Powers in State Courts , 81 M INN .
L.
R EV . 1543, 1546-47 (1997). Justice Peters notes:
Jurisprudentially, separation of powers represents a view of the body politic that, although not a prerequisite to a republican form of government, is nonetheless fundamental to any discussion of the appropriate ordering of governmental responsibilities, state or federal. Operationally, separation of powers provides doctrinal guideposts for courts to consider when drawing the line between the role of the judiciary and the role of popularly elected political institutions. Politically, separation of powers safeguards the

2010] WHY DICTA BECOMES HOLDING 229
Furthermore, courts exceed their judicial authority when they take advantage of the confusion surrounding the holding/dicta distinction. That confusion creates opportunities for courts and counsel to behave disingenuously; 54 the preferred result can be reached by adjusting the level of deference due a prior opinion. When judges want to reach a particular result, even when it has not yet been held by a higher court or the same court, they can rely on dicta and, labeling it as holding, declare they are “bound” to follow the earlier case.
55 Because it is substantially more difficult to overrule a case than to decide a case of first impression (and impossible for a lower court to do so), 56 an unfair and insurmountable burden has been imposed independence of the courts while providing a principled foundation for appropriately defined judicial deference to the views of other community policymakers.
Id.
; see also Harold F. See, The Separation of Powers and the Public Policy Role of the
State Court in a Routine Case , 8 T EX .
R EV .
L.
& P OL . 345, 352-53 (2004); G. Alan Tarr,
Interpreting the Separation of Powers in State Constitutions , 59 N.Y.U.
A NN .
S URV .
A M .
L. 329 (2003).
54 e.g.
, Abramowicz, supra note 2, at 1024; Dictum Revisited , supra note
2, at 516; Dorf, supra note 2, at 2029.
55
Chief Justice Roberts has accused Justice Breyer of this maneuver:
Justice Breyer’s dissent takes a different approach to these cases, one that fails to ground the result it would reach in law. Instead, it selectively relies on inapplicable precedent and even dicta while dismissing contrary holdings, alters and misapplies our well-established legal framework for assessing equal protection challenges to express racial classifications, and greatly exaggerates the consequences of today’s decision.
Parents Involved in Cmty. Schs. v. Seattle Sch. Dist. No. 1, 551 U.S. 701, 735-36
(2007). Chief Justice Roberts’s criticism of the dissent’s use of dicta spans six pages.
See id.
at 735-41.
Justice Breyer responded by relying on the blurred distinction between holding and dictum:
[T]he plurality downplays the importance of Swann and related cases by frequently describing their relevant statements as “dicta.” These criticisms, however, miss the main point. Swann did not hide its understanding of the law in a corner of an obscure opinion or in a footnote, unread but by experts.
It set forth its view prominently in an important opinion joined by all nine
Justices, knowing that it would be read and followed throughout the Nation.
The basic problem with the plurality’s technical “dicta”-based response lies in its overly theoretical approach to case law, an approach that emphasizes rigid distinctions between holdings and dicta in a way that serves to mask the radical nature of today’s decision. Law is not an exercise in mathematical logic. And statements of a legal rule set forth in a judicial opinion do not always divide neatly into “holdings” and “dicta.”
Id.
at 831 (Breyer, J., dissenting).
56
E.g.
, Planned Parenthood of Se. Pa. v. Casey, 505 U.S. 833, 854 (1992)
(noting the “obligation to follow precedent begins with necessity, and a contrary necessity marks its outer limit”); see also Frederick Schauer, Precedent , 39 S TAN .
L.
R EV . 571, 581 (1987). At least arguably, courts should only explicitly, not impliedly,

230 BROOKLYN LAW REVIEW [Vol. by characterizing dicta as binding precedent.
57
It is true that counsel can, and often do, spend countless hours debating whether a particular statement is in fact holding or dicta.
58 But the lack of clarity in defining holding in the first place makes the task far more difficult and far more likely to yield illogical and potentially unfair results. Similarly, when confronted with binding authority that arguably answers the question, counsel and courts often evade the effect of that law by using the label
“dicta” 59 and declaring the authority inapplicable to the case at hand.
60
It should go without saying that not all uses of the
“holding” and “dicta” labels are disingenuous, nor are all instances when courts create dicta attempts to unreasonably usurp their legitimate power. Courts are often motivated by practical considerations such as judicial efficiency. When writing an opinion explaining how a party, especially a repeat player like the government, got it “wrong,” it makes some sense to explain what they could have done to get it “right” to avoid repeatedly litigating the issue.
61
Because the case where they overrule earlier decisions. United States v. Rodriguez, 311 F.3d 435, 439 (1st Cir.
2002); United States v. Sterling, 283 F.3d 216, 219 (4th Cir. 2002).
57 supra note 5, at 909 (“As long as precedent matters . . . there is the omnipresent possibility that any mistake will be systematically more powerful than any later attempts to correct it.”).
58
See, e.g.
, Jennifer Bruch Hogan & Richard P. Hogan, Jr., Charging the
Jury in Changing Times , 46 S.
T EX .
L.
R EV . 973, 988 (2005); Bruce A. McGlauflin,
Some Confusing Things Happened on the Way to Modernizing Maine’s Adverse
Possession Law , 25 M E .
B.J. 38, 43 (2010).
59
Questioning the distinction, Professor Schauer notes that we often speak of
“‘mere’ dicta as a way to justify ignoring some language in a case, but it is worthwhile to consider the effect of having to go through that exercise compared with the situation in which no such troublesome language exists.” Schauer, supra note 56, at 580 n.22.
60
Judge Wald identifies the rhetorical styles courts adopt in labeling statements as dicta or holding. Wald, supra note 2, at 1405-06. And Justice Breyer, responding to Chief Justice Roberts, criticizes him of misusing the “dicta” label, although not himself willing to use the “holding” label:
[I]f the plurality now chooses to reject that principle, it cannot adequately justify its retreat simply by affixing the label “dicta” to reasoning with which it disagrees. Rather, it must explain to the courts and to the Nation why it would abandon guidance set forth many years before, guidance that countless others have built upon over time, and which the law has continuously embodied.
Parents Involved in Cmty. Schs.
, 551 U.S. at 831 (Breyer, J., dissenting).
61 e.g.
, United States v. Comprehensive Drug Testing, Inc., 579 F.3d 989
(9th Cir. 2009) (en banc). That case involved search warrants for digital evidence. Some members of the court criticized the majority for setting out five “procedures” they trusted would “prove a useful tool for the future,” id.
at 1006-07:
Although I can appreciate the majority’s desire to set forth a new framework with respect to searches of commingled electronic data, I am wary of this

2010] WHY DICTA BECOMES HOLDING 231 got it “right” is not actually before the court, however, the court’s opinions about permissible conduct are dicta.
62
Consequently, this thoughtful and helpful approach to resolving the problem has the potential for confusing the holding/dicta distinction.
63
Furthermore, courts may misconstrue, and hence mislabel, prior dicta as holding simply in error. Judge Leval asks why “courts accept earlier dicta as holding” 64 and responds simply that judges “are human.” 65 Unless the subsequent court disagrees with the proposition of the earlier court, there is not much incentive to take the time necessary to “determine whether the proposition was in fact a holding.” 66 prophylactic approach. The majority’s prescriptions go significantly beyond what is necessary for it to resolve this case. Accordingly, its protocols are dicta and might be best viewed as a “best practices” manual, rather than binding law.
Id.
at 1012-13 (Callahan, J., concurring in part and dissenting in part). Judge Wald appears to agree with the Ninth Circuit dissenters, but also notes: “Still, one judge’s dicta may be another judge’s coherent rationale.” Wald, supra note 2, at 1410; see also
P OSNER , supra note 2, at 177-78.
62
They are thoughtful, considered dicta, because the court contrasted these reasons with what in fact happened to help determine the actions were wrong—but most would argue such language is also not truly necessary to the opinion. This is true at least under the facts plus outcome approach, discussed supra note 28.
63
Transparency in most contexts is desired, and when espousing dicta, even for good reasons, courts can minimize confusion by explicitly labeling those statements as dicta.
For example, most courts and scholars contend that alternative holdings are binding. See, e.g.
, Bravo v. United States, 532 F.3d 1154, 1162 (11th Cir. 2008)
(“[I]n this circuit additional or alternative holdings are not dicta, but instead are as binding as solitary holdings.”); United States v. Wright, 496 F.3d 371, 375 n.10 (5th
Cir. 2007) (declaring it is “well-settled that alternative holdings are binding, they are not dicta”); Abramowicz, supra note 2, at 1028.
But some courts have concluded that alternative holdings are non-binding dicta, at least when one alternative holding involves a finding of unconstitutionality and the other ground, such as a procedural violation, does not require the court to reach the constitutional issue. Mt. Lebanon v. Cnty. Bd. of Elections, 368 A.2d 648,
650-51 (Pa. 1977). “Since an alternative, non-constitutional ground existed and was discussed, the statement in question was not only dictum, but dictum that flew in the face of existing case law and proper appellate procedure.” Id.
at 650.
64 supra note 1, at 1269.
65
Id.
He also points out that lower courts may fear higher courts will react poorly to having their statements characterized as “dicta.” Id.
66
Id.
(“Determining whether a statement of law is a holding or dictum can be a time-consuming task. You must read the full opinion, understand what were the facts, what question was in dispute, how the court resolved it, and what role the proposition played in justifying the judgment.”).

232 BROOKLYN LAW REVIEW [Vol.
C. Legitimacy
It is a basic tenet of the rule of law that similarly situated people ought to be treated similarly.
67
Stare decisis helps further this goal of consistent legal outcomes.
68 Elevating dicta into holding, however, disrupts this basic tenet. By treating dicta as holding, the court treats as similar those litigants who are not similarly situated. And by declaring the holding of a prior court to be dicta, the court treats disparately those litigants who are in fact similarly situated.
Not only is this result unfair, but it also creates instability in the law that threatens its very legitimacy.
69 This concept is analogous to the level of deference a reviewing court is required to give a lower court’s decisions.
70 If a reviewing court reverses a lower court simply because it would have ruled differently, even though the lower court had the power to make the decisions it did, unpredictability and illegitimacy result.
67
See, e.g.
, Henry J. Friendly, Indiscretion About Discretion , 31 E MORY L.J.
747, 758 (1982) (defending appellate review as “necessary to preserve the most basic principle of jurisprudence that ‘we must act alike in all cases of like nature’”) (citations omitted). Judge Friendly adds that this “jurisprudential rule of like treatment demands consistency not only between cases that are precisely alike but among those where the differences are not significant.” Id.
He then provides an example: “[W]e cannot have one rule for a man riding a white horse on Monday and another for one riding a black horse on Tuesday—even though some old cases indicated it might be as well never to be injured on Sunday.” Id.
The constitutional guarantee of equal protection of the laws likewise requires similarly situated people be treated similarly, at least unless the government has a reason of sufficient strength to support the distinction. U.S.
C ONST . amend. XIV,
§ 1; see also Romer v. Evans, 517 U.S. 620, 631 (1996) (acknowledging that the
“Fourteenth Amendment’s promise that no person shall be denied the equal protection of the laws must coexist with the practical necessity that most legislation classifies for one purpose or another, with resulting disadvantage to various groups or persons,” yet striking on equal protection grounds Colorado’s Amendment 2, which prohibited any judicial, legislative, or executive anti-discrimination protections on behalf of homosexuals).
68
This holds true for corporations as well; contract law depends on consistency for its validity and reliability. See generally 1 S AMUEL W ILLISTON &
R ICHARD A.
L ORD , A T REATISE ON THE L AW OF C ONTRACTS § 1:1, at 15 (4th ed. 2007)
(“The principles governing the law of contracts . . . are fundamental in virtually every field of law.”).
69
See McGinley v. Houston, 361 F.3d 1328, 1331 (11th Cir. 2004) (identifying stability and predictability as requiring stare decisis). Judge Posner notes that a similar reduction in “the authority of judicial decisions” would result if it were readily apparent that an opinion was “the work of [a] law clerk” (as opposed to the judge, and as opposed to simply having been drafted by the clerk). P OSNER , supra note 2, at 149.
This knowledge would reduce the “attention judges and lawyers . . . pay” to the broad holding of the case. Id.
70
See Friendly, supra note 67, at 754 (defining “discretion” as “how far an appellate court is bound to sustain rulings of the trial judge which it disapproves but does not consider to be outside the ball park”).

2010] WHY DICTA BECOMES HOLDING 233
The power of a reviewing court to substitute its judgment for that of a lower court is similar to the power of a subsequent court to ignore existing precedent; it can be done, but the court should only do so legitimately—when, for example, the trial court has exceeded the scope of its power, or when the cases are truly distinguishable.
71 Arbitrariness is simply not legitimate.
Because courts need to reach accurate decisions to act within their authority and to act legitimately, the holding/dicta distinction is significant. Yet lawyers and judges routinely confuse the two and, most importantly, treat dicta as if it were holding.
II. E XAMPLES OF E LEVATING D ICTA TO H OLDING
Dictum is generally not a problem until it is treated by a subsequent court as a holding.
72 Consider the following examples, presuming the subsequent courts would be bound by the prior courts’ holdings:
Example 1:
Step 1: The court issues dictum in Case A .
73
71
This effect is further compounded by the lack of appeal when the dictum is created. See, e.g.
, Leval, supra note 1, at 1262.
72
This is distinguished from one court finding persuasive the holding of a non-binding court. That is not only permissible, but often wise and expected. See, e.g.
,
Frederick Schauer, Authority and Authorities , 94 V A .
L.
R EV . 1931, 1958 (2008). The key distinction is that the principle from the first case was in fact a holding, and even if not binding on the second court because of jurisdictional forces, the holding in the first case was thoroughly considered, and therefore likely accurate. Furthermore, there are no legitimacy problems, including constitutional issues or concerns of disingenuousness, because the first case is clearly not binding.
73
For example, the United States Supreme Court issued dicta in United
States v. Carolene Products Co.
, 304 U.S. 144, 152 n.4 (1938). In Carolene Products , the
Court ruled that a statute prohibiting the interstate transportation of filled milk was constitutionally proper under Congress’ Commerce Clause powers, and that it did not violate the Fifth Amendment’s Due Process Clause. Id.
at 147, 148. The Court applied the rational basis test which includes a presumption of constitutionality, but added in a footnote that this presumption may not apply when “legislation appears on its face to be within a specific prohibition of the Constitution.” Id.
at 152 n.4. The Court acknowledged that “ [i]t is unnecessary to consider now whether legislation which restricts those political processes which can ordinarily be expected to bring about repeal of undesirable legislation, is to be subjected to more exacting judicial scrutiny under the general prohibitions of the Fourteenth Amendment than are most other types of legislation,” but went on to identify a number of situations where that may be the case. Id.
(emphasis added).
The Court also noted:
Nor need we enquire whether similar considerations enter into the review of statutes directed at particular religious, or national, or racial minorities;

234 BROOKLYN LAW REVIEW [Vol.
Step 2: Case B addresses the issue posed by the dictum in Case A.
Rather than viewing the issue as a case of first impression, the court in Case B treats the dictum in Case A as Case A’s holding and rules consistent with that dictum.
74
Step 3: Case C arises, and it addresses the issue raised in Case B. It is now harder to overrule Case B than to decide the issue from a fresh perspective in the first place
75
—as Case B could and should have done. Yet the court in Case B did not fully consider the issue because it treated the dictum in Case A as a binding holding.
76 whether prejudice against discrete and insular minorities may be a special condition, which tends seriously to curtail the operation of those political processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly more searching judicial inquiry.
Id.
(citations omitted).
The Court cited two cases for its final speculation regarding “prejudice against discrete and insular minorities,” but neither of those two cases is on point.
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 428 (1819) (holding unconstitutional a state tax on a federal bank branch within that state); South Carolina State Highway
Dep’t v. Barnwell Bros., 303 U.S. 177, 184-85 n.2, 196 (1938) (holding South Carolina could constitutionally restrict the weight and size of trucks upon its highways).
74
The oft-quoted footnote four from Carolene Products , 304 U.S. at 152 n.4, has arguably created the current standard for equal protection challenges. In
Washington v. Seattle School District No. 1 , 458 U.S. 457 (1982), the Court held that an initiative that prohibited certain types of student bussing for desegregation purposes violated equal protection. The Court relied, in part, on Carolene Products ’ footnote four:
And when the State’s allocation of power places unusual burdens on the ability of racial groups to enact legislation specifically designed to overcome the “special condition” of prejudice, the governmental action seriously
“curtail[s] the operation of those political processes ordinarily to be relied upon to protect minorities.” United States v. Carolene Products Co.
, 304 U.S.
144, 153 n.4 (1938). In a most direct sense, this implicates the judiciary’s special role in safeguarding the interests of those groups that are “relegated to such a position of political powerlessness as to command extraordinary protection from the majoritarian political process.”
Seattle Sch. Dist. No. 1 , 458 U.S. at 486 (quoting San Antonio Indep. Sch. Dist. v.
Rodriguez, 411 U.S. 1, 28 (1973)). San Antonio also relied on the footnote in Carolene
Products in imposing strict scrutiny review. 411 U.S. at 105. Compounding the dicta problem, Carolene Products was a plurality opinion.
75
See
76
Products has not escaped the criticism of courts. See, e.g.
, Kovacs v. Cooper, 336 U.S. 77, 89-96 (1949) (Frankfurter, J., concurring). Challenging Carolene
Products ’ footnote four in the First Amendment context, Justice Frankfurter pointed out:
A footnote hardly seems to be an appropriate way of announcing a new constitutional doctrine, and the Carolene footnote did not purport to announce any new doctrine; incidentally, it did not have the concurrence of a majority of the Court. It merely rephrased and expanded what was said in
Herndon v. Lowry and elsewhere. It certainly did not assert a presumption of invalidity against all legislation touching matters related to liberties protected by the Bill of Rights and the Fourteenth Amendment. It merely stirred inquiry whether as to such matters there may be “narrower scope for

2010] WHY DICTA BECOMES HOLDING 235
Example 2:
Step 1: The court issues dictum in Case A.
Step 2: The dictum in Case A is repeated in Case B; it is not followed, because it is not the holding of Case B, but the Court in
Case B presents the dictum as Case A’s holding.
Step 3: Case C arises, and the dictum in Cases A and B is actually relevant.
77
Case C should be considered a case of first impression.
But the court in Case C follows the dictum in Cases A and B—even though the statement is not the holding of those cases—because it has been characterized as “holding.”
78 operation of the presumption of constitutionality” and legislation regarding them is therefore “to be subjected to more exacting judicial scrutiny.”
Id.
at 90-92 (Frankfurter, J., concurring) (citation omitted).
77
See, e.g
., Ingram v. Comm’r of Soc. Sec. Admin., 496 F.3d 1253, 1265-66
(11th Cir. 2007). In Ingram , the Eleventh Circuit dealt with this exact problem. The court had issued dicta in Keeton v. Department of Health & Human Services , 21 F.3d
1064 (11th Cir. 1994). That dicta was repeated in a later case, Falge v. Apfel , 150 F.3d
1320 (11th Cir. 1998), and both statements were relied upon by the Commissioner in
Ingram . The Ingram court noted that the Commissioner’s position was supported by
“some of the language in Keeton and Falge , but neither Keeton nor Falge decided the issue we now face.” Ingram , 496 F.3d at 1264. The Eleventh Circuit also acknowledged the difficulty the earlier dicta posed for the district court: “In its review of Ingram’s case, the district court was understandably confounded by our dicta in Keeton and
Falge ” and therefore ruled erroneously. Id.
at 1266. The court also noted that other circuits had labeled the dicta as Eleventh Circuit holdings. Id.
They added: “We hope that our discussion of the dicta in Keeton and Falge will clear up this confusion to the benefit of both district courts within this Circuit and our sister circuits.” Id.
78
“Thoughtless repetition should not convert a dictum into law, but it manages to do so.” Leval, supra note 1, at 1273; see also infra notes 79-103 and accompanying text.
Similarly, ’ reference to heightened scrutiny for racial groups may have influenced the Court in Korematsu v. United States , 323 U.S. 214
(1944). The Court applied the higher standard but found it was met, stating: “It should be noted, to begin with, that all legal restrictions which curtail the civil rights of a single racial group are immediately suspect. That is not to say that all such restrictions are unconstitutional. It is to say that courts must subject them to the most rigid scrutiny .” Id.
at 216 (emphasis added). The Court offered no citations for this principle.
The Court in Loving v. Virginia , 388 U.S. 1 (1967), similarly made a broad statement paraphrasing Carolene Products with no citation: “In the case at bar, however, we deal with statutes containing racial classifications, and the fact of equal application does not immunize the statute from the very heavy burden of justification which the Fourteenth Amendment has traditionally required of state statutes drawn according to race.” Loving , 388 U.S. at 9. Later in the opinion, the Loving Court cited
Korematsu for the principle that Korematsu announced without citation:
At the very least, the Equal Protection Clause demands that racial classifications, especially suspect in criminal statutes, be subjected to the
“most rigid scrutiny,” Korematsu v. United States, 323 U.S. 214, 216 (1944), and, if they are ever to be upheld, they must be shown to be necessary to the accomplishment of some permissible state objective, independent of the racial discrimination which it was the object of the Fourteenth Amendment to eliminate.

236 BROOKLYN LAW REVIEW [Vol.
The problem is this: there is no incentive in Case A or B to fight about the statement, because it does not control the outcome.
79 But by the time of Case C , courts treat the statement as such a long-standing principle that it becomes a holding without ever having been adjudicated. And it is nearly impossible to argue the principle on the merits because courts
(and lawyers) are so used to hearing the principle that they believe there must be support; it must have actually been a court’s holding at some point, even if they cannot find the original source. But there was neither opportunity nor incentive to litigate the principle in Cases A or B . What started as an off-handed statement 80 now has the power of precedent— it became holding just because it was said so often.
The following examples illustrate this point. First, the rule that employers do not have to reinstate employees following a strike is generally supported with a citation to the
1938 United States Supreme Court case NLRB v. Mackay
Radio & Telegraph Co.
81
As recently as 1989, the Supreme
Court characterized its earlier holding as follows:
In Mackay Radio, . . . [w]e held that it was not an unfair labor practice . . . for the employer to have replaced the striking employees with others “in an effort to carry on the business,” or to have refused to discharge the replacements in order to make room for the strikers at the conclusion of the strike.
82
Id.
at 11.
79
Leval, supra note 1, at 1279 (“People do not appeal from abstract statements they don’t care about.”). And as Judge Leval notes, appeal is not possible for dicta; there is “no available correction mechanism.” Id.
at 1262.
80 supra note 1, at 1267-68 (“Particularly to be feared is the scholarly, treatise-type opinion, which for no good reason lectures on the nature and origins of the doctrine, making pronouncements that have no consequence for the dispute. Although the court generally believes it is correctly explaining non-controversial matters, the practice is risky.”); see also Aldisert, supra note 2, at 609-10 (noting that framing the decision in terms of general “principles” is problematic; this “occurs when a court does not announce a narrow rule based solely on record facts, but embarks on an intellectual frolic of its own”).
In addition to including off-handed comments, some have opined that judges sometimes intentionally plant language in an opinion with the hope it will be followed by future courts. This may be the case with footnote four in Carolene Products , discussed supra notes 73-78. As noted by one commentator in the copyright context, we should pay closer attention to “loaded judicial rhetoric” because of its ability to
“generate ‘doctrine’ as enduring as any ‘holding.’” Kate O’Neill, Against Dicta: A Legal
Method for Rescuing Fair Use from the Right of First Publication , 89 C AL .
L.
R EV . 369,
371 (2001).
81
304 U.S. 333 (1938).
82
TWA, Inc. v. Indep. Fed’n of Flight Attendants, 489 U.S. 426, 433 (1989).

2010] WHY DICTA BECOMES HOLDING 237
In Mackay Radio , however, the employer was required to reinstate the striking employees.
83 Although the Court twice stated the general proposition that employers did not have to reinstate employees after a strike, 84 it nevertheless held that the employer in that case did have to reinstate its employees .
85
The Court’s rationale was that an employer could not selectively determine which striking employees to reinstate based upon their union activity, which was precisely what the employer at Mackay Radio & Telegraph Co. had done.
86 The
Court even characterized its own holding as follows: “We hold that we have jurisdiction; that the Board’s order [reinstating the striking employees] is within its competence and does not contravene any provision of the Constitution.” 87 Yet courts continue to treat the dicta in Mackay Radio— the proposition that employers do not have to reinstate striking employees—as the case’s holding.
88
Examples with more problematic ramifications in other contexts abound, as demonstrated by Stern v. Schriro ,
89
a recent case in the District of Arizona. Stern considered whether a federal court could grant habeas corpus relief when the petitioner had not appealed his conviction to the Arizona
Supreme Court.
90 The court ruled that because discretionary review with the highest state court was not pursued, the petitioner’s claims were procedurally barred.
91
To justify this result, the court in Stern relied on language from a 1999 Ninth Circuit case, Swoopes v. Sublett.
92
The issue in Swoopes was similar to that in Stern : whether the petitioner was entitled to federal habeas relief despite not pursuing a discretionary appeal with the Arizona Supreme
Court.
93 In contrast to the ruling in Stern , the Ninth Circuit in
Swoopes held that, despite not filing a petition for review with
83
Radio , 304 U.S. at 336, 348, 351.
84
Id.
at 345-46, 347.
85
Id.
at 336, 348, 351.
86
Id.
at 346-47.
87
Id.
at 343.
88
See, e.g
., NLRB. v. Int’l Van Lines, 409 U.S. 48, 50 (1972) (citing Mackay
Radio for the proposition that it is “settled that an employer may refuse to reinstate economic strikers if in the interim he has taken on permanent replacements”); NLRB v.
Fleetwood Trailer Co., 389 U.S. 375, 379 (1967).
89
No. CV 06-16-TUC-DCB, 2007 WL 201235 (D. Ariz. Jan. 24, 2007).
90
Id.
at *5.
91
Id.
at *6.
92
Id.
at *5 (citing Swoopes v. Sublett, 196 F.3d 1008, 1010 (9th Cir. 1999)).
93
Swoopes , 196 F.3d at 1008.

238 BROOKLYN LAW REVIEW [Vol. the Arizona Supreme Court, the petitioner had properly exhausted his state appeal rights and the habeas petition should be considered on the merits.
94 The different results in
Stern and Swoopes were based on differences in the underlying sentences of the petitioners; the petitioner in Stern had been given a life sentence, and the petitioner in Swoopes had not received a life sentence.
95
Although the petitioner in Swoopes had not received a death sentence or life imprisonment, and hence any language about those sentences was unnecessary to the result, the Ninth
Circuit in Swoopes quoted the following language from a 1984
Arizona Supreme Court case 96 : “[i]n cases other than those carrying a life sentence or the death penalty, a decision by the court of appeals . . . exhausts a defendant’s right of appeal in this jurisdiction.” 97
This dictum in Swoopes about a life sentence or the death penalty was not only unnecessary—it was legally incorrect at the time Swoopes was decided.
98
Ten years earlier,
94
Id.
at 1011. The petitioner had properly appealed to the Arizona Court of
Appeals, and that court denied his requested relief. Id.
at 1009.
95
Id.
at 1010-11. Swoopes had also not received the death penalty.
96
State v. Shattuck, 684 P.2d 154, 157 (Ariz. 1984). The issue in Shattuck was whether defense counsel had adequately pursued his client’s appeal rights by appealing to the state’s intermediate court of appeals or whether he was required to petition for discretionary review with the Arizona Supreme Court. Id.
at 156. In determining that the lawyer had no obligation to file the discretionary appeal, the court stated the following: “In cases other than those carrying a life sentence or the death penalty, a decision by the court of appeals and its search for error exhausts a defendant’s right of appeal in this jurisdiction.” Id . at 157.
At the time Shattuck was decided, controlling statutory law provided that appeals in cases involving a life sentence or the death penalty proceeded directly to the
Arizona Supreme Court; the court of appeals was without jurisdiction to hear appeals in either of those instances. 1974 Ariz. Laws, Ch. 7, § 2 (codified as amended at A RIZ .
R EV .
S TAT .
A NN . § 12-120.21(A)(1)) (providing appellate jurisdiction in the court of appeals in all actions “except criminal actions involving crimes for which a sentence of death or life imprisonment has actually been imposed”); 1974 Ariz. Laws, Ch. 7, § 3
(codified as amended at A RIZ .
R EV .
S TAT .
A NN . § 13-4031 (1977)) (providing that appeals for “crimes for which a sentence of death or life imprisonment has actually been imposed may only be appealed to the supreme court”). The defendant in Shattuck was sentenced to ten years in prison, 684 P.2d at 155, and hence, his appeal to the court of appeals was sufficient.
97
Swoopes , 196 F.3d at 1010 (emphasis added).
98
The dictum was, although a dictum, an accurate statement of the legal test at the time Shattuck was decided. See supra note 96. But it was not the legal standard at the time Swoopes was decided—or by the time Stern was decided. See infra note 99 and accompanying text.
At least one court has sharply criticized the Swoopes dicta and catalogued a significant number of courts that have relied upon that same language, despite the fact that it misstates current law. Crowell v. Knowles, 483 F. Supp. 2d 925, 929-31 (D.
Ariz. 2007). The court in Crowell noted that the “dictum in Swoopes was nevertheless repeated in dictum in Castillo v. McFadden , 399 F.3d 993 (9th Cir. 2004).” Id.
at 930.

2010] WHY DICTA BECOMES HOLDING 239 the Arizona Legislature amended the statutes that provided for exclusive Arizona Supreme Court appellate jurisdiction in cases of life imprisonment and granted that jurisdiction to the state court of appeals.
99 And although the statement had no effect in Swoopes , it proved problematic in Stern .
Citing Swoopes , the district court in Stern stated the following, with no indication that the statement was anything other than Swoopes ’ holding: “State prisoners, except those sentenced to death or life imprisonment, exhaust state court remedies by presenting their claims to the Arizona Court of
Appeals.” 100 The court then added the following sentence,
Furthermore, the court noted the “dictum in Swoopes was also repeated in a series of district court cases,” citing both Stern and a case from 2005 where the issue of life imprisonment was relevant, and a series of cases where it was not relevant to the outcome yet the dicta was repeated:
See Saiers v. Schriro , 2007 U.S. Dist. LEXIS 9350, at *7-8, 12-13, 2007 WL
473682, at *3, 5 (D. Ariz. Feb. 8, 2007) (involving a petitioner sentenced to 59 years in prison); Stern v. Schriro , 2007 U.S. Dist. LEXIS 5504, at *13, 16,
2007 WL 201235, at *5-6 (D. Ariz. Jan. 22, 2007) (involving a petitioner sentenced to life in prison); Moyaert v. Steames , 2006 U.S. Dist. LEXIS
93729, at *3, 7, 2006 WL 3808080, at *1-2 (D. Ariz. Dec. 20, 2006) (4.5-year sentence); Batista de la Paz v. Elliott , 2006 U.S. Dist. LEXIS 82734, at *4, 6,
2006 WL 3292474, at *1-2 (D. Ariz. Nov. 9, 2006) (6-year sentence); Alston v.
Schriro , 2006 U.S. Dist. LEXIS 79926, at *2, 17, 2006 WL 3147650, at *1, 5
(D. Ariz. Oct. 31, 2006) (10-year sentence); Hurley v. Gaspar , 2006 U.S. Dist.
LEXIS 64008, at *9, 31, 2006 WL 2460918, at *2, 4 (D. Ariz. June 20, 2006)
(17-year sentence); Tindall v. Schriro , 2006 U.S. Dist. LEXIS 60909, at *3,
10, 2006 WL 2361721, at *1, 6 (D. Ariz. June 5, 2006) (20-year sentence);
Lange v. Frigo , 2006 U.S. Dist. LEXIS 44984, at *2, 14, 2006 WL 1735270, at
*1, 5 (D. Ariz. May 1, 2006) (26-year sentence); Casner v. Gaspar , 2006 U.S.
Dist. LEXIS 10075, at *4, 16 (D. Ariz. Jan. 31, 2006) (same) (not reported in
Westlaw); Benson v. Haynes , 2005 U.S. Dist. LEXIS 27197, at *1, 4, 2005 WL
2978604, at *1-2 (D. Ariz. Oct. 13, 2005) (10-year sentence); Alvarez v.
Schriro , 2005 U.S. Dist. LEXIS 35319, at *2, 12-13, 2005 WL 3501409, at *1,
4 (D. Ariz. Dec. 20, 2005) (22-year sentence); Lucero v. Savage , 2005 U.S.
Dist. LEXIS 40536, at *2, 10 (D. Ariz. Dec. 7, 2005) (sentence of 20 years plus life) (not reported in Westlaw); Greer v. Schriro , 2005 U.S. Dist. LEXIS
38889, at *2, 10 (D. Ariz. Nov. 16, 2005) (12-year sentence) (not reported in
Westlaw); Lopez v. Schriro , 2005 U.S. Dist. LEXIS 28060, at *1, 3, 2005 WL
3005603, at *1 (D. Ariz. Nov. 8, 2005) (5-year sentence); Woods v. Schriro ,
2005 U.S. Dist. LEXIS 38984, at *4, 9 (D. Ariz. Oct. 21, 2005) (36-year sentence) (not reported in Westlaw); Benson v. Haynes , 2005 U.S. Dist.
LEXIS 27197, at *1, 4, 2005 WL 2978604, at *1-2 (D. Ariz. Oct. 13, 2005) (10year sentence); Ross v. Schriro , 2005 U.S. Dist. LEXIS 35314, at *2, 13 (D.
Ariz. Aug. 18, 2005) (13.25-year sentence) (not reported in Westlaw); McCoy v. Stewart , 2001 U.S. Dist. LEXIS 23689, at *3, 9 (D. Ariz. Apr. 4, 2001) (15year sentence) (not reported in Westlaw).
Crowell , 483 F. Supp. 2d at 930 n.4.
99
1989 Ariz. Laws, ch. 58, § 1 (codified as amended at A RIZ .
R EV .
S TAT .
A NN .
§ 12-120.21(A)(1)); 1989 Ariz. Laws, ch. 58, § 2 (codified as amended at A RIZ .
R EV .
S TAT .
A NN . § 13-4031).
100
Stern v. Schriro, No. CV 06-16-TUC-DCB, 2007 WL 201235, at *5 (D. Ariz.
Jan. 24, 2007).

240 BROOKLYN LAW REVIEW [Vol. followed by an “ id.
” cite referring to Swoopes : “When a life sentence has been imposed, the ‘complete round’ requires a defendant to seek discretionary review of his claims by the
Arizona Supreme Court.” 101
This rule is in fact not the law, and it was never even the holding of any court before Stern in 2007.
102 It was dicta, repeated over and over again, until it gained the force of law in a dispute where the statement actually mattered.
This repetition of dicta, time after time, suggests courts are simply not concerned when that dicta has no practical effect in the case before them. As Judge Leval put it, “the court paid no price, and consequently paid little attention.” 103
III. I
DENTIFYING
R
EASONS FOR THE
P
ROBLEM
With a plethora of judicial decisions and scholarly articles addressing the subject, why does the distinction between holding and dicta remain blurry? Arguably the imprecise definition of holding (and therefore dicta) compounds the issue, and that problem is not likely to be solved anytime soon.
104
But examples abound of courts and lawyers confusing dicta and holding under any definition, suggesting that the lack of a uniform definition is not the sole reason for the problem.
This confusion exists for three main reasons. First, confusion is bound to breed more confusion; as long as some judges, some lawyers, or some scholars blur the distinction that lack of clarity will spread. Second, lower courts appear to be emulating the United States Supreme Court, and that Court is more likely to issue dicta and is simultaneously less restrained by the holding/dicta distinction. Third, the emphasis on words, phrases, and quotations, in lieu of focusing on the underlying facts, issues, and holdings of judicial opinions, almost ensures lawyers and judges will confuse holdings and dicta.
101
Id.
102
Id.
at *6.
103 supra note 1, at 1263.
104
See generally Dorf, supra note 2. Even when definitions appear clear, as with appellate standards of review, applying them in practice can be challenging.

2010] WHY DICTA BECOMES HOLDING 241
Judges are not the only participants in the legal system who treat dicta like holding. Lawyers do it.
105
Law students do it.
106 Some non-judges might be doing it because they are modeling the behavior of judges.
107 If the judge thinks the distinction is irrelevant, why should the lawyer or law student care about the potential distinction? But lawyers may also influence judges to ignore the distinction.
108 If the hired advocates are unwilling or unable to accurately identify holding versus dicta, the judge can hardly be faulted for not independently making the distinction.
109
The bottom line is this: there is a ripple effect that occurs when any of the players demonstrates an inability or an unwillingness to distinguish between holding and dicta.
110
105
Judge Leval would counsel practitioners as follows:
[I]n arguing to courts, you will need to be keenly aware what is holding and what is dictum. It is often the best way to undermine unfavorable language in a prior opinion. By the same token, it can alert you that your argument is built on a house of cards.
Leval, supra note 1, at 1282.
106
Similarly, Judge Leval suggests it is the responsibility of law school professors to ensure our students “understand and are alert to the distinction between holding and dictum—and its importance.” Leval, supra note 1, at 1282. He adds that the distinction “is not something to be discussed only in a brief, first-year intro-to-law lecture. Students who graduate without a grasp of it are not well trained for the profession.” Id.
107
See, e.g.
, Gerald Lebovitz et al., Ethical Judicial Opinion Writing , 21 G EO .
J.
L EGAL E THICS 237, 239, 278 (2008).
108
Steven A. Reisler, Teaching the Commons , 65 G UILD P RAC .
19, 20 (2008).
109
This is especially true at the trial court level, where judges routinely decide issues without the benefit of law clerks or an extensive court staff. Although trial court opinions are less problematic, as they are not binding on future courts, they are perhaps some of the biggest contributors to lawyer confusion. These are the rulings lawyers may see most often, and the sheer number of trial court rulings provides them with ample power to influence the practicing bar.
At the appellate level, the judge’s clerks will research the issue, but they may be no clearer on the holding/dicta distinction than the lawyers who filed the briefs.
Our adversarial system suggests the lawyer potentially harmed by a failure to distinguish holding from dicta should point that out to the court, and in cases where the stakes are high enough and the resources are sufficient, that might happen. But if the lawyers have not focused on or are not clear about the distinction, it is unlikely they will aid the court in making that determination.
110
The chicken and egg problem is also present here; it does not matter whether the confusion starts with scholars (who influence law school teaching), lawyers, or judges. As long as there is confusion with any group, it is bound to affect the others.
This concept is loosely related to the principle of “progressive distortion” that Justice Frankfurter described when lamenting the elevation of dictum to holding:
“These decisions do not justify today’s decision. They merely prove how a hint becomes a suggestion, is loosely turned into dictum and finally elevated to a decision.” United

242 BROOKLYN LAW REVIEW [Vol.
Judges are confused by lawyers’ arguments characterizing holding as dicta and vice versa. Similarly, lawyers are confused by court opinions that fail to delineate the distinction, as well as by courts’ treatment of dicta as holding (or holding as dicta).
111 This recursive cycle is difficult to break.
But it might not all be confusion; after all, a lawyer’s job is to advocate for her client.
112 There is incentive to think of the law in amorphous terms. Most of what lawyers do is to persuasively argue that prior decisions should be read broadly
(or narrowly)—and that invites arguments that the point from an earlier case is non-binding dicta (rather than binding holding) or is binding holding (rather than only potentially persuasive dicta).
113 Furthermore, judges may prefer to create rules even when the case before them does not directly require them to decide the issue.
114 But whether accidental or intentional, the combination of actors and their reliance on each other creates a ripple effect that is difficult to break.
B. Emulating the Supreme Court
The United States Supreme Court occupies a unique position in our legal system. In direct contrast to the theories of judicial restraint that underlie stare decisis,
115
many advocate
States v. Rabinowicz, 339 U.S. 56, 75 (1950) (Frankfurter, J., dissenting), overruled by
Chimel v. California, 395 U.S. 752, 753, 760 (1969).
111
And ironically, the problem may be further compounded by scholars attempting to clarify the distinction. See, e.g.
, Greenawalt, supra note 2, at 442.
112
Id . As Greenwalt notes,
[S]imple dichotomies such as holding-dictum and overruling-distinguishing do not adequately capture our complex practices. Lawyers who want to use concepts in a way that will persuade may not need to worry too much about these subtleties, but for scholars who seek to illuminate what the practices are really like finding an appropriate terminology is difficult.
Id.
113
This ripple effect also plays into the third cause of confusion, that of overreliance on words and quotations. See, e.g.
, Leval, supra note 1, at 1256. Lawyers and judges routinely drop quotations into their briefs and opinions, often without explanatory parentheticals or any other means of providing context for the reader.
Without understanding the facts, issue, and holding of the prior case, it is difficult to understand how the quotation should apply to the case at bar. Yet lawyers and judges appear to follow this tactic on at least a somewhat regular basis.
114 e.g.
, People v. Williams, 788 N.E.2d 1126, 1136 (Ill. 2003) (“[T]oday’s dicta should become tomorrow’s ruling.”).
115
The United States Supreme Court has repeatedly acknowledged the force and necessity of stare decisis, but because of its special position in making policy, the
Court has also found occasion to overrule their prior decisions. E.g.
, Lawrence v. Texas,
539 U.S. 558, 577-78 (2003) (stating that “ stare decisis is essential to the respect accorded to the judgments of the Court and to the stability of the law,” yet overruling

2010] WHY DICTA BECOMES HOLDING 243 that the Supreme Court is not only able to act without restraint, 116 but sometimes obligated to do so.
117 The Supreme
Court is also not generally considered an “error-correcting” court, as the courts of appeals are.
118 Rather, its function is to decide cases that “involve[] principles, the application of which are of wide public or governmental interest, and which should be authoritatively declared by the final court.” 119
Bowers v. Hardwick , 478 U.S. 186 (1986)); Hohn v. United States, 524 U.S. 236, 251-53
(1998) (overruling House v. Mayo, 324 U.S. 42 (1945)); Payne v. Tennessee, 501 U.S.
808, 827-30 (1991) (stating that stare decisis is “the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process,” yet overruling Booth v. Maryland , 482 U.S. 496 (1987) and South Carolina v. Gathers , 490 U.S. 805 (1989)).
Lower courts are generally more constrained. See, e.g.
, Tate v. Showboat
Marina Casino P’ship, 431 F.3d 580, 582 (7th Cir. 2005). In Tate , Judge Posner argued that stare decisis “imparts authority to a decision . . . merely by virtue of the authority of the rendering court and independently of the quality of its reasoning. The essence of stare decisis is that the mere existence of certain decisions becomes a reason for adhering to their holdings in subsequent cases.” Id . at 583 (citations omitted). The
“adherence to precedent should be the rule and not the exception.” B ENJAMIN N.
C ARDOZO , T HE N ATURE OF THE J UDICIAL P ROCESS 149 (1921). But it arguably ought to also “be in some degree relaxed.” Id.
at 150.
116 e.g.
, Neil S. Siegel, A Theory in Search of a Court, and Itself: Judicial
Minimalism at the Supreme Court Bar , 103 M ICH .
L.
R EV . 1951 (2005). Siegel discredits the theory that the United States Supreme Court follows a “minimalist” approach, deciding cases on “the narrowest and shallowest grounds reasonably open to them.” Id.
at 1963.
117
See, e.g.
, Chemerinsky, supra note 5, at 1069 (debunking the analogy between Supreme Court Justices and baseball umpires, noting that although “both make decisions, it is hard to think of a less apt analogy. An umpire applies rules created by others; the Supreme Court, through its decisions, creates rules that others play by”); Tara Leigh Grove, The Structural Case for Vertical Maximalism , 95 C ORNELL
L.
R EV . 1 (2009) (arguing the “Court should therefore make the most of the cases it does hear by issuing broad decisions that govern a wide range of cases in the lower courts”); Siegel, supra note 116, at 2015 (“[O]ften the Justices have a duty to resolve important constitutional questions, especially those implicating the fundamental rights of individuals. This obligation is more important than the rule-of-law values of stability, consistency, predictability, and (I would add) sincerity.”) (citations omitted).
Siegel describes this obligation as an “essential part of the Supreme Court’s role—and comparative advantage—in our constitutional system of separate but interrelated powers.” Id.
Further, as compared to Congress and the President, and to the states,
“the Justices are more insulated from the pressures of majoritarian politics and therefore better equipped to protect minority rights.” Id.
118
Stephen G. Breyer, Reflections on the Role of Appellate Courts: A View
From the Supreme Court , 8 J.
A PP .
P RAC .
& P ROCESS 91, 92 (2006) (“[T]he Supreme
Court does not generally determine whether the lower courts have correctly disposed of a particular case. . . . Rather than correcting errors, then, the Supreme Court is charged with providing a uniform rule of federal law in areas that require one.”); see also infra note 119.
119
William of February 13, 1925 , 35 Y ALE L.J. 1, 2-3 (1925) (arguing the Court should hear cases challenging the constitutionality of federal statutes, raising individual liberties, interpreting federal statutes if of wide enough magnitude, questions regarding federal jurisdiction, and circuit split cases effecting large numbers of people). But see Paul D.

244 BROOKLYN LAW REVIEW [Vol.
In addition to this exclusive constitutional position, the
Court’s current practice is vastly different from that in any other court.
120 The Supreme Court now hears only approximately eighty cases a year.
121 This gives the Court an incentive to reach broadly with each decision; and, because they are so long, Supreme Court opinions simply have more space to include dicta.
122 Supreme Court cases are generally more complex and take longer to resolve than other courts’ cases, 123 but each Justice typically authors only nine majority opinions.
124 Comparatively, appellate court judges author
Carrington & Roger C. Cramton, Judicial Independence in Excess: Reviving the
Judicial Duty of the Supreme Court , 94 C ORNELL L.
R EV . 587, 594 (2009) (“Excessive independence for Justices in a position of lawmaking is taken by many as an offense against the traditions of democratic self-government.”). Carrington and Cramton add:
“The Supreme Court of the United States has in the last century largely forsaken responsibility for the homely task of deciding cases in accord with preexisting law and has settled into the role of a superlegislature devoted to making new law to govern future events.” Id.
at 587.
120 supra note 118, at 94 (noting the United States Supreme Court is
“similar” to state supreme courts “in that all of our cases raise significant matters of law,” but pointing out that the United States Supreme Court confronts “a steady diet of federal constitutional cases. This workload also differs from my work as a judge on a federal court of appeals, where we intermittently considered constitutional questions, but nothing approaching the broad range of constitutional questions that reaches the
Supreme Court”); F. Andrew Hessick & Samuel P. Jordan, Setting the Size of the
Supreme Court , 41 A RIZ .
S T .
L.J. 645, 659-64 (2009) (pointing to some of the characteristics necessary for an effective Supreme Court, and noting some of those features are not essential for lower courts).
But see Tracey E. George & Chris Guthrie,
Remaking the United States Supreme Court in the Courts’ of Appeals Image , 58 D UKE
L.J. 1439 (2009) (suggesting the Supreme Court should increase in size and hear cases in panels).
121
Kenneth W. Starr, The Supreme Court and Its Shrinking Docket: The
Ghost of William Howard Taft , 90 M INN .
L.
R EV . 1363, 1368 (2006); George, supra note
120, at 1441 (noting the Court decided, with signed, written opinions, only seventy-two cases in 2007); Siegel, supra note 116, at 1958. This equals approximately one percent of the cases where certiorari petitions are filed. Id.
The Court does, of course, spend significant time determining which cases to accept. See, e.g.
, P OSNER , supra note 2, at
142.
122 supra notes 61-62 and accompanying text. Judicial efficiency suggests reducing anticipated future conflicts would provide both predictability and stability.
In 1983, the average majority Supreme Court opinion was 4,700 words, as opposed to 3,100 in federal courts of appeals opinions. See infra note 149.
123
P OSNER , supra note 2, at 142. In contrast to the fewer than a hundred cases per year on the Supreme Court’s docket, the federal courts of appeals handled almost 50,000 cases in 1995 alone. Id . at 61 tbl.3.2.
124
Id.
at 141. The problems created by law clerks, see infra notes 142-52 and accompanying text, are present at the Supreme Court level as well. Each Justice has more law clerks than each appellate court judge, and there are more clerks per opinion drafted in the Supreme Court. See, e.g.
, P OSNER , supra note 2, at 141-43 (noting that the “length and scholarly apparatus of Supreme Court opinions” suggest the Justices have been transformed from draftsmen to editors).

2010] WHY DICTA BECOMES HOLDING 245 substantially more opinions with substantially less assistance.
125
Yet despite these differences, the lower courts appear to be emulating the Supreme Court.
126 Judge Leval connects the
“gradual change in the self-image of courts” 127 to the confusion between holding and dicta: “Once, the perception of the judicial function was relatively modest—to settle disputes under an existing body of rules. . . .” 128 In that system, “judges were not seen as making law through their opinions, but rather as finding the common law, which existed already, waiting only to be discovered.” 129 Over time, “and with the central role courts have increasingly played in resolving important social questions, we have come to see ourselves as something considerably grander—as lawgivers, teachers, fonts of wisdom, even keepers of the national conscience. This change of image has helped transform dicta from trivia into a force.” 130
C. The Emphasis on Words over Concepts
Despite the Supreme Court’s admonition that “the language of an opinion is not always to be parsed as though we were dealing with language of a statute,”
131
lawyers and judges
125 generally P OSNER , supra note 2, at 139-43.
126
Because the Supreme Court is more apt to issue dicta—because the
Justices have more time for each opinion, because their dicta has more effect than that of a lower court, and because their cases have a broader reach than the average case— lower courts emulating the Supreme Court are also more apt to issue dicta.
Dicta by the United States Supreme Court carries more weight than dicta by lower courts, however. Some courts describe it as “highly persuasive” and some claim it generally “must be treated as authoritative.” See, e.g.
, Winslow v. FERC, 587
F.3d 1133, 1135 (D.C. Cir. 2009); Galli v. N.J. Meadowlands Comm’n, 490 F.3d 265,
274 (3d Cir. 2007). But neither courts nor commentators seriously suggest that dicta from other courts, often including state supreme courts, should have any binding effect.
See, e.g.
, Eady v. Morgan, 515 F.3d 587, 600 (6th Cir. 2008) (denying habeas relief when the defendant’s lawyer failed to raise Tennessee Supreme Court dicta, noting that although the lower court could be persuaded by the dicta, it was not binding law);
Taylor, supra note 2, at 104-13.
127 supra note 1, at 1255.
128
Id.
129
Id.
In contrast, he describes a court of appeals chastising a district court judge for “failing to follow its earlier dictum,” quoting the appellate court as follows:
“[O]ur articulation [in Quinn ] . . . became law of the circuit, regardless of whether it was in some technical sense ‘necessary’ to our disposition of the case. The [lower court was] . . . required to follow [it].” Id.
at 1251 (alteration in original).
130
Id.
at 1256.
131
Reiter v. Sonotone Corp., 442 U.S. 330, 341 (1979); see also Aldisert, supra note 2, at 607 (indicating a court is not bound by the rationale; subsequent courts are bound by “what the court did , not what it said ”); Goodhart, supra note 2, at 162, 179,
182 (arguing that the reasons given for the decision and the rule articulated in the

246 BROOKLYN LAW REVIEW [Vol. increasingly rely on the words found in judicial opinions rather than the underlying components of those judicial decisions— facts, issues, holdings, and outcomes.
132 Yet this is almost sure to confuse the holding/dicta distinction, and that makes the promulgation of dicta a dangerous practice.
133 decision are not part of the holding; rather, the holding “is to be found in the conclusion reached by the judge on the basis of the material facts and on the exclusion of the immaterial ones”).
132
Understanding these components is essential to understanding a case’s holding. Leval, supra note 1, at 1269.
133
As the Ninth Circuit noted: “ Stare decisis is the policy of the court to stand by precedent . . . . [T]he word ‘ decisis ’ . . . means, literally and legally, the decision. Nor is the doctrine stare dictis ; it is not ‘to stand by or keep to what was said.’” In re
Osborne, 76 F.3d 306, 309 (9th Cir. 1996).
In spite of this clear direction, some courts seem to expressly privilege judicial statements— which are far more likely to be dicta—over a case’s holding. For example, in Maine Yankee Atomic Power Co. v. United States , 44 Fed. Cl. 372 (1999), the court correctly asserted that under principles of stare decisis, courts were not bound unless a prior court actually “heard and resolved” the issue. Id.
at 376. The court went on, however, to state that “[i]n addition, a case will not be treated as binding precedent on a point of law where the holding is only implicit or assumed in the decision but is not announced.” Id.
The court cited a 1952 United States Supreme
Court case in support of this proposition, yet what that Court actually said was: “The effect of the omission was not there raised in briefs or argument nor discussed in the opinion of the Court. Therefore, the case is not a binding precedent on this point.”
United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 38 (1952).
The “announce” requirement created by Maine Yankee Atomic Power Co.
emphasizes words—statements and articulations—suggesting that a holding is a holding only if the court states it clearly and labels it as such. But courts at times overstate their holding. They also, at times, fail to state their holding, even when they in fact do reach a holding, as is evident from the result or the rationale. More significantly, should courts have the power to declare the extent of their holdings? Or to avoid stare decisis and the binding nature of precedent by simply refusing to clearly state their holdings?
The Rules of the Supreme Court of Ohio have also struggled with this issue. Prior to 2002, Rule 1 of the Supreme Court Rules for the Reporting of Opinions stated that the syllabus of an Ohio Supreme Court decision—not the opinion itself— stated the “controlling points of law.” The rule was amended effective May 1, 2002, and this was the committee’s stated rationale:
[T]he Supreme Court’s historic “syllabus rule” may have outlived its usefulness. Over the last decade, there appears to have been declining use of the “syllabus” by some members of the Court, and one frequently finds much
“good law” in an opinion—including even footnotes—which is never reflected in any syllabus paragraphs. If there is “disharmony” between the syllabus and the text, the syllabus would control.
The current rule still focuses on “statements” of the law, but expands review beyond the syllabus:
(B)(1) The law stated in a Supreme Court opinion is contained within its syllabus (if one is provided), and its text, including footnotes.
(2) If there is disharmony between the syllabus of an opinion and its text or footnotes, the syllabus controls.
O HIO S UP .
C T .
R.
FOR THE R EPORTING OF O PINIONS R. 1 (2002), available at http://www. supremecourt.ohio.gov/LegalResources/Rules/reporting/Report.pdf.

2010] WHY DICTA BECOMES HOLDING 247
This emphasis on words rather than concepts has arisen for a number of interrelated reasons. First, the changing nature of judicial opinion writing enforces this emphasis. The substantial increase in judicial caseloads, 134 combined with the increased reliance on law clerks, 135 suggests that a thorough review of all the potentially relevant law is simply unlikely to occur in most cases.
Second, the changing nature of legal research also encourages overreliance on words and quotations. Most legal researchers now conduct their research electronically, 136 where they can search for words rather than subjects, concepts, or legal principles. Using full-text word searching, they can now copy and paste quotations directly into their documents with remarkable ease.
137
Third, changes to the citation rules over the past twenty-five years have resulted in a current emphasis on statements—words, phrases, and quotations—at the expense of holdings. This emphasis on statements favors quotations and paraphrased passages, and also makes it more difficult to discern the actual holding of a case cited in a brief or an opinion.
Finally, changes to our society over the past thirty years are undoubtedly involved as well. We have become a “sound
134
P OSNER , supra note 2, at 62 fig.3.1 (showing federal appeals courts’ cases per year increased from less than 50,000 cases in 1904 to approximately 100,000 cases in 1967 to almost 300,000 cases in 1995).
135
The Supreme Court began hiring law clerks in the 1930s; they increased to two clerks per Justice in 1947, three clerks per Justice in 1970, and four clerks per
Justice in 1978. Id . at 139. The federal appellate courts also began hiring law clerks in the 1930s; they increased to two per judge in 1970 and three per judge in 1980. Id.
There is also reason to believe that the increased use of law clerks has resulted in an increase in the number of precedents cited in each opinion, Frank B. Cross et al.,
Citations in the U.S. Supreme Court: An Empirical Study of Their Use and
Significance , 2010 U. I LL .
L.
R EV . 489, 535 (2010), as well as an increase in opinion length. P OSNER , supra note 2, at 155 (noting a “large increase in the length of the
Supreme Court’s majority opinions” between 1969 and 1972, when the Justices “each became entitled to a third law clerk”).
136
5 A M .
B AR A SS ’ N , ABA L EGAL T ECHNOLOGY S URVEY R EPORT : O NLINE
R ESEARCH (2009) v-xiii [hereinafter ABA S URVEY R EPORT ] (reporting that 97% of private practice lawyers surveyed by the ABA conduct online legal research, which increased from 91% two years earlier). Only 51% of the respondents reported researching in print materials regularly, as opposed to 58% in 2006. Id . at v-xi. All of the lawyers under the age of forty reported conducting online research, and 92% of the lawyers over the age of sixty did as well. Id . at v-xiii. This trend is likely to continue.
Daniel T. Willingham, Have Technology and Multitasking Rewired How Students
Learn?
, 34 A M .
E DUC . 23, 23 (2010) (“[T]he average American between the ages of 8 and 18 spends more than 7.5 hours per day using a phone, computer, television, or other electronic device.”).
137 infra note 161 and accompanying text.

248 BROOKLYN LAW REVIEW [Vol. bite society,” characterized by short attention spans and multitasking.
138 It is hardly surprising that in this environment, a short quotation is often preferable to a lengthy discussion of a case’s facts, issues, and holding.
1. The Changing Nature of Judicial Opinion Writing
Many have commented on the exponential increase in courts’ caseloads.
139 With more opinions to write each year, less time can be devoted to each opinion.
140 Most significantly, each judge has proportionately less time than in the past to spend drafting and redrafting each opinion.
141 The solution to this problem has largely been to delegate the initial opinion drafting to law clerks.
142 Although once the province of the
138
J EFFREY S CHEUER , T HE S OUND B ITE S OCIETY : T ELEVISION AND THE
A MERICAN M IND 3 (1999) (arguing America’s sound bite culture has “impoverish[ed] political debate”). Scheuer defines a sound bite society, such as the United States, as
“one that is flooded with images and slogans, bits of information and abbreviated or symbolic messages—a culture of instant but shallow communication.” Id . at 8. Sound bite societies are “indifferent to . . . serious discourse.” Id . Scheuer also points out that within a sound bite society the “electronic culture fragments information into isolated, dramatic particles and resists longer and more complex messages,” which interferes with abstraction and recognizing ambiguity. Id . at 9.
139 e.g.
, P OSNER , supra note 2, at 132 (“There were 66 circuit judgeships in 1960; there are 167 today [1985]; there would be 886 if the number of judgeships were increased to the point necessary to maintain the same ratio of judgeships to cases as in 1960 (1:57).”); Ruggero J. Aldisert et al., Opinion Writing and Opinion Readers ,
31 C ARDOZO L.
R EV . 1, 6-8 (2009); Harry T. Edwards, A Judge’s View on Justice,
Bureaucracy, and Legal Method , 80 M ICH .
L.
R EV . 259, 262 (1981); Richard A. Posner,
Will the Federal Courts of Appeals Survive Until 1984? An Essay on Delegation and
Specialization of the Judicial Function , 56 S.
C AL .
L.
R EV . 761, 761-62 (1983) (noting that federal appeals increased by 400% between 1960 and 1981); see also generally
William M. Richman & William L. Reynolds, Elitism, Expediency, and the New
Certiorari: Requiem for the Learned Hand Tradition , 81 C ORNELL L.
R EV . 273 (1996).
140
P OSNER , supra note 2, at 141 (“The biggest ‘give’ is in the time the judge devotes to the actual preparation of his opinions.”); Leval, supra note 1, at 1256. This is true even with the growing number of “unpublished” opinions being released by the courts of appeals each year. Aldisert et al., supra note 139, at 6-9; Richman, supra note
139, at 275, 281-86.
141
Judge Leval terms this “insufficient judicial scrutiny.” Leval, supra note 1, at 1262. He notes that “assertions made in dictum are less likely to receive careful scrutiny, both in the writing chambers and in the concurring chambers. When a panel of judges confers . . . [they] generally focus on the outcome and on the reasoning upon which the outcome depends. Judges work under great time pressure.” Furthermore, when the “concurring chambers receive the writing judge’s draft for their review, they are likely to look primarily at whether the opinion fulfills their expectations as to the judgment and the reasoning given in support. There is a high likelihood that peripheral observations, alternative explanations, and dicta will receive scant attention.” Id.
142
This solution has also been discussed at length. See, e.g
., P OSNER , supra note 2, at 139-59; Richman, supra note 139, at 288 (“It is widely assumed in the legal world that law clerks draft most opinions. There may be some debate about how widespread the phenomenon is, but there is agreement that it occurs to a significant

2010] WHY DICTA BECOMES HOLDING 249 judge, law clerks now play a major role in creating the written work product generated by courts.
143 And it is this written work product that has precedential value. True, judges still direct the outcome.
144 But they seldom create the first draft of their opinions.
145
As understandable as the reliance on law clerks is, it confuses the holding/dicta distinction even further. First, law clerks tend to be relatively recent law school graduates.
146 Not only as compared to judges, but also as compared to more seasoned lawyers, they are less likely to be confident in their understanding of the law and more fearful of misstating the law.
147 This makes them more likely to quote from existing precedent, which is much easier to do than to accurately determine a case’s holding. As Judge Posner noted, law clerks
“feel naked unless they are quoting and citing cases and other authorities.” 148 extent with a large number of judges.”); Richard A. Posner, Judges’ Writing Styles (And
Do They Matter?) , 62 U.
C HI .
L.
R EV . 1421, 1423-24 (1995) (referring to law clerks as judges’ “ghostwriters”); Alvin B. Rubin, Views from the Lower Court , 23 UCLA L.
R EV .
448, 455-56 (1976) (describing law clerks as “para-judges” and commenting that they are “not merely running citations in Shepard’s and shelving the judge’s law books”).
143
P OSNER , supra note 2, at 140, 151 (commenting that judges “did their own research and writing before the workload pressures became overwhelming”).
144 generally Posner, supra note 139.
145
Judge Posner notes the risk that judicial opinions will lose legitimacy as it becomes “more apparent that an opinion is the work of the law clerk” as opposed to the judge. P OSNER , supra note 2, at 149. “This will reduce the authority of judicial decisions as a source of legal guidance and will increase uncertainty and with it litigation.” Id.
; see also supra note 69 and accompanying text. Furthermore, he notes the effect that initial draft has on the final product: “the initial draftsman of a judicial opinion, as of any document, is likely to have a big impact on the final product, despite conscientious attention by the judge to his editorial responsibility.” Posner, supra note
139, at 772. also opines that law clerks ultimately improve, rather than reduce, the overall quality of judicial opinions. Wald, supra note 2, at 1384.
146
Christopher Avery et al., The Market for Federal Judicial Law Clerks , 68
U.
C HI .
L.
R EV . 793, 805 (2001); Sally J. Kenney, Puppeteers or Agents? What Lazarus’s
Closed Chambers Adds to Our Understanding of Law Clerks at the U.S. Supreme
Court , 25 L AW & S OC .
I NQUIRY 185, 194 (2000) (discussing the Court’s praise for “the use of recent law graduates as a way of bringing the latest legal thinking to sitting judges”); Richman, supra note 139, at 289. Recent law school graduates are also more likely to conduct electronic word searches than the judges who employ them. See generally Scott Stolley, Shortcomings of Technology: The Corruption of Legal Research ,
46 F OR THE D EF . 39, 40 (2004).
147
Posner, supra note 139, at 771 (“[L]aw clerks are inevitably timid jurists. . . . Hence, the heavy reliance . . . on quotations (too often wrenched out of context) from prior opinions . . . .”). Determining the holding in opinions like these is not easy; “[t]o pare down such an opinion in search of the hard analytical core is too often like peeling an onion.” Id.
148
P OSNER , supra note 2, at 148.

250 BROOKLYN LAW REVIEW [Vol.
Law clerks also draft longer opinions.
149
Longer opinions mean the writer includes more, and that “more” is often dicta.
150
In the process, generally sound and familiar writing advice such as, “go easy on quotations,” is regularly ignored by judges and especially by law clerks.
151 Consequently, the proliferation of longer opinions coupled with the trend toward relying more extensively on quotations has become a “substitute for thought” 152 —and without rigorous thought, the holding/dicta distinction is destined to remain obscure.
2. The Changing Nature of Legal Research
Young lawyers and most law students spend day after day in “Google-search” mode—looking for answers to their questions by typing a word or short phrase into a search box
149 supra note 139, at 770-71 (“[T]he law clerk does not know what he can leave out. . . . [H]e tends naturally to err on the side of overinclusion.”). The progressively expanding judicial opinions parallel the rise in reliance on law clerks. See supra note 135 and accompanying text. The average number of words in federal appellate decisions increased by over 40% between 1960 and 1983, P OSNER , supra note
2, at 77 tbl.3.8, 153, which coincided with the increase in reliance on judicial clerks. Id . at 155. In 1960, for example, the average federal court of appeals opinion was 2,300 words; by 1983, it was 3,100 words. Id . at 153, tbl.5.2. An even more significant increase occurred in majority opinions by the Supreme Court. In 1960, the average
Supreme Court majority opinion was 2,000 words; by 1983, the average had ballooned to 4,700 words. Id .
150 supra note 1, at 1256 (accepting “dictum as if it were binding law” results “in some part from time pressures on an overworked judiciary [and] the everincreasing length of judicial opinions, . . . which contribute to our taking previously uttered statements out of context, without a careful reading to ascertain the role they played in the opinion”).
151
Judges’ Writing Styles , supra note 142, at 1423-24. Judge Posner contrasts the “pure” and “impure” judicial writing styles, noting that the “pure” style
“quotes heavily from previous judicial opinions” and “conceals the author’s personality.”
Id.
at 1429. More current opinions follow this pattern. “Impure” stylists, on the other hand, such as Justice Oliver Wendell Holmes, “like to pretend that what they are doing when they write a judicial opinion is explaining to a hypothetical audience of laypersons why the case is being decided in the way that it is. These judges eschew the
‘professionalizing’ devices of the purist writer” including jargon, impersonality, excessive details, “truisms, the unembarrassed repetition of obvious propositions, [and] the long quotations from previous cases to demonstrate fidelity to precedent.” Id.
at
1430 (citations omitted).
152
Judges’ Writing Styles , supra note 142, at 1447.
We tend to think that words enable thought. But words can also substitute for thought. The pure style [which relies heavily on quotations from prior opinions] is an anodyne for thought. The impure style forces—well, invites— the writer to dig below the verbal surface of the doctrines that he is interpreting and applying. . . . If the judge is lucky, he may find, when he digs beneath the verbal surface of legal doctrine, the deep springs of the law.
Id.

2010] WHY DICTA BECOMES HOLDING 251 and performing an electronic search at the speed of light.
153
Many law firms no longer have a “library”—the libraries exist on each lawyer’s desk in the form of a computer with an internet connection.
154
Perhaps the most significant contribution electronic legal research has made is allowing greater flexibility than was possible with existing print sources. Print digests have inherent limitations; 155 electronic research provides more
153
See, e.g.
, Robert Berring, Collapse of the Structure of the Legal Research
Universe: The Imperative of Digital Information , 69 W ASH .
L.
R EV . 9, 31 (1994)
(positing in 1994 that the “typical law student of today is not a product of the culture of the book and is just as likely to use an electronic source as a print source”); Linda
Green Pierce, X Lawyers Mark New Spot: Understanding the Post-Baby Boomer
Attorney , 61 O R .
S T .
B.J. 33, 33-34 (2001).
In terms of electronic legal research, Lexis, with full-text search capabilities, was introduced in 1973, and Westlaw followed suit in 1975. William R.
Mills, The Decline and Fall of the Dominant Paradigm: Trustworthiness of Case
Reports in the Digital Age , 53 N.Y.L.
S CH .
L.
R EV . 917, 923 (2009). Westlaw’s initial searching was limited to headnotes, but by 1978, Westlaw also offered full-text searching. John Doyle, WESTLAW and the American Digest Classification Scheme , 84
L AW L IBR .
J. 229, 229-30 (1992). Over the next twenty years, electronic legal research slowly increased, but when the internet became widely available and popular, “legal publishers moved many of their products to this medium.” Carol A. Roehrenbeck,
Preparing Lawyers for Practice in the New Millennium , 51 R UTGERS L.
R EV . 987, 995
(1999). “By the 1990s, computers and databases had become as much a part of the resources of the library as books.” Id.
at 996.
154
ABA S URVEY R EPORT , supra note 136, at v-x (noting that only 17% of private practice lawyers regularly conduct research in firm or public libraries; in contrast, 81% regularly conduct research in their offices, and 29% regularly conduct research at home). The transition from print to electronic sources does create some challenges. See, e.g.
, Robert Berring, Chaos, Cyberspace and Tradition: Legal
Information Transmogrified , 12 B ERKELEY T ECH .
L.J. 189, 190 (1997) (describing, in
1997, the “series of problems” and “range of challenges” that transforming legal information from books to electronic media will create). Yet the advent of electronic legal research has brought many advantages. First, in terms of cost, Lexis and
Westlaw have, in some sense, leveled the playing field. Small firms can now compete with larger firms, as they do not have to purchase and house a large physical library.
The advent of free and low-cost internet search options has also provided benefits; for example, public service offices can now minimize expenses and provide more services to the needy. And for those unable to visit a bricks and mortar law library, the electronic availability of many legal sources, especially those available for free, has increased access to the law.
155
Daniel Dabney argues that West’s Key Number System, and hence the digest, “influences the law itself.” Daniel Dabney, The Universe of Thinkable Thoughts:
Literary Warrant and West’s Key Number System , 99 L AW L IBR .
J.
229, 230 (2007). He labels the phenomenon created by West as the “universe of unthinkable thoughts.” Id.
at 229-30. “If an idea doesn’t correspond to something in the Key Number System, it becomes an unthinkable thought.” Id.
at 236. The argument is that the classification system necessarily limits the ways the classifier can think about the law, and hence, limits the law itself from evolving and expressing new ideas. See, e.g.
, Berring, supra note 153, at 30; Richard Delgado & Jean Stefancic, Why Do We Tell the Same Stories?:
Law Reform, Critical Librarianship, and the Triple Helix Dilemma , 42 S TAN .
L.
R EV .
207, 208-09 (1989) (grouping the West Digest system with the Index to Legal
Periodicals and the Library of Congress’ subject heading system). Even John West, creator of the West Digest system, agreed that a “rigid” digest system would be

252 BROOKLYN LAW REVIEW [Vol. control and greater ability to customize searches. Lawyers can decide for themselves how to search for the information that may be most helpful.
156
But Google-search mode also brings potentially bad research habits.
157 Rather than exhaustively researching an issue and reading everything available on a particular topic, we can find a good source—often boiling down to a few key quotes, and maybe a handful of useful cases or a summary that appears helpful.
158 In other contexts, this may be just fine; when looking for the phone number for a restaurant, as long as we find the number, we do not care if other sites report a different number. But understanding the breadth of precedent relevant to a particular legal issue is critical. Likewise, understanding the holdings of the controlling case law—not just finding a few choice quotations from a few key cases 159 — is essential to legal analysis. ineffective, and admitted that the “classification of today will be as inadequate in the future as the classification of the past is at this time.” John B. West, Multiplicity of
Reports , 2 L AW L IBR .
J. 4, 7 (1909) (commenting, in 1909, on the myriad of problems created by the “multiplicity of reports” that result from the increasing number of courts and decisions).
156 supra note 153, at 31 (recognizing that electronic word searching allows researchers to break free of “the constraints of the West digesting system”); Mills, supra note
153, at 928 (“Legal researchers rejoiced over the new full-text search and retrieval systems that liberated them from the strictures of the Key Number digest system.”).
157
In addition to the problem of overemphasizing words and quotations over concepts, the lack of “transparency of search protocols” is a “major problem.” Berring, supra note 154, at 209. As Professor Berring asks, “Are electronic database users aware of the preemptive decisions being made for them by the system that they are using?” Id.
He adds that lawyers are “no more likely to read directions than anyone else, and the industry standard for how much training and special skill acquisition one is willing to undergo seems to be dropping.” Id.
Perhaps because electronic word searching in the legal research context is so similar to internet searching, law students and lawyers feel less of a need to attend training and simply assume they are competent electronic researchers.
158 e.g.
, Fowler, supra note 2, at 140-41.
159
Fowler describes this phenomenon:
When you plug in the key words or phrases to do your Boolean search . . . you immediately get all the cases that satisfy your query. And you are taken directly to the part of the opinion where your key words or phrases are found.
If, there on your computer screen, is a sentence that says what you want it to say, you may conclude your research is done. You may choose not to read the rest of the case to find out the specific issues that were the subject of the appeal. You may also choose not to look carefully at the remaining results of your research—even though those results may reveal a line of on-point precedents overlooked by the first case you found.
Id.
at 141. Many electronic sources of legal information do not have full-text searching, so this problem is minimized. But the advantages of those sources are fewer as well.
Mills, supra note 153, at 930.

2010] WHY DICTA BECOMES HOLDING 253
Scholars have noted that electronic legal research encourages a focus on individual screens and snippets of text rather than documents as a whole; this devalues the significance of legal principles in favor of facts and rules taken out of context.
160 Electronic research combined with word processing allows writers to copy and paste language into briefs and judicial opinions with ease, 161 but without necessarily considering the context for that statement. This may result in more “tilting at windmills”—lawyers putting forward “marginal cases, theories, and arguments.” 162
This is not to suggest that electronic word searching is useless; on the contrary, it is a valuable addition to the available research tools.
163 But electronic word searching 164 emphasizes, by its very nature, particular words over concepts.
165 As noted by one commentator, a judge’s particular
160
Carol M. Bast & Ransford C. Pyle, Legal Research in the Computer Age: A
Paradigm Shift?
, 93 L AW L IBR .
J. 285, 297-98 (2001); Molly Warner Lien,
Technocentrism and the Soul of the Common Law Lawyer , 48 A M .
U.
L.
R EV . 85, 88-90
(1998) (equating society’s “sound-bite” culture with law students’ and lawyers’ “‘lawbyte’ reasoning and hypertext analysis” and criticizing the “rapid rule extraction” electronic research facilitates).
161 supra note 160, at 298.
162
Electronically Manufactured Law , 22 H ARV .
J.L.
&
T ECH . 223, 226 (2008).
163
In terms of the research strategies and research tools used by lawyers, legal researchers “tend to use more than one system, and often use several.” Schanck, supra note 48, at 17. Some lawyers never use digests, id.
at 18, and lawyers tend to focus more on facts “than on abstract doctrines.” Id.
Approximately 10% of all Westlaw searches are Key Number (the online digest) searches. E-mail from Daniel Dabney,
Senior Director of Classification, ThomsonReuters, to Judith M. Stinson, Clinical
Professor of Law, Sandra Day O’Connor College of Law at Arizona State University
(Feb. 12, 2010, 02:15 MST) (on file with author).
164
Electronic searches are generally either Boolean searches or Natural
Language searches. When conducting a Boolean search, the researcher essentially creates his or her own indexing system. Berring, supra note 153, at 30. But Boolean searching is inherently based on the particular words used by judges; furthermore,
Berring notes that researchers are not likely “adept at Boolean searching.” Id.
Natural Language searching uses “algorithms to retrieve cases that [are] statistically likely to be relevant, based on the words entered in search statements devised by the researcher.” Mills, supra note 153, at 920. Mills notes that “[n]atural language search[es] proved even more popular than Boolean search[es]”—likely because of the similarity between a Natural Language search and Google or other basic internet searching. Id.
The searcher does not have to think about the relationship between terms; he simply lets the computer default system decide those matters. For this reason, Natural Language searches are generally less effective and less efficient than Boolean searches.
165
“The efficiency of word-based searches depends on the probability that the searcher and the court have used the same word or phrase for the concept in question.”
Delgado, supra note 155, at 220-21. Because the computer, when running a Boolean or
Natural Language search, is looking for the specific words entered by the user, language becomes key. See, e.g.
, Mills, supra note 153, at 921. Concepts that can be expressed in more than one way—as many legal concepts can—are not best suited to

254 BROOKLYN LAW REVIEW [Vol. statement of the law is “mere dictum.”
166
Judges are “not bound by the statement of the rule of law made by the prior judge even in the controlling case.” 167 Case law is contrasted with statutes for this purpose: “What a court says is dictum, but what a legislature says is a statute.” 168
As noted by one scholar, “[w]hile online full-text retrieval was developed to free searchers from the limitations of editorially indexed cases, it also minimized the assistance to be gained from editorial judgment.” 169 Furthermore, word searches, without reading the entire opinion in which a sentence appears, do not reveal whether the statement reflects the court’s holding or is merely dictum.
170
At least one commentator has suggested that electronic legal research has “devalued the holding/dictum distinction.” 171 word searches. Even with concepts usually expressed in a phrase, word searching may miss key relevant authorities. For example, if a researcher looks for “parol evidence rule” but the court terms the rule “the rule on parole evidence,” the researcher may not find the source. True, a carefully crafted search is more likely to capture alternative phrasings for the same concept. But sometimes judges do not use the words one might most expect to be used.
“[T]he computer is ill-suited for finding concepts. It is great for finding discrete words or specific cases, but that’s just data collection. . . . Law is conceptoriented, and concepts are best found in sources that are categorized by concept, such as digests.” Stolley, supra note 146, at 40.
166
L EVI , supra note 46, at 2.
167
Id.
168
Id.
at 6.
169 supra note 153, at 230.
170 supra note 2, at 141. Although easy, the attraction to quotes is puzzling. Quotes are like statistics; you can find one to say anything you want. I am reminded of the student who returned from his summer clerkship experience with a large law firm. When I asked whether his research skills were up to par with his colleagues, he advised me that his most frequent research project was of this sort: “find me a case that says X .” When the goal is to find cases that say X , rather than hold X , it is easy to see why word searching is so popular.
171
Id.
at 140-41.
More significantly, changes in 2010 to Westlaw and LexisNexis will make those platforms resemble, to a much greater degree, Google. Those new platforms,
WestlawNext and Next Lexis, emphasize Natural Language searching. Jill Schachner
Chanen, Exclusive: Inside the New Westlaw, Lexis & Bloomberg Platforms , ABA J.
L AW
N EWS N OW , Jan. 24, 2010, available at http://www.abajournal.com/news/article/ exclusive_inside_the_new_westlaw_lexis_bloomberg_platforms. These new platforms will bring a number of improvements, and may help decrease, at least somewhat, the problems inherent in word searching; for example, WestlawNext relies on an algorithm that adds “synonyms, . . . terms of art, generic names, and legal relationship terms—so your search terms don’t have to match the judge’s terms verbatim.” T HOMSON
R EUTERS , T HE W ESTLAW N EXT C ASELAW 22-S TEP E DITORIAL P ROCESS 1 (2010). In addition, it uses the key number system—the foundation for digests—and automatically analyzes search patterns on your issue. T HOMSON R EUTERS ,
C ONFIDENCE .
E FFICIENCY .
P RODUCTIVITY . 1 (2010).
But the “hunt for a good quotation” made easier by electronic word searching may persist, and the recent releases of Google Scholar and Bloomberg Law,

2010] WHY DICTA BECOMES HOLDING 255
In addition, Judge Leval notes that the “acceptance of prior dictum as if it were binding law” comes, in part, from the
“precision-guided weaponry of computer research,” which contributes to “our taking previously uttered statements out of context, without a careful reading to ascertain the role they played in the opinion.” 172
3. Changes to Citation Rules
Even our dominant citation rules emphasize the words in judicial opinions over case holdings. In theory, lawyers and judges must indicate when they cite a case for anything other than the case’s holding.
173 Yet in practice, the citation rules as currently framed suggest that a case’s holding is less significant than the statements made by the same court—even though statements can be and often are dicta.
174 and the increase of sites such as FastCase.com and TheLaw.net make clear that word searching is the dominant mode of conducting research. Id.
; see also About Google
Scholar , G OOGLE S CHOLAR , http://scholar.google.com/intl/en/scholar/about.html (last visited Sept. 10, 2010) (“Google Scholar provides a simple way to broadly search for . . . court opinions.”); B LOOMBERG L AW , https://www.bloomberglaw.com (last visited Sept.
10, 2010) (“It’s the first and only real-time research system for the 21st century legal practice.”); F AST C ASE , http://www.fastcase.com/ (last visited Feb. 22, 2010) (“Fastcase is a next-generation, Web-based legal research service, that puts the complete national law library on your desktop anywhere you have Internet access. Fastcase’s smarter searching, sorting, and visualization tools help you find the best answers fast—and help you find documents you might have otherwise missed.”); T HE L AW , http://www.thelaw.net/ (last visited Feb. 22, 2010) (“Case Law: Searchable, Citable,
Checkable & Affordable”).
172 supra note 1, at 1256. He also notes that that it is “easier to have the magic carpet of computer research whisk you straight to the pertinent sentence of the prior opinion and write ‘In such and such case, the court held . . . .’” Id.
at 1269
(alteration in original).
173
T HE B LUEBOOK : A U NIFORM S YSTEM OF C ITATION R. 10.6.1(a), at 91
(Columbia Law Review Ass’n et al. eds., 18th ed. 2005). That rule states: “When a case is cited for a proposition that is not the single, clear holding of a majority of the court
(e.g., alternative holding; by implication; dictum ; dissenting opinion; plurality opinion; holding unclear), indicate that fact parenthetically.” Id.
(emphasis added).
However, a writer may fail to identify when a case is cited for other than its holding—perhaps in a deliberate attempt to mislead, but perhaps because the writer herself is not clear about whether the proposition is the case’s holding or simply dicta.
174
The problem likely stems from the fact that The Bluebook was designed for scholarly, not practical, writing. The Bluebook is “[c]ompiled by the editors of the
Columbia Law Review, the Harvard Law Review, the University of Pennsylvania Law
Review, and the Yale Law Journal.” T HE B LUEBOOK , supra note 173, at iii.
Those editors edit scholarly articles, not practitioners’ documents. depth on secondary sources than on cases. And for secondary sources, as well as the three other common types of primary authority—constitutions, statutes, and administrative regulations—the actual language used is controlling. The reader needs to see the exact language used by the legislature, for example, and wants either the words or a paraphrased summary of a scholarly author’s argument. But this same

256 BROOKLYN LAW REVIEW [Vol.
The current problem lies in the rules regarding signals, 175 but this has not always been the case. In fact, previous versions of the signal rule—which one would think instinctually tells a reader when a cited source is not directly on point—did not elevate statements over holdings. The original Bluebook, in 1926, stated the following: “To indicate the purpose of the citation , use the following forms: (a) For a square holding, cite the case only at the page where it begins.” 176 The next subsection addressed dicta: “For a dictum, put ‘see’ before the name of the case, and, after the initial page of the case, put a comma and the page where the dictum begins.” 177 Early signal rules therefore emphasized judicial
“holdings” and not simply judicial “statements.” 178 reliance on language should not necessarily hold true with judicial opinions. The words used by a court are often of little significance; instead, the court’s holding—which generally requires more complex legal analysis to determine—is of prime significance, as it is the only binding component of the opinion. See id.
at 91; see also supra text accompanying note 159. Yet the signal rules in The Bluebook make no distinction between cases and other authorities.
175
Although perhaps a subtle distinction, to the extent that some writers are well versed in the current citation rules—and law clerks, having been recent law review editors, are bound to be—these rules at least subconsciously tell writers what is more highly valued and what is less valued in terms of authority. See supra note 146 and accompanying text. It is true that citation rules likely have little effect on most judges. Richard A. Posner, Law Reviews , 46 W ASHBURN L.J. 155, 158 (2006). But many lawyers, and likely a majority of law clerks, do pay attention to these rules.
176
A U NIFORM S YSTEM OF C ITATION : A BBREVIATIONS AND F ORM OF C ITATION
R. I(A)(3)(a), at 1 (1st ed. 1926) (photo reprint William S. Hein & Co. 1998), available at http://www.legalbluebook.com/img/PastVersions/USC01.pdf.
177
Id.
R. I(A)(3)(b), at 2. This rule changed slightly, but the focus remained on holdings until the thirteenth edition was published in the 1980s. For example, under the tenth edition of The Bluebook , no signal was necessary if the writer was introduc[ing] any authority which directly upholds a proposition of either law or fact which is stated by the text [meaning the writer’s text, not the case being cited]. Only authorities which unequivocally hold the stated proposition of law or explicitly make the statement or conclusion of law or fact which is made by the text should be cited as support without a signal.
A U NIFORM S YSTEM OF C ITATION : F ORMS OF C ITATION AND A BBREVIATIONS R. 27:2:1, at
85 (10th ed. 1958) (emphasis added), available at http://www.legalbluebook.com/ img/PastVersions/USC10.pdf. Under this rule, no signal was required if either a case was cited for its holding or if a case was cited for an explicit statement, conclusion of law, or conclusion of fact. Id.
178
The rules in the eleventh edition were similar; no signal was required when the “[c]ited authority directly supports ” the writer’s “statement in [the] text.” A
U NIFORM S YSTEM OF C ITATION : F ORMS OF C ITATION AND A BBREVIATIONS R. 26:1, at 86
(11th ed. 1967) (emphasis added), available at http://www.legalbluebook.com/img/
PastVersions/USC11.pdf. The twelfth edition rules were more comprehensive, but still recognized that when a case was cited for its holding, no signal was required. A
U NIFORM S YSTEM OF C ITATION R. 2:3(a), at 6 (12th ed. 1976), available at http://www. legalbluebook.com/img/PastVersions/USC12.pdf. That rule stated that no signal was required when the “[c]ited authority: (i) directly supports statement in text, (ii)

2010] WHY DICTA BECOMES HOLDING 257
However, the rule requiring a “see” signal became more statement-based with the thirteenth edition. A signal was required unless the cited authority, “(i) state [ d ] the proposition;
(ii) identifie[d] the source of a quotation; or (iii) identifie[d] an authority referred to in text.” 179
This emphasis on “statements” carried through subsequent editions of The Bluebook 180 and has become even stronger. The fifteenth edition required no signal when the cited authority “ clearly states the proposition.” 181 This emphasis is not added; it is in The Bluebook ’s rule. And the sixteenth edition eliminated the first prong relating to a “proposition” altogether—requiring a signal unless the cited authority identified the “source of a quotation” or identified “an authority referred to in the text.” 182 Hence, The Bluebook made it clear that statements—not holdings, and not even propositions— mattered for purposes of citation.
The current rule regarding “see” once again includes
“propositions,” but requires that a signal be provided unless the cited authority “directly states the proposition.”
183
Following this rule, a signal is required, even for a holding, if it is not
“directly stated” in the opinion.
184 This seems, frankly, nonsensical.
185 identifies source of a quotation, or (iii) identifies an authority referred to in text.” Id.
(emphasis added).
179
A U NIFORM S YSTEM OF C ITATION R. 2.2(a), at 8 (13th ed. 10th prtg. 1985)
(emphasis added), available at http://www.legalbluebook.com/img/PastVersions/USC13.pdf.
180
See, e.g.
, A U NIFORM S YSTEM OF C ITATION R. 2.2(a), at 8 (14th ed. 1986), available at http://www.legalbluebook.com/img/PastVersions/USC14.pdf.
181
T HE B LUEBOOK : A U NIFORM S YSTEM OF C ITATION R. 1.2(a)(i), at 22
(Columbia Law Review Ass’n et al. eds., 15th ed. 12th prtg. 1995) (emphasis in original), available at http://www.legalbluebook.com/img/PastVersions/USC15.pdf.
That rule also retained the prongs requiring no signal if the citation identified the source of a quotation or identified authority referred to in the text. Id.
182
T HE B LUEBOOK : A U NIFORM S YSTEM OF C ITATION R. 1.2(a), at 22
(Columbia Law Review Ass’n et al. eds., 16th ed. 3rd prtg. 1996).
183
T HE B LUEBOOK : A U NIFORM S YSTEM OF C ITATION R. 1.2(a), at 54 (Columbia
Law Review Ass’n et al. eds., 19th ed. 1st prtg. 2010) (emphasis added). That rule also provides that a signal is not required if the cited authority “identifies the source of a quotation” or “identifies an authority referred to in the text.” Id.
The comment contained in this rule emphasizes quotations and paraphrased information even further: “Use ‘[no signal],’ for example, when directly quoting an authority or when restating numerical data from an authority.” Id.
184
Id.
185
In contrast, citation rules under the A SS ’ N OF L EGAL W RITING D IRS .
&
D ARBY D ICKERSON , ALWD C ITATION M ANUAL : A P ROFESSIONAL S YSTEM OF C ITATION
(4th ed. 2010) eliminate this problem. Under that citation manual, which is designed for practitioners rather than academics, no signal is used when the “cited authority directly supports the stated proposition.” Id. R. 44.2(a)(1), at 370 (emphasis added). A
“see” signal is proper under the ALWD Citation Manual “when the cited authority (a)

258 BROOKLYN LAW REVIEW [Vol.
The Bluebook ’s signal rules suggest that what the courts say is more relevant than what they do. Regardless of the definition one chooses for holding, commentators agree that not every statement within a judicial opinion is binding.
186 The
Bluebook rule implies all holdings are clearly articulated, and what is articulated is a holding. Anyone who has practiced law for any length of time knows that neither of those propositions are accurate.
187
4. Societal Changes
American society has evolved into a culture that relies on quick sound bites rather than deeper analysis for much of its information.
188 Current generations are increasingly characterized by their short attention spans.
189 As a profession, the legal community appears to be aware of these societal changes; for example, a number of lawyers and judges have focused on this evolution for purposes of persuading courts, 190 juries,
191
and the public (through the media).
192
But the legal supports the stated proposition implicitly or (b) contains dicta that support the proposition.” Id. R. 44.3, at 371. Hence, when a case is cited for its holding—whether articulated or not—no signal is used. A court’s statements are not the triggering event; a court’s holding is.
186 supra note 26.
187 see Maine Yankee Atomic Power Co. v. United States, 44 Fed. Cl. 372,
376 (1999) (“[A] case will not be treated as binding precedent on a point of law where the holding is only implicit or assumed in the decision but is not announced.”).
188
Generational changes may influence these developments as well. “Baby boomers” are those born between 1946 and 1964. Press Release, U.S. Census Bureau,
Oldest Baby Boomers Turn 60! (Jan. 3, 2006), available at http://www.sec.gov/ spotlight/seniors/oldestboomers2007.htm. That generation grew up without computers, and many without television. Instead, baby boomers “learned technology as it was invented.” Pierce, supra note 153, at 33. In contrast, those born between the mid-1960s and the late 1970s, termed “Generation X,” “grew up with computers” and “process information differently. The spurts of immediate information provided by computers and television . . . created a generation accustomed to getting information and education quickly and in sound bites.” Id.
This group is identified by a “short attention span, which may arguably limit focus,” but which also “enhances the ability to do multiple tasks. A range of available information through the media and computers has enhanced this generation’s ability to draw conclusions from readily available sources.”
Id.
“Generation Y,” also termed the “Millennial Generation,” are those born between
1982 and 2002. Is Your Firm Ready for the Millennials?
, K NOWLEDGE @E MORY (Mar. 8,
2006), http://knowledge.emory.edu/article.cfm?articleid=950. This generation is apt to be risk averse, id.
, and this in turn may further complicate the problem of overreliance on quotations.
189 e.g.
, Pierce, supra note 153, at 33.
190
See, e.g.
, Julie A. Oseid, The Power of Brevity: Adopt Abraham Lincoln’s
Habits , 6 J.
A SS ’ N L EGAL W RITING D IR . 28 (2009); Cathy R. Silak, From the Bench: All the World’s a Stage , 31 L ITIG . 3 (2005).
191
See, e.g.
, H. Mitchell Caldwell et al., The Art and Architecture of Closing
Argument , 76 T UL .
L.
R EV . 961, 1034 (2002).

2010] WHY DICTA BECOMES HOLDING 259 community does not appear to be thinking deeply about how these broader societal changes might be affecting our ability to conduct and communicate complex legal analysis. More specifically, there is no discussion about the effect these changes may have on the fundamental distinction between holding and dicta.
Society’s growing reliance on sound bites and the ever decreasing attention span of its members contribute to the inability of lawyers, judges, and law students to distinguish between holding and dicta.
193 We refuse to engage in the deep thinking necessary to determine a particular case’s holding. It is simply easier to find and quote some appealing language, even when the quoted phrase has little or nothing to do with the court’s holding.
194
Furthermore, psychologists argue that “cognitive fluency” 195 suggests we believe that what is easy is correct, and conversely, what is more difficult is likely incorrect.
196
Applying this theory to the holding/dictum distinction, it is far easier to extract seemingly relevant quotations from complex judicial opinions than it is to read and understand their actual holdings. Under principles of cognitive fluency, this is not only the easy answer, but also normatively correct. And with a society predisposed to the siren song of media sound bites and without the attention span to read and reread lengthy opinions
192
See, e.g.
, Michelle DeStefano Beardslee, Advocacy in the Court of Public
Opinion, Installment One: Broadening the Role of Corporate Attorneys , 22 G EO .
J.
L EGAL E THICS 1259 (2009); Eric M. Van Horn & Nancy B. Rapoport, Restructuring the
Misperception of Lawyers: Another Task for Bankruptcy Professionals , A M .
B ANKR .
I NST .
J., Sept. 2009, at 44 (providing a number of tips, with the first being: “Speak in sound bites. When was the last time you had a decent attention span?”).
193 e.g.
, Aldisert et al., supra note 139, at 2 (“Unfortunately, readers and users of judicial opinions—litigants, lawyers, other judges, clerks, researchers, and law students—tend to be very busy. As a result, they have highly selective reading habits.”).
194
Fajans Falk, note 30, at 170. Multitasking also contributes to this problem; one article points to the ten point drop in functioning IQ that occurs when workers are distracted by e-mail and phone calls. Karen Erger, Mono-Mania: The Case
Against Multitasking , 94 I LL .
B.J. 206, 207 (2006); see also Daniel T. Willingham, Have
Technology and Multitasking Rewired How Students Learn?
, 34 A M .
E DUC . 23, 25
(2010) (“[W]hen you do two things at once, you don’t do either one as well as when you do them one at a time.”).
195
See generally Tedra Fazendeiro et al., How Dynamics of Thinking Create
Affective and Cognitive Feelings , in S OCIAL N EUROSCIENCE 271, 271-89 (Eddie Harmon-
Jones & Piotr Winkielman eds., 2007). Cognitive fluency is “a measure of how easy it is to think about” a topic. Drake Bennett, Easy = True: How ‘Cognitive Fluency’ Shapes
What We Believe, How We Invest, and Who Will Become a Supermodel , B OSTON G LOBE ,
Jan. 31, 2010, available at http://www.boston.com/bostonglobe/ideas/articles/2010/01/
31/easy_true?mode=PF.
196
Bennett, supra note 195.

260 BROOKLYN LAW REVIEW [Vol. to accurately determine courts’ holdings, an overreliance on words, phrases, and quotations inescapably compounds the confusion between holding and dicta.
IV. T ENTATIVE P ROPOSALS AND C ONCLUSION
Regardless of how one defines holding (and therefore dicta), it is clear that judges and lawyers routinely confuse the two. Most significantly, dictum is regularly elevated to holding.
This article identifies a number of reasons underlying this confusion—the ripple effect, courts’ tendency to emulate the
Supreme Court, and the overemphasis on words, especially in the form of quotations. While this list may not be exhaustive, these underlying causes of the confusion can serve as a starting point for articulating proposals that may stop the repeated conflation of holding and dicta.
First, increasing education regarding the distinction is bound to help. That education could occur in law schools, 197 in continuing legal education seminars for practicing lawyers,
198 and at judicial training conferences.
199
Within law schools, students should be warned about the dangers of relying on the words and phrases they find in judicial opinions, especially when taken out of context.
200
Although it is true that law students are regularly asked to identify the holding of a case, they are often not told whether their response is correct.
201
Further, they are rarely asked to identify dicta; without consciously distinguishing between the two, their understanding of these concepts is bound to be limited.
202
197 supra note 106.
198
Judy M. Cornett, The Ethics of Blawging: A Genre Analysis , 41 L OY .
U.
C HI .
L.J. 221, 245 n.155 (2009) (noting that many states require their lawyers to complete mandatory training each year).
199
For example, all judges in Arizona are required to complete “[e]ducational requirements,” which include “a minimum of sixteen hours of approved course work each year, including . . . attendance at an annual judicial conference designated by the supreme court.” A RIZ .
C ODE OF J UDICIAL A DMIN . § 1-302(J)(1)(b), available at http://www. azcourts.gov/Portals/0/admcode/pdfcurrentcode/1-302_Amended_01-2008.pdf. By court rule, “[j]udicial education shall address relevant areas such as judicial competence, performance, case management, opinion writing, and administration,” id.
§ 1-302(J)(3)(a), and education programs for judges are “designed to impart knowledge, improve skills and techniques and increase the understanding of judges regarding their responsibilities and their impact on the judicial process, the people involved, and society.” Id . § 1-302(J)(3)(b).
200 supra Part III.C.
201
Although the Socratic Method offers many pedagogical advantages, it does not remedy the lack of explicit instruction in the distinction between holding and dicta.
202
Law students tend to “summarize and paraphrase” rather than engage in the more difficult work of analyzing. See Fajans & Falk, supra note 30, at 170.

2010] WHY DICTA BECOMES HOLDING 261
Instead, students should be forced to engage in the difficult analytical task of expressly identifying both holdings and dicta.
203 But identification is not sufficient. They should also be required to apply the distinction in hypothetical situations. This could occur, for example, in an employment law course, where students could be required to articulate
Mackay Radio ’s 204 holding—and its dicta.
205 They could then be required to presume Mackay Radio was the only case on the topic, and to articulate arguments for and against requiring an employer to reinstate a striking employee.
206 The students would learn to use dicta appropriately and argue its persuasive effect.
207 Similarly, assignments in legal method courses could require students to expressly confront the holding/dicta distinction and to draft persuasive arguments for either adopting the dicta or for rejecting it.
Lawyers and judges would also benefit from explicit education on the distinction between holding and dicta. Just as law students ought to be cautioned against the overreliance on words, phrases, and quotations, lawyers and judges could also benefit from that reminder.
208
For example, a hypothetical scenario with a few short cases could be created, and participants could discuss which parts of each case are holding and which parts are dicta. Continuing legal education seminars for the practicing bar could also include debate on how to effectively, and ethically, 209 use dicta. Judicial seminars could cover these topics as well, and address the dangers of drafting opinions that mirror those issued by the Supreme Court. And perhaps most significant to the bench, special training could be
203
Requiring students to rethink their research strategies might also be fruitful. By using other research tools in tandem with electronic word searching, the legal researcher is much more likely to understand case holdings and to be able to accurately articulate what a case holds, rather than merely what it states. See supra
Part III.C.2.
204
NLRB v. Mackay Radio & Tel. Co., 304 U.S. 333 (1938).
205 supra notes 81-88 and accompanying text.
206 supra notes 83-88 and accompanying text.
207
See Lien, supra note 160, at 128-29 (arguing that “in the art of persuasion, an effective lawyer must . . . understand and use the contexts in which rules arise to bring the audience to the conclusion that fairness and justice dictate that a person in the client’s situation must prevail”). Of course, persuasion also includes debating the breadth or narrowness of a particular decision, and therefore arguing about what is— versus what is not—the case’s holding in the first place.
208
Law practice is busy. But when lawyers take the time to expressly distinguish between a case’s holding and its dictum, they can then argue more persuasively about the impact of that case on their client’s situation.
209 infra notes 219-23 and accompanying text.

262 BROOKLYN LAW REVIEW [Vol. developed for new law clerks
210
to help them distinguish between holding and dicta.
Second, reducing judicial caseloads would make it easier for judges and their clerks to spend the time necessary to distinguish between holding and dicta—both in the opinions they read and in those they write. The current demands on judges (and therefore by necessity on their law clerks) limit the amount of time that can be spent on any one case.
211 Research time is especially limited, because the opinion has to be written regardless of time pressures.
212 If counsel mislabels dicta as holding, the court, without adequate time to fully vet counsel’s assertion, might rely on that characterization and erroneously elevate the dicta to holding. But with adequate time to research and analyze the relevant authorities, courts could more readily distinguish between dicta and holding.
213
In addition to allowing judges and their clerks to distinguish between holding and dicta in the cases cited by counsel, decreasing judicial caseloads would also enable judges and their clerks to expressly distinguish, in their own opinions , holding from dicta. For example, courts could expressly identify when they are relying on dicta and explain why they find it persuasive. This, in turn, would result in less confusion for lawyers and other judges, effectively breaking the cycle created by the ripple effect.
Third, changes to a few key rules—citation rules and ethical rules—could help minimize the confusion between holding and dicta. For example, citation rules could require a parenthetical explanation 214 for all case citations indicating whether the author’s statement reflects either the particular case’s holding or its dicta.
215 This requirement would force the writer to consciously identify, for every case cited, both the holding and the dictum. With this explicit identification, readers would have a significant head start in determining for
210 supra notes 142-52 and accompanying text.
211 supra notes 134, 139-41 and accompanying text.
212
See supra note 140 and accompanying text.
213
Inadequate judicial resources generally result in lower quality opinions.
See, e.g
., Hessick, supra note 51, at 900 n.8, 927-28 (arguing against presumptively treating statutory limitations as jurisdictional and pointing out that the resources argument cuts both ways because increased jurisdiction has inherent costs as well).
214 e.g.
, T HE B LUEBOOK , supra note 173, R. 10.6.1, at 91.
215
Although current rules require the writer to indicate when a case is cited for its dicta, that rule is rarely followed, in large part because the writer often does not bother to consider whether the statement for which the case is being used reflects its holding or is dicta. See id.
R. 10.6.1(a), at 91; see also supra note 173.

2010] WHY DICTA BECOMES HOLDING 263 themselves whether the proposition is a holding or a dictum, and the ripple effect could become a positive phenomenon.
Similarly, the current citation rule regarding signal usage 216 could be improved. Specifically, the rule could distinguish between case authority and other types of authority. For cases, a “ see ” signal could be required if the case’s holding does not directly support the proposition asserted by the writer.
217 For other authorities—including constitutions, statutes, rules, and secondary sources—the
“statements” made in those authorities are in fact significant, 218 and no signal would be needed when quoting, paraphrasing, or summarizing those statements. Only within the realm of case law do we confront the dicta problem; for that reason, it makes sense to distinguish between cases and other authorities for purposes of signals.
Ethics rules could also be improved and could explicitly address the holding/dicta distinction. Current model rules require both candor toward the court
219
and some level of truthfulness when representing clients.
220
And both of those rules expressly address false statements of law.
221
Yet neither the model rules nor the comments to those rules address the holding/dicta distinction.
222 The comments acknowledge that advocacy implies some level of creative argumentation.
223
But
216
T HE B LUEBOOK , supra note 173, R. 1.2, at 46-48.
217
The Bluebook ’s focus on scholarly writing makes the signal rule illogical when citing case authority. See supra note 174.
218 supra note 174.
219
A M .
B AR A SS ’ N , M ODEL R ULES OF P ROFESSIONAL C ONDUCT R. 3.3(a)(1)
(2007) (“A lawyer shall not knowingly . . . make a false statement of fact or law to a tribunal . . . .”). Id .
220
Id . R. 4.1 (“[A] lawyer shall not knowingly . . . make a false statement of material fact or law to a third person . . . .”).
221
Id . R. 3.3, 4.1.
222
Rule 3.3(a)(2) requires a lawyer to disclose to the court controlling legal authority “known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel,” but makes no distinction between holding and dicta.
Id.
223
Rule
Legal argument based on a knowingly false representation of law constitutes dishonesty toward the tribunal. A lawyer is not required to make a disinterested exposition of the law, but must recognize the existence of pertinent legal authorities. . . . The underlying concept is that legal argument is a discussion seeking to determine the legal premises properly applicable to the case.
Id . R. 3.3 cmt. [4]; see also R. 3.3 cmt. [2] (noting that the special duty of a lawyer as an officer of the court is to “avoid conduct that undermines the integrity of the adjudicative process. A lawyer acting as an advocate . . . has an obligation to present

264 BROOKLYN LAW REVIEW [Vol. the rules and comments could be clearer. For example, they could explicitly state that when citing a case for other than its clear holding, the lawyer is obligated to point out that fact to opposing counsel and to the court.
The proposals briefly introduced here demonstrate the breadth of actors with an ability to address the problem: law schools, lawyers, judges, bar associations, legislatures,
Bluebook editors, and the American Bar Association. With the concerted effort of even a few of these actors, we can close the gap on the confusion that results when dicta is mistaken for holding. That, in turn, will help stop the negative ripple effect.
These tentative proposals are likely not the only solutions to this problem, and each has its own limitations. The next step is to generate and fully evaluate more concrete proposals. But by identifying the likely causes of the confusion between holding and dicta, we can begin the debate about how to solve the problem. the client’s case with persuasive force. Performance of that duty while maintaining confidences of the client, however, is qualified by the advocate’s duty of candor to the tribunal.”).

I. I NTRODUCTION
Imagine a woman who is a first-year student at a university. She loves playing softball and enjoyed four years on her high school varsity team, but she was not recruited to play in college and is unsure whether her skill level will enable her to make it onto her university’s team. When she sees the announcement for walk-on tryouts posted in the gym, she shows up determined to give it her best shot. Although her skill level is not up to the standard of the majority of the women present at the tryout, she is pleased to learn that she is being offered a spot on the team. However, the coach tells her that she will only be able to practice with the team, cannot travel with the team to away games, and will not be provided with a uniform. Other candidates reject offers to join the practice squad under these conditions, but she happily accepts. She enjoys the camaraderie of a team atmosphere, loves the sport, and finds practices to be an excellent way to keep fit. Although the coach is unable to devote as much attention to her as to the women on the competition roster, the woman is satisfied with her experience and remains on the practice squad throughout the season. She is told that next year she has a good shot at making it onto the competition roster. Now imagine a court of law deciding that this woman does not count towards the university’s number of female athletes for purposes of Title IX because her athletic participation is not “meaningful.” Imagine the court deciding that this woman does not count because her participation is merely the product of a “false roster floor.”
Should the court be entitled to determine whether her
265

266 BROOKLYN LAW REVIEW [Vol. 76:1 experience is meaningful? Doesn’t the fact that the woman decided to accept the offer and remain on the team throughout the season indicate that her participation was meaningful?
According to the legislation’s primary sponsor, Senator
Birch Bayh, Title IX of the Education Amendments of 1972 1 was enacted to provide for the women of America something that is rightfully theirs: an equal chance to attend the schools of their choice, to develop the skills they want, and to apply those skills with the knowledge that they will have a fair chance to secure the jobs of their choice with equal pay for equal work.
2
It is doubtful that, at the time of its enactment, Senator
Bayh foresaw the enormous implications that this statute would have on collegiate athletics or the many hurdles that would arise from enforcing Title IX in that area. However, the hurdles have been countless, and new questions continue to arise regarding the avenues of compliance.
3 The Office of Civil
Rights (OCR) of the Department of Education is the agency tasked with the enforcement of Title IX.
4 The OCR has issued numerous regulations to guide educational institutions’ compliance efforts in the area of athletics.
5 Most basically, the
OCR has determined that Title IX requires schools that receive federal funding to provide “equal athletic opportunities for members of both sexes,” which relies in part on “whether the selection of sports and levels of competition effectively accommodate the interests and abilities of members of both sexes.” 6 In 1979, the OCR provided that a school would be entitled to the presumption of Title IX compliance if
“intercollegiate level participation opportunities for male and female students are provided in numbers substantially proportionate to their respective enrollments.” 7 This
“substantial proportionality” standard, the primary focus of this note, is contained in the first prong of the OCR Policy
Interpretation’s three-part test.
8
1
Education Amendments of 1972, 20 U.S.C. §§ 1681-1688 (2006).
2
C ONG .
R EC . 5808 (1972).
3
See, e.g.
, Mansourian v. Regents of the Univ. of Cal., 602 F.3d 957 (9th Cir.
2010); Ollier v. Sweetwater Union High Sch. Dist., 604 F. Supp. 2d 1264 (S.D. Cal. 2009).
4
See Nat’l Wrestling Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 934
(D.C. Cir. 2004).
5
See id.
at 934-35.
6
34 C.F.R. § 106.41(c) (1994).
7
44 Fed. Reg. 71,413, 71,418 (Dec. 11, 1979).
8
Id.

2010] LEAVE IT ON THE FIELD 267
In 2009, members and the coach of the women’s volleyball team at Quinnipiac University were granted a preliminary injunction against Quinnipiac when the District
Court for the District of Connecticut, in the case of Biediger v.
Quinnipiac University , determined that the plaintiffs were likely to succeed on the merits of their claim that the university’s athletics department failed to comply with Title IX.
9 Quinnipiac maintained that the plan its athletic department intended to implement for the 2009-2010 school year would bring it into compliance under the “substantial proportionality” standard contained in first prong of the OCR Policy Interpretation’s threepart test.
10 Specifically, Quinnipiac anticipated that it would provide athletic participation opportunities to both sexes in numbers substantially proportional to their representation in the student body for the 2009-2010 school year.
11 The Biediger court, however, questioned whether the athletic participation opportunities for women that Quinnipiac relied upon were sufficiently “meaningful” to be counted.
12 When a roster spot reserved for a woman goes unfilled (i.e., no woman actually participates), the participation opportunity is unquestionably not meaningful.
13 However, the Biediger court went further to suggest that even a roster spot that is filled might not be counted if the experience of the participant in that spot is not of a certain quality.
14 The court was particularly concerned with
Quinnipiac’s practice of setting roster floors—allocating a certain amount of roster spots for women’s teams and requiring coaches to carry no fewer than that amount of athletes.
15 While the court did not go so far as to explicitly reject roster floors as a valid means of achieving Title IX compliance, it made a suggestion to that effect.
16
This note will examine the reasoning and implications of the Biediger decision and make an argument that, regardless of the outcome on the merits, the court’s reasoning represents a potentially worrisome trend. First, this note will argue that in fashioning remedies, courts should carefully balance the public
9
Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277 (D. Conn. 2009).
10
Id.
at 281.
11
Id.
12
Id.
at 295.
13
Id.
at 297.
14
Id.
15
Id.
at 296.
16
Id.

268 BROOKLYN LAW REVIEW [Vol. 76:1 interest of enforcing Title IX with the interest of providing educational institutions autonomy to make their own spending decisions. Secondly, it will argue that the court in Biediger v.
Quinnipiac University erred in taking an unprecedented subjective 17 approach to evaluating Quinnipiac’s compliance under the “substantial proportionality” standard of the OCR
Policy Interpretation’s three-part test. Specifically, the court should not have expanded its analysis to include a determination of whether the participation of female athletes was sufficiently “meaningful.” Finally, this note will argue that the use of roster floors by universities should be a permissible means of complying with Title IX.
Part II will review the background of Title IX and, in particular, the OCR regulations issued to guide institutions in their compliance efforts in the area of collegiate athletics. Part III will examine the “substantial proportionality” standard of the OCR
Policy Interpretation’s three-part test. Additionally, the Part will discuss the facts and reasoning of the court in Biediger v.
Quinnipiac University , and will compare that case to one of its predecessor cases, Choike v. Slippery Rock University . Finally, Part
III will discuss the implications of the court’s decision in Biediger , specifically as they pertain to the use of roster management policies and to the court’s departure from treating the first prong of the
OCR Policy Interpretation’s three-part test as an almost purely objective standard.
Part IV will suggest an approach for the future for evaluating compliance based on the “substantial proportionality” standard. First, the Part will argue that courts must perform a balancing act in order to best resolve the prevalent conflict between the interests of schools in making spending decisions with regard to their own athletic programs and the public’s interest in enforcing
Title IX. Additionally, it will argue that the “substantial proportionality” prong should remain a largely objective standard and that the Biediger court improperly expanded the scope of its analysis to include a highly subjective element. Finally, it will argue that roster floors, while admittedly imperfect, should be a permissible means for schools to comply with Title IX because of the important benefits they offer.
17
For purposes of this note, a “subjective” approach with respect to the
“substantial proportionality” standard refers to a court’s willingness to examine an athletic participant’s personal experience on a sports team, whereas an “objective” approach refers to a strictly number-based application of the standard.

2010] LEAVE IT ON THE FIELD 269
II. B ACKGROUND OF T ITLE IX: G OALS , R EQUIREMENTS , AND
I MPLICATIONS FOR C OLLEGIATE A THLETICS
Title IX of the Education Amendments of 1972 18 was enacted by Congress in response to an observed pattern of manifest and abundant discrimination against women in the educational arena, and was designed to prohibit
“discrimination on the basis of sex in federally funded educational programs and activities.” 19 As directed by Congress, the Secretary of Health, Education, and Welfare (HEW), the predecessor agency to the Department of Education, issued regulations in 1975 implementing Title IX in the area of intercollegiate athletics.
20 These regulations require that recipients of federal funding provide “equal athletic opportunity for members of both sexes,” compliance with which is determined by examining ten non-exhaustive factors, the first being “whether the selection of sports and levels of competition effectively accommodate the interests and abilities of members of both sexes.” 21 In 1979, the Office of Civil Rights of the HEW issued a Policy Interpretation to clarify the Title IX regulatory requirements.
22 Specifically, it set out three areas to guide educational institutions in their compliance efforts: (1) equal athletic financial assistance; (2) equal treatment and benefits for athletic teams; and (3) effective accommodation of student interests and abilities.
23
With regard to the third of these areas, the OCR Policy
Interpretation included a three-part test defining what constitutes “effective accommodation” of “the interests and
18
20 U.S.C. §§ 1681-1688 (2006).
19
Nat’l Wrestling Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 934 (D.C. Cir.
2004). The act states, “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance, except that . . . .” and lays out nine standard exceptions. 20 U.S.C. §§ 1681-1688.
20
34 C.F.R. § 106.41(c) (1994).
21
Id.
The other nine factors are as follows:
(2) The provision of equipment and supplies; (3) Scheduling of games and practice time; (4) Travel and per diem allowance; (5) Opportunity to receive coaching and academic tutoring; (6) Assignment and compensation of coaches and tutors; (7) Provision of locker rooms, practice and competitive facilities;
(8) Provision of medical and training facilities and services; (9) Provision of housing and dining facilities and services; (10) Publicity.
Id.
22
44 Fed. Reg. 71,413 (Dec. 11, 1979).
23
Id.
at 71,414.

270 BROOKLYN LAW REVIEW [Vol. 76:1 abilities of both sexes.” 24 The first part, which is the focus of this note, is “[w]hether intercollegiate level participation opportunities for male and female students are provided in numbers substantially proportionate to their respective enrollments.” 25 In 1980, the responsibility of Title IX implementation fell to the newly created United States
Department of Education, and the 1975 regulations were recodified but remained essentially the same.
26 In 1996, the OCR of the Department of Education issued a “Clarification
Memorandum” on the OCR Policy Interpretation’s three-part test, accompanied by a “Dear Colleague” letter to interested parties, 27 which confirmed that an institution could comply with the test by satisfying any one of the three prongs, and that the three-part test “is only one of many factors that the
Department examines to assess an institution’s overall compliance with Title IX and the 1975 Regulations.” 28
Despite these early efforts to clearly explicate an educational institution’s Title IX responsibilities with regard to athletics, shortly after the enactment of Title IX, a fundamental
24
Nat’l Wrestling Coaches Ass’n , 366 F.3d at 935; 44 Fed. Reg. at 71,418.
25
44 Fed. Reg. at 71,418. The second part of the test is “Where the members of one sex have been and are underrepresented among intercollegiate athletes, whether the institution can show a history and continuing practice of program expansion which is demonstrably responsive to the developing interest and abilities of the members of that sex,” and the third part is:
Where the members of one sex are underrepresented among intercollegiate athletes, and the institution cannot show a continuing practice of program expansion such as that cited above, whether it can be demonstrated that the interests and abilities of the members of that sex have been fully and effectively accommodated by the present program.
Id.
26
Nat’l Wrestling Coaches Ass’n , 366 F.3d at 934.
27
“Dear Colleague” letters are official correspondence generally distributed in bulk by one or more members of Congress to “colleagues of a Member, committees, officers of the two chambers, and congressional staff organizations” with the purpose of
“encourag[ing] others to cosponsor or oppose a bill.” R.
E RIC P ETERSON , CRS R EPORT
FOR C ONGRESS , “D EAR C OLLEAGUE ” L ETTERS : A B RIEF O VERVIEW 1, http://digital. library.unt.edu/govdocs/crs//data/2005/upl-meta-crs-6161/RS21667_2005Jan04.pdf. The letters generally include a description of the proposed legislation along with reasons for supporting or opposing it. Id.
at 2.
28
Nat’l Wrestling Coaches Ass’n , 366 F.3d at 935; see also Dear Colleague
Letter from Norma Cantu, Ass’t Sec’y for Civil Rights, Dep’t of Educ., Clarification of
Intercollegiate Athletics Policy Guidance: The Three-Part Test (Jan. 16, 1996), http:// www.ed.gov/about/offices/list/ocr/docs/clarific.html [hereinafter Clarification Memo].
The “‘Clarification Memorandum’ . . . provide[s] further information and guidelines for assessing compliance under the three part test” and “contains many examples illustrating how institutions may meet each prong of the [OCR Policy Interpretation’s] three-part test and explains how participation opportunities are to be counted under
Title IX.” Cohen v. Brown Univ. ( Cohen II ), 101 F.3d 155, 167 (1st Cir. 1996).

2010] LEAVE IT ON THE FIELD 271 debate—with great ramifications for college athletics—arose as to the interpretation of the phrase “receiving Federal financial assistance.” 29 Those who favored the “institution-wide approach” interpreted the phrase as requiring an entire institution to comply with the requirements of Title IX if any of its programs or departments received federal funds; those who favored the
“program specific approach,” however, interpreted the phrase as requiring only the particular program or department receiving the funds to comply with Title IX requirements.
30 With the 1988 amendments to the Civil Rights Restoration Act of 1987,
Congress settled the debate in favor of the “institution-wide approach,” clarifying that the terms “program or activity” and
“program” within the meaning of Title IX refer to “all of the operations of . . . a college, university, or other postsecondary institution, or a public system of higher education, . . . any part of which is extended Federal financial assistance.” 31 This interpretation had “major implications for college athletics,” since universities receiving federal financial assistance in areas as distinct as research and scholarship funds were required to apply the Title IX requirements in their athletic departments.
32
For example, the University of Rochester, a private research institution in New York State, received $34.5 million in 2009
“from research programs funded by the American Recovery and
Reinvestment Act.” 33 Although these federal grants “fund a broad array of scientific programs” having nothing to do with athletics, 34 the university’s receipt of them means that not only its science programs, but all of the university’s programs, including the athletic department, are subject to the requirements of Title IX.
Title IX provides both a complex administrative enforcement scheme, as well as a private cause of action for individuals.
35 The administrative scheme allows injured persons to file complaints with the Department of Education,
29
See generally Brian L. Porto, Annotation, Suits by Female College Athletes
Against Colleges and Universities Claiming that Decisions to Discontinue Particular
Sports or to Deny Varsity Status to Particular Sports Deprive Plaintiffs of Equal
Educational Opportunities Required by Title IX , 129 A.L.R. F ED . 571 (1996).
30
Id.
31
20 U.S.C. § 1687 (2006).
32 supra note 29, at § 2[a].
33
University Receives $34.5M in Federal Stimulus Funding , U NIV .
OF
R OCHESTER N EWS (Oct. 15, 2009), http://www.rochester.edu/news/show.php?id=3466.
34
Id.
35
Brust v. Regents of the Univ. of Cal., No. 2:07-cv-1488, 2007 WL 4365521, at *5-6 (E.D. Cal. Dec. 12, 2007).

272 BROOKLYN LAW REVIEW [Vol. 76:1 which both investigates these allegations and periodically conducts its own “compliance reviews.” 36 If the Department of
Education finds that an institution is in violation of Title IX, it first attempts to remedy the situation informally, and if unsuccessful, may hold an administrative hearing that could result in the termination of the institution’s federal funding.
37
As for the private cause of action, successful plaintiffs are entitled to a range of possible remedies, including equitable relief and compensatory damages.
38 Alongside the administrative scheme, Congress’s establishment of a private right of action demonstrates its intent to effect strict enforcement of Title IX.
39
III. T
HE
S
UBSTANTIAL
P
ROPORTIONALITY
S
TANDARD
A. Challenges to the Proportionality Standard
The first prong of the OCR Policy Interpretation’s threepart test, the “substantial proportionality” standard, has been the source of much debate, challenged both for its consistency with the language and goals of Title IX, and for its constitutionality.
1.
Challenges Based on Section 1681(b)
One target of attack on the “substantial proportionality” standard has been the potential inconsistency of the first prong with Section 1681(b) of the Title IX statute.
40 Specifically, opponents of the OCR Policy Interpretation’s three-part test have argued that treating the first prong as a “safe harbor”— meaning that schools are entitled to a presumption that they are in compliance with Title IX if they can show “substantial proportionality” between their male and female athletic participation opportunities and overall enrollment—contradicts
Section 1681(b)’s statement, which says that Title IX does not require any education institution to grant preferential or disparate treatment to members of one sex on account of an imbalance which may exist with respect to the total number or percentage of persons
36
Id.
at *5.
37
Id.
38
Id.
at *6.
39
Id.
at *5-6.
40
See Cohen II , 101 F.3d 155, 174-76 (1st Cir. 1996).

2010] LEAVE IT ON THE FIELD 273 of that sex participating in or receiving the benefits of any federally supported program or activity, in comparison with the total number or percentage of persons of that sex in any community.
41
Courts have held that the OCR Policy Interpretation’s three-part test is not in fact inconsistent with Section 1681(b).
42
For one thing, the language of the statute suggests that a proportionality standard like the one adopted in the three-part test is an acceptable, although not mandatory , means of complying with Title IX.
43 Specifically, the phrase “does not require” implies that the remedial action that is described in the words that follow is not barred by the statute; if it were, the section would be superfluous.
44 Further, the three-part test does not require institutions to comply with Title IX through the
“substantial proportionality” standard, since it provides two other avenues of compliance, either of which is sufficient on its own.
45
2.
Challenges Based on Constitutionality
Although the Supreme Court has, in such cases as
Adarand Constructors, Inc. v. Pena , 46 rejected as unconstitutional a remedial strategy for countering discrimination that allocates employment opportunities in numbers proportional to a group’s representation in the general population, courts have found that the collegiate athletics context is distinct from the employment context and thus calls for a different result.
47 In the employment context, members of both sexes are generally qualified for a given position. On the other hand, because college sports teams are generally gender-segregated (such that a man is not qualified for a women’s team and vice versa), decisions regarding how many athletic opportunities will be allocated to each gender must be determined in advance.
48
Consequently, a school’s strategy in using enrollment data to determine the proper allocation of its athletic opportunities is not equivalent to the type of remedial scheme rejected as a
41
20 U.S.C. § 1681(b).
42
See Neal v. Bd. of Trs. of Cal. State Univs., 198 F.3d 763, 771 (9th Cir. 1999).
43
See id.
44
It is redundant to say something is not required when that thing is not permitted in the first place. Id.
45
Id.
at 771 n.7.
46
515 U.S. 200, 204-05 (1995).
47
Neal , 198 F.3d at 772-73 n.8.
48
Id.

274 BROOKLYN LAW REVIEW [Vol. 76:1 quota system under strict scrutiny review in Adarand .
49 Under the intermediate scrutiny standard of review applied to government policies of gender classification, 50 courts have repeatedly upheld the constitutionality of Title IX and its accompanying Department of Education regulations, including the OCR Policy Interpretation.
51 The OCR has made clear its intention to “provide[] institutions with flexibility and choice regarding how they will provide nondiscriminatory participation opportunities” in their athletic programs.
52 As for the “substantial proportionality” prong of the OCR Policy
Interpretation’s three-part test, courts have consistently held that universities can bring themselves into compliance both by increasing athletic participation opportunities for the underrepresented gender and by decreasing athletic participation opportunities for the overrepresented gender.
53
There have been similar arguments that the first prong of the OCR Policy Interpretation’s three-part test violates the
Equal Protection Clauses of the Fifth and Fourteenth
Amendments in addition to exceeding the OCR’s statutory authority by actually requiring the same intentional discrimination that Title IX forbids.
54 The supposed intentional discrimination results from requiring universities to discriminate against men without regard to interests and abilities, but rather based solely on enrollment.
55 Specifically, it has been argued that gender-conscious remedies should be
49
Id.
The Court in Adarand reviewed the constitutionality of a federal government policy under strict scrutiny analysis because the policy was one of racial classification. See generally Adarand , 515 U.S. 200. To survive strict scrutiny review, the government’s policy of racial classification must serve a compelling governmental interest and the means chosen must be narrowly tailored to achieve that interest. Id. at 227.
50
Under the intermediate scrutiny standard, the policy of gender classification must serve an important governmental objective and the means chosen must substantially relate to the achievement of that objective. Craig v. Boren, 429 U.S.
190, 197 (1976).
51
Neal , 198 F.3d at 772. For a discussion of cases in which Title IX and the
OCR Policy Interpretation have been challenged and upheld by the judicial system, see
Elisa Hatlevig, Title IX Compliance: Looking Past the Proportionality Prong , 12 S PORTS
L AW .
J. 87 (2005).
52
Clarification Memo, supra note 28.
53
Neal , 198 F.3d at 769-70 (citing Horner v. Ky. High Sch. Athletic Ass’n, 43
F.3d 265, 272 (6th Cir. 1994); Kelly v. Bd. of Trs., 35 F.3d 265, 269 (7th Cir. 1994);
Roberts v. Colo. State Bd. of Agric., 998 F.2d 824, 830 (10th Cir. 1993); Cohen v. Brown
Univ. ( Cohen I ), 991 F.2d 888 (1st Cir. 1993)).
54
See Nat’l Wrestling Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 935-36
(D.C. Cir. 2004); Neal , 198 F.3d at 767 (appellants argued that intentional discrimination is avoided only when schools provide opportunities in proportion to interest).
55
Neal , 198 F.3d at 767.

2010] LEAVE IT ON THE FIELD 275 permissible only to the extent that “schools provide opportunities to males and females in proportion to their relative levels of interest in sports participation.” 56 Courts have rejected this argument, emphasizing that in light of its history,
Title IX logically permits the use of gender-conscious remedies, and that these remedies should not be so limited as to render them ineffective.
57 In a 1999 case, Neal v. Board of Trustees of
California State Universities , the Court of Appeals for the Ninth
Circuit noted that although men apparently expressed a greater interest in athletic participation than women, this
“interest gap” was continuously narrowing, as more and more opportunities were provided for women.
58 In Neal , the court discussed the Cohen I 59 and Cohen II 60 cases, which both addressed the question whether schools could comply with Title
IX by making their athletic participation numbers proportional to enrollment as opposed to interest.
61 The court in Neal reiterated the reasoning, employed in both Cohen I and Cohen
II , that “a central aspect of Title IX’s purpose was to encourage women to participate in sports,” and that increased opportunities (such as available roster spots and scholarships) would help increase demand and dispel stereotypes that disfavored women in competitive sports.
62 To rely on “interest” as opposed to enrollment in creating athletic opportunities for men and women, although seemingly gender-neutral, would certainly disfavor women, since “interest” in men’s athletics would begin with a significant advantage based on historical circumstances, and such a subjective method would run the risk of perpetuating stereotypes and simply maintaining the discriminatory status quo.
63
56
Id.
57
Id.
58
Id.
59
Cohen I , 991 F.2d 888 (1st Cir. 1993).
60
Cohen II , 101 F.3d 155 (1st Cir. 1996).
61
Neal , 198 F.3d at 768.
62
Id.
at 768-69.
63
Id.

276 BROOKLYN LAW REVIEW [Vol. 76:1
B. Relevant Cases
1.
Biediger v. Quinnipiac University : Laying Out the Case
The first prong of the OCR Policy Interpretation recently came into focus in Biediger v. Quinnipiac University , 64 where the District Court for the District of Connecticut granted preliminary injunctive relief to the coach and several incoming and current members of Quinnipiac University’s women’s volleyball team, prohibiting the university from eliminating women’s volleyball as a varsity sport for the 2009-2010 academic year pending resolution on the merits of the case.
65 In
March 2009, Quinnipiac University announced that due to budgetary constraints, it planned on instituting changes to its varsity athletic programs.
66 Specifically, the university intended to eliminate three sports teams—men’s golf, men’s outdoor track, and women’s volleyball—and to add a women’s competitive cheer team.
67 The plan was the ultimate result of a
2008 directive issued by the vice president of the university to the athletic director, Jack McDonald, to make a 5%-10% cut in the athletic department budget for the 2009-2010 academic year.
68 Although McDonald’s initial proposal involved a 5% budget cut without the elimination of any sports teams, the vice president rejected this proposal and specifically directed him to eliminate women’s volleyball, which would free up the facility where the team played for a variety of other uses by the university, which was faced with a space crunch.
69 The amended proposal, which included the elimination of three teams and budget reductions for other varsity teams, would result in a 7% reduction of the athletic department’s budget from the previous year.
70
The plaintiffs were five female athletes, all of whom planned to play on Quinnipiac’s volleyball team in the 2009-
2010 season, as well as the coach of the team.
71 They claimed
64
616 F. Supp. 2d 277 (D. Conn. 2009).
65
Id.
at 278-79.
66
Id.
at 278.
67
Id.
68
Id.
at 280, 288.
69
Id.
at 288.
70
Id.
71
Id.
at 279-80. Plaintiff Stephanie Biediger was a freshman and recipient of the volleyball team’s Most Valuable Player award for the 2008-2009 season. She was recruited to play volleyball for Quinnipiac from her home state of Texas. Plaintiff Kaya

2010] LEAVE IT ON THE FIELD 277 that the university’s adoption of its proposed plan would render it noncompliant with the requirements of Title IX.
72 In the
2008-2009 academic year, Quinnipiac had an undergraduate enrollment of 5455 students: 2089 (38.3%) men and 3366
(61.7%) women.
73 However, on its annual Equity in Athletics
Disclosure Act (EADA) 74 report for 2007-2008, it reported athletic participation opportunities of 45% for men and 54% for women, and on its preliminary EADA report for 2008-2009, it reported 47.43% for men and 52.57% for women, percentages it conceded were not in proportion with those of the undergraduate population.
75 Further, in 2006, the university performed a “gender equity self-study,” which “revealed that the school was not achieving gender equity in its athletic participation opportunities.” 76 In response to this finding, the athletic department decided to implement a roster management policy in 2006.
77 Under this policy, McDonald and the senior staff of the athletic department set a roster size for each varsity team,
Lawler, also a freshman in the 2008-2009 season, was recruited for the team from her home state of Indiana. Plaintiff L.R. was a high school senior from Ohio who had been recruited to join the team in fall of 2009. Plaintiff Erin Overdevest was a senior in 2008-
2009, who redshirted the season due to a shoulder injury and intended to play her final year of eligibility in 2009-2010 while completing a five-year bachelors/masters occupational therapy program at the university. Plaintiff Kristen Corinaldesi was a junior during the 2008-2009 season who intended to play as a senior in 2009-2010.
Plaintiff Robin Lamott Sparks was recruited for the position of head coach of the women’s volleyball team in the spring of 2007. Although her employment contract was due to expire in June 2009, she expected it would be renewed until the university announced the plan to eliminate the volleyball team. Id . Since the original grant of a preliminary injunction, a class consisting of “[a]ll present, prospective, and future female students at
Quinnipiac University who are harmed by and want to end Quinnipiac University’s sex discrimination in: (1) the allocation of athletic participation opportunities; (2) the allocation of athletic financial assistance; and (3) the allocation of benefits provided to varsity athletes” has been certified by the court. Biediger v. Quinnipiac Univ., No.
3:09cv621, 2010 WL 2017773, at *1, *8 (D. Conn. May 20, 2010).
72
Biediger , 616 F. Supp. 2d at 279.
73
Id.
at 280.
74
The Equity in Athletics Disclosure Act requires co-educational institutions of postsecondary education that participate in a Title IV, federal student financial assistance program, and have an intercollegiate athletic program, to prepare an annual report to the
Department of Education on athletic participation, staffing, and revenues and expenses, by men’s and women’s teams. The Department will use this information in preparing its required report to the Congress on gender equity in intercollegiate athletics.
Equity in Athletics Disclosure Act Summary, http://www.ed.gov/finaid/prof/resources/ athletics/eada.html; see also 20 U.S.C. § 1092(e) (2006).
75
Biediger , 616 F. Supp. 2d at 281.
76
Id.
at 283.
77
Id.

278 BROOKLYN LAW REVIEW [Vol. 76:1 and the coaches were expected to have the set number of athletes on their rosters the first day of competition.
78 According to McDonald, the roster management policy provided the benefit of being able to increase athletic participation opportunities for women without adding more sports teams by simply adding roster spots to already existing teams.
79
The university announced that its new plan was designed to reduce overall athletic spending while maintaining percentages of athletic participation opportunities for men and women in substantial proportion to its anticipated undergraduate enrollment for the 2009-2010 academic year.
80
Therefore, Quinnipiac relied upon satisfaction of the first prong of the OCR Policy Interpretation for compliance with Title IX in 2009-2010.
81 The court noted that failure to meet this prong would, without a doubt, render the university noncompliant since the other two prongs were clearly not satisfied.
82 Plaintiffs put forth several arguments to show that the university’s plan would fail to achieve the substantial proportionality required by the first prong of the OCR Policy Interpretation.
83 The court concluded that two of these arguments—that Quinnipiac used an improper method of counting track athletes, and that competitive cheer did not qualify as a “sport” under Title IX analysis—were unlikely to succeed on the merits.
84 However, the court determined that a third argument was likely to prevail; namely, the argument that Quinnipiac did not satisfy the first prong “due to problems with its roster management policy and its reliance on setting roster floors for women’s teams.” 85 Specifically, the court found that as it was being
78
Id.
79
Id.
80
See id.
at 283.
81
Recall that the first prong looks to “[w]hether intercollegiate level participation opportunities for male and female students are provided in numbers substantially proportionate to their respective enrollments.” 44 Fed. Reg. 71,413,
71,418 (Dec. 11, 1979).
82
Biediger , 616 F. Supp. 2d at 294. The court noted that the second and third prongs would not be satisfied because, by eliminating women’s volleyball when there was sufficient interest to field a team, the university would fail to demonstrate a commitment to “expanding opportunities for the underrepresented gender”—the requirement of the second prong—or that it had “fully and effectively accommodated the interests and abilities of that underrepresented gender”—the requirement of the third prong. Id.
83
Id.
at 295.
84
Id.
85
Id.

2010] LEAVE IT ON THE FIELD 279 employed, the roster management policy did not “produce sufficient genuine participation opportunities for women.” 86
Quinnipiac argued that its overall plan—a plan that included (1) the elimination of two men’s teams and one women’s team; (2) the elevation of one women’s team to varsity status; and (3) the continuation of roster management policies—would result in 63% women and 37% men composition of athletic participants, mirroring that of the student population.
87 It pointed to the 1996 OCR Clarification of the Policy Interpretation’s three-part test to justify these practices, specifically the Clarification’s explicit acceptance of roster management practices, “including capping participation opportunities and cutting teams, as acceptable measures to achieve substantial proportionality.” 88 The OCR Clarification also weighed in favor of the university by stating that, generally, not only would the OCR count athletes reported on a squad list on the first day of competition as participants, but it would also count those athletes who practice but do not compete with the team.
89 This was significant for Quinnipiac, since its roster management policies involved having coaches fill a predetermined number of roster spots, which were recorded by the athletic department on the first day of competition, and therefore were computed into the EADA report.
90 If some of these athletes continued to practice with the team but were no longer part of the competition roster,
Quinnipiac could still count them as participants.
91
The court, however, noted that the OCR Clarification
Memorandum and its accompanying “Dear Colleague” letter also advised that “participation opportunities must be real, not illusory.” 92 With this in mind, the court looked to the evidence to determine the real impact of the roster management policy as it was being used by Quinnipiac’s athletic department.
93 The policy, although introduced in 2006, was first enforced during the 2007-2008 season.
94 It was laid out in the athletic department’s staff manual and also discussed at the annual
86
Id.
at 296.
87
Id.
at 294.
88
Id.
at 296; Clarification Memo, supra note 28.
89
Clarification Memo, supra note 28.
90
Biediger , 616 F. Supp. 2d at 283.
91
Id. at 286.
92
Id.
at 296.
93
Id.
at 283-88.
94
Id.
at 283.

280 BROOKLYN LAW REVIEW [Vol. 76:1 athletic department staff meeting.
95 Both the athletic director,
Jack McDonald, and the Senior Women’s Administrator and
Assistant Athletic Director for Compliance, 96 Tracy Flynn, testified that the reactions among coaches to the implementation of the roster management policy were negative.
97 The general response from men’s team coaches was that the set roster numbers were too low in relation to their needs, and the general response from women’s team coaches was that the numbers were too high.
98 While the EADA report for the 2007-2008 season indicated that the set roster numbers were adhered to so that the university achieved substantial proportionality, testimony of members of the athletic department, along with the “add/delete” lists for the 2007-2008 season, revealed that the EADA report did not tell the full story.
99 Two men’s teams, baseball and lacrosse, had “deleted” team members from the roster prior to the first day of competition and then “added” them back to the team for the remainder of the season, changes that were never reflected in the EADA report provided to the Department of Education.
100
Similarly, several women’s teams used this “add/delete” strategy to the opposite effect, adding players before the first day of competition who were subsequently cut from the team or quit.
101 Flynn testified that such “roster manipulation” decreased in the 2008-2009 season based on the “add/delete” lists, but the testimony of McDonald and the women’s softball coach, Germaine Fairchild, confirmed that it still occurred.
102
2.
Biediger : The Outcome
It is unsurprising that the court found that if such roster manipulations were, in fact, occurring to a degree sufficient to skew the numbers so that substantial proportionality was no longer achieved, it would prevent
95
Id.
96
This position entails ensuring the university’s compliance with NCAA rules and regulations; overseeing the university’s budget and “add/delete” list; and along with the athletic director, compiling the annual EADA report. Id.
at 280.
97
Id.
at 283.
98
Id.
at 283-84.
99
Id.
at 284.
100
Id.
101
Id.
at 285.
102
Id.
at 287.

2010] LEAVE IT ON THE FIELD 281
Quinnipiac from satisfying the first prong of the OCR Policy
Interpretation’s three-part test.
103 As the court noted, Title IX requires more than merely showing gender equity on the EADA report. Although an EADA report can be used to make a prima facie showing of substantial proportionately, plaintiffs are permitted to look beyond those numbers, as they have done here, to determine whether those EADA numbers actually represent genuine, not illusory, athletic participation opportunities.
104
The court further concluded that there was no indication that the roster manipulations would cease in the 2009-2010 season, when the university planned to institute its new plan.
105 If the gap between the numbers recorded on the EADA report and the actual participation numbers in 2007-2008 and 2008-2009 remained consistent in 2009-2010, then “retaining the women’s volleyball team would only just restore proportionality.” 106 The court held that this reasoning was sufficient to grant the preliminary injunction to the plaintiffs, prohibiting Quinnipiac from eliminating the women’s volleyball team for the 2009-
2010 season.
107
3.
Choike v. Slippery Rock University
The Biediger court discussed one other case, Choike v.
Slippery Rock University , 108 in which a court examined a university’s roster management policy in making a determination on Title IX compliance.
109 In that case, as in
Biediger , Slippery Rock University implemented roster management as a means of remedying its known violations of
Title IX.
110 Although the university had failed in its attempt to use roster management in the past by not including any repercussions for coaches who did not meet targets, it planned to strictly enforce the policy in the upcoming year.
111 However, for several reasons, the court found that the university’s plan to achieve substantial proportionality through use of its proposed roster management plan was “too speculative at this
103
Id.
at 298.
104
Id.
at 297.
105
Id.
106
Id.
107
Id.
at 298.
108
No. 06-622, 2006 WL 2060576 (W.D. Pa. July 21, 2006).
109
Biediger , 616 F. Supp. 2d at 296-97.
110
Choike , 2006 WL 2060576, at *4.
111
Id.

282 BROOKLYN LAW REVIEW [Vol. 76:1 juncture to satisfy Title IX.” 112 First, like the situation in
Biediger , its use of roster management had failed in the past.
113
Second, the proposed plan created many new roster spots on women’s sports teams with “no indication that the current SRU female student population would actually fill these newly created positions.” 114 Because the set roster sizes for women’s teams were not a product of “research as to the needs or wants of the female students, but based purely on the number of positions that coaches wanted to make available to the male athletes,” the court found the new target numbers “artificial.” 115
For example, despite the university president’s testimony that he instructed coaches not to “pad” teams with players who would not have the opportunity to meaningfully participate, the university allocated twenty-eight roster spots for women’s cross country, compared to sixteen for the men’s team, and twentyeight roster spots for women’s soccer, compared to twenty-five for the men’s team.
116 In sum, the court found that allocations of roster spots that achieve substantial proportionality only on paper were insufficient: “[w]hile the allocated positions might satisfy the proportionality requirement if viewed in a vacuum, compliance would not be meaningful.” 117
4.
Biediger and Choike Compared
The court’s decision in Biediger is consistent with
Choike in that it too looked past the recorded numbers to reach the conclusion that substantial proportionality, and thus the requirement of the first prong of the OCR Policy
Interpretation’s three-part test, required something more meaningful.
118 Arguably, however, Biediger went further than
Choike because it determined that even if Quinnipiac’s reported numbers were technically correct—in that the number of athletes reported on the EADA report accurately reflected the number of students who remained on the team throughout the season—the policy of setting roster floors could still create a Title IX compliance problem because the participation of
112
Id. at *8.
113
Id.
at *4.
114
Id.
at *8.
115
Id.
at *7.
116
Id.
at *8.
117
Id.
118
Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277, 297 (D. Conn. 2009).

2010] LEAVE IT ON THE FIELD 283 some of these athletes might not be “meaningful.” 119 In other words, Choike suggested that the university could meet the requirement of substantial proportionality if it had a stronger basis for showing that the spots allotted to female athletes would, in fact, be filled, 120 whereas Biediger suggested that merely filling the spots still might not be enough to constitute
“meaningful participation.” 121
The court in Biediger acknowledged that “further evidence and analysis of Quinnipiac’s roster management policy as it affects the individual teams” would be necessary before it could make a decision on the merits as to whether the university satisfied the “substantial proportionality” standard of the first prong of the three-part test.
122 The court adopted the view that the first prong serves as a “safe harbor” for universities, so that achieving gender parity between the body of student-athletes and the student body at large is enough for an athletic program to comply with Title IX.
123 However, it stressed that “the focus of prong one . . . is genuine participation opportunities.” 124 In this light, the court said that
Quinnipiac’s roster management policy, and specifically the practice of setting roster floors, would likely fail to satisfy the first prong.
125 Although roster management policies had been deemed an acceptable means of satisfying the first prong in previous cases, the court “found no case law or other authority that sanctions the use of floors—in contrast to the use of caps,” as part of such policies.
126 According to the court, the distinction between the two was great—“[t]here is a significantly different impact on athletic participation opportunities resulting from the use of roster floors than from the use of roster caps.” 127
Specifically, while roster caps limit the number of participants, and consequently might deny opportunities to some students
119
See id.
at 298 (“The plaintiffs have successfully demonstrated that the practice of setting roster floors does not correspond to an equal number of genuine athletic participation opportunities, which is what matters for purposes of complying with Title IX in spirit and in fact.”).
120
“Unless and until SRU can demonstrate that those additional positions are meaningful—i.e., filled, they have not complied with the substantial proportionality prong of Title IX.” Choike , 2006 WL 2060576, at *8.
121
See Biediger , 616 F. Supp. 2d at 298.
122
Id.
at 297.
123
Id.
at 294.
124
Id.
at 297.
125
Id.
at 298.
126
Id.
at 296.
127
Id.

284 BROOKLYN LAW REVIEW [Vol. 76:1 who are able and willing to meaningfully participate, roster floors require that a certain number of spots be filled regardless of whether there are enough qualified athletes to fill them.
128
The court reasoned that “players whose principal role is to provide a gender statistic” are not being provided with genuine participation opportunities.
129 The testimony of the
Quinnipiac head women’s softball coach, Germaine Fairchild, supported this contention. Fairchild said that she felt pressure to accept more players than were necessary 130 and than she could reasonably accommodate, given the team’s budget and coaching resources.
131 Despite this, along with her explanation that she could not provide a “legitimate Division I experience” to that many players, Fairchild received no guidance or additional support from the athletic department in order to adjust to the requirement.
132 Further, although the 1996 OCR
Clarification specified that athletes who practice but do not compete with a team are considered participants, 133 Fairchild’s testimony demonstrated that if these athletes were there strictly to fulfill a requirement, their participation was likely not meaningful.
134 In order to “make the numbers” in 2007,
Fairchild accepted onto the team all of the athletes who tried out, but after the first day of competition, she informed several of them that they would be on the “practice squad,” and therefore would not have uniforms and could not travel with the team.
135 She testified that nine players quit the team over the course of the next several months, bringing the roster size down to seventeen, a reduction of over one third of the initial roster, for the start of the competitive spring season.
136
C. Implications of Biediger
Arguably, the willingness of the Biediger court to look beyond the numbers in the manner it did represents a decrease in the security of the “safe harbor” prong of the OCR Policy
128
Id.
129
Id.
130
The roster floor was set at twenty-five players, though Fairchild usually carried a squad of sixteen to eighteen. Id.
at 285.
131
Id.
132
Id.
133
Clarification Memo, supra note 28.
134
Biediger , 616 F. Supp. 2d at 285, 298.
135
Id.
at 286.
136
Id.

2010] LEAVE IT ON THE FIELD 285
Interpretation’s three-part test. This is significant because the
“substantial proportionality” standard is the “least subjective of the three compliance avenues monitored by the Office for Civil
Rights.” 137 The court made a compelling argument as to why roster floors may pose a problem with regard to providing genuine athletic opportunities to both sexes under the requirement of the first prong. However, in doing so, it chose to examine the quality of the participation in a manner that courts have not previously utilized when considering the
“substantial proportionality” standard. Although the court noted that the specific practice of setting roster floors—in contrast with roster management policies in general—had never been authorized by the courts, 138 the use of both floors and caps has become a common practice among National
Collegiate Athletic Association (NCAA) programs.
139 The trend is consistent with what the court found had occurred at
Quinnipiac—namely, (1) that men’s team coaches “often fe[lt] . . . restricted,” forced to make cuts where they otherwise would not; and (2) that women’s team coaches “face[d] having to convince more players to fill roster spots,” where “the additions may not possess the talent or desire of their teammates.” 140 In response to the criticism that “roster management is simply making more room on the bench for female athletes,” a former collegiate athletic administrator and
NCAA lecturer on the subject of roster management, Elaine
Driedame, has advised that when it is well implemented, roster management need not have this effect, at least not to a significant degree.
141 However, Driedame acknowledges successful implementation of roster management depends on focusing more on controlling roster sizes of men’s teams than on imposing roster floors on women’s teams.
142 That said,
137
Paul Steinbach, Count on It , A THLETIC B US . (Oct. 1, 2000), http:// www.athleticbusiness.com/articles/default.aspx?a=55&template=print-article.htm.
138
Biediger , 616 F. Supp. 2d at 296.
139
See Steinbach, supra note 137; Michael L. Kasavana, Roster Management Not a Means to Equitable Ends , N AT ’ L C OLLEGIATE A THLETIC A SS ’ N F AC .
V OICE (Aug. 28, 2000,
11:23 AM), http://www.ncaa.org/wps/ncaa?key=/ncaa/ncaa/ncaa+news/ncaa+news+online/
2000/editorial/roster+management+not+end+to+equitable+means+-+8-28-00 (2000). As the athletic department at Quinnipiac had done, the common practice seems to be to set target roster numbers for each team that serve simultaneously as “floors” and “caps,” with women’s teams tending to view the targets as the former and men’s teams, the latter. See
Kasavana, supra note 139; Steinbach, supra note 137.
140 supra note 137.
141
Id.
142
Id.

286 BROOKLYN LAW REVIEW [Vol. 76:1
Driedame supports a limited amount of “padding” women’s teams with additional players—for example, a soccer squad of thirty or thirty-five as opposed to twenty-eight or thirty—so long as these additions come with the appropriate coaching resources.
143 She suggests that teams forced to carry additional players take measures such as beginning the season earlier to stimulate enthusiasm among women who will likely see little playing time, and notes that athletes are more likely to remain on the team if they feel they are receiving adequate attention and are improving.
144
Driedame’s remarks are particularly insightful with regard to Biediger in light of the testimony of Quinnipiac’s women’s softball coach, Germaine Fairchild, regarding her experience with the university’s roster management policy.
Fairchild was required to take at least twenty-five players on her team, which represented almost a 40% increase over the size of her typical roster.
145 The dramatic increase in players, however, did not come with an “increase in budget, extra equipment, additional assistant coaches, or a raise in salary to account for and/or accommodate the extra players.” 146 Further,
Fairchild testified that the target roster number for her team was set without her input as to what was reasonable, and that she was provided with no further guidance on how to manage under the policy.
147 Even Quinnipiac’s athletic director Jack
McDonald testified that decisions about roster sizes were made with little input from coaches, “except in the case of ‘like’ sports, such as men’s and women’s soccer, whose coaches were asked to agree on similar roster sizes.” 148 The athletic department also made these decisions without considering the average roster sizes of teams in Quinnipiac’s athletic conference, instead only relying on the average roster sizes for all of the NCAA.
149 Thus,
Quinnipiac’s approach to implementing a roster management policy contradicted Driedame’s advice that before mandating
143
Id.
144
Id.
145
Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277, 285 (D. Conn. 2009).
146
Id.
at 285-86. Fairchild gave a specific example to illustrate how her resources were unreasonably strained. Under NCAA regulations, her athletes were permitted to do two hours of skills training per week during the off-season, which were previously spent one-on-one with Fairchild. With twenty-five players, Fairchild could not spare the fifty hours per week to continue this training program and still fulfill her other coaching responsibilities, such as office work. Id.
147
Id.
at 285.
148
Id.
at 283.
149
Id.

2010] LEAVE IT ON THE FIELD 287 any numbers, athletic department heads should “discuss the facts” with the coaches.
150 Overall, there are strong arguments for upholding roster management policies, including both roster caps and floors, as part of schools’ Title IX compliance efforts.
However, as Biediger illustrates, athletic departments should be vigilant to ensure that these policies both comply with the statute and succeed in practicality.
IV. S UGGESTED A PPROACH FOR THE F UTURE
A. Courts Should Balance the Interests in Enforcing Title
IX Compliance
One cannot deny the glaring evidence of gender discrimination in education that prompted Congress to enact
Title IX. Nor can one deny the impact the statute has had in remedying such discrimination, especially in the area of athletics.
151 However, it is risky to empower both the federal government and the courts with authority over the affairs of educational institutions, and Title IX decisions concerning collegiate athletics have been particularly controversial.
152 In recent years, some have suggested that the law, at least as it pertains to college athletic programs, is outdated.
153 As such, although Title IX was an appropriate remedy in 1972, Congress should now take a new approach that accounts for women’s increased participation in sports.
154
As one Delaware University student-athlete argued, “[n]ow that women’s sports are the norm for college campuses, it should be up to those institutions which sports and how much of them their community needs.”
155
On the other hand, there is significant evidence that gender
150 supra note 137.
151
For extensive statistical data on Title IX and athletic participation, see Teaching
Title IX, NCAA Participation and Economic Data, Women in Athletics Facts and Resources ,
N AT ’ L C OLLEGIATE A THLETIC A SS ’ N (2005), http://www.ncaa.org/wps/ncaa?key=/ncaa/ncaa/ about+the+ncaa/diversity+and+inclusion/gender+equity+and+title+ix/teaching+t9+web+page.
152
For a discussion of many of the controversial cases in this area, see Donald
E. Shelton, Equally Bad Is Not Good: Allowing Title IX “Compliance” by the
Elimination of Men’s Collegiate Sports , 34 U.
M ICH .
J.L.
R EFORM 253 (2001).
153
See, e.g.
, Alyssa Benedetto, College Athletics Affected by Title IX , U NIV .
OF
D EL .
REV . (Nov. 19, 2007), http://www.udreview.com/2.1979/college-athletics-affected
-by-title-ix-1.138104.
154
See id.
; see also Andrew Santillo, Comment, National Wrestling Coaches
Association v. United States Department of Education : The Potential Takedown of the
Current Application of Title IX to Intercollegiate Athletics , 13 T EMP .
P OL .
& C IV .
R TS .
L.
R EV . 187 (2003).
155
See Benedetto, supra note 153.

288 BROOKLYN LAW REVIEW [Vol. 76:1 discrimination, although diminished, continues to exist in collegiate athletics and that Title IX remains essential to push schools toward equality.
156 Therefore, strictly enforcing Title IX remains a strong public interest. As a result, courts must perform a balancing act when enforcement of this interest relies on universities that make autonomous spending decisions.
1.
The Reality of Budget Restrictions
Much of the resentment surrounding Title IX and collegiate athletics has stemmed from the fact that many universities have eliminated sports teams in their efforts to comply with Title IX and the regulations of its enforcement agency.
157 When athletic opportunities are taken away from students, it is not as satisfying to celebrate their gender equality. While adding teams for the underrepresented gender seems to be an equally strong option for bringing schools into compliance under the “substantial proportionality” standard of the first prong, it is important to remember that university athletic departments are limited by budget restrictions.
158
Perhaps the biggest advantage of roster management policies is their potential to help bring universities into compliance with the first prong without taking more drastic measures, such as eliminating or adding teams.
159 However, as Biediger illustrates, roster management is sometimes used in conjunction with other measures, such as cutting teams, in an attempt to achieve substantial proportionality when faced with a budget crunch.
For better or worse, education in the United States has become highly intertwined with college athletics, and for many schools, athletic programs are a big business.
160 This is particularly true for universities whose sports teams compete in the NCAA Division I, the highest level of intercollegiate competition.
161 Although some argue that the resources devoted to collegiate athletic programs are excessive, “[f]or most
156
Lexie Kuznick & Megan Ryan, Changing Social Norms? Title IX and
Legal Activism , 31 H ARV .
J.L.
& G ENDER 367, 368 (2008).
157
See Benedetto, supra note 153.
158
See Steinbach, supra note 137.
159
See id.
160
See MaryJo Sylwester & Tom Witosky, Athletic Spending Grows as
Academic Funds Dry Up , USA T ODAY , Feb. 18, 2004, at 1A.
161
See id.
; see also What’s the Difference Between Divisions I, II, and III , N AT ’ L
C OLLEGIATE A THLETIC A SS ’ N (Feb. 1, 2007), http://www.ncaa.org/wps/portal/ncaahome?
WCM_GLOBAL_CONTEXT=/ncaa/ncaa/about+the+ncaa/membership/div_criteria.html.

2010] LEAVE IT ON THE FIELD 289 schools, the decision to maintain—or even grow—athletic programs is unquestioned because of the perceived benefits to the campus as a whole.” 162 These “perceived benefits” derive from the image of having major sports teams associated with a university’s name, which gives the institution a higher profile.
163 Although universities with athletic departments in all three NCAA Divisions maintain programs at least to some degree for direct benefit of student-athletes, 164 Division I programs in particular emphasize the experience of the spectators.
165 Given the “business” aspect of athletics at many of these schools, a conflict often arises between the need to comply with Title IX, on the one hand, and the pressure to make profitable decisions for the university regarding how many and which sports teams to support, budget allotment, and controlling roster sizes, on the other.
2.
Cases Illustrating the Conflict
An example of this type of conflict was illustrated in a
1993 case, Favia v. Indiana University of Pennsylvania , in which the court issued a preliminary injunction against
Indiana University of Pennsylvania based on its finding that the university had violated Title IX by cutting certain women’s teams.
166 Specifically, the court found that the university failed to satisfy either the “substantial proportionality” prong or the other two prongs of the OCR Policy Interpretation’s three-part test.
167 The vice president of student affairs gave testimony regarding the “importance of football and men’s basketball in terms of prestige and of their being important factors in attracting the attention of potential students.” 168 Although the court said it sympathized with the university’s position and understood both that football was an expensive sport to fund
162
Sylwester & Witosky, supra note 160.
163
Id.
164
There are many significant benefits to be gained from participation in intercollegiate athletics. The Choike court described these benefits with regard to the irreparable harm a group of women plaintiffs would face if their sports teams were eliminated: “[T]hey develop skill, self-confidence, learn team cohesion and sense of accomplishment, increase their physical and mental well-being, and develop a lifelong healthy attitude.” Choike v. Slippery Rock Univ., No. 06-622, 2006 WL 2060576, at *9
(W.D. Pa. July 21, 2006).
165
See What’s the Difference Between Divisions I, II, and III , supra note 161.
166
Favia v. Ind. Univ. of Pa., 812 F. Supp. 578 (W.D. Pa. 1993).
167
Id.
at 584-85.
168
Id.
at 582.

290 BROOKLYN LAW REVIEW [Vol. 76:1 and that, due to its large roster, it was largely responsible for the imbalance in the male-to-female athlete ratio, it stated bluntly that these facts did not get the university off the hook:
“Title IX does not provide for any exception to its requirements simply because of a school’s financial difficulties. In other words, a cash crunch is no excuse.” 169 The fact that football teams typically carry very large rosters consistently creates a challenge for schools that have such teams; because it is rare for any women’s team to carry a roster comparable in size, it usually takes multiple women’s teams to offset these numbers.
170
However, as the Favia court made clear, Title IX makes no exceptions to account for such challenges.
171 Further, the
“substantial proportionality” prong refers only to numbers of individual athletic participants, not to the ratio of men’s teams to women’s teams offered by a university.
172
Courts have rightly held that the public interest is served by promoting compliance with Title IX.
173 However, a university has reason to argue that it is in a better position than the courts “to decide both which intercollegiate sports best meet the needs and interests of its own students, and how to allocate resources during a difficult economic time.” 174 In
Choike , Slippery Rock University made a similar public policy argument against the injunctive relief sought by the plaintiffs—namely, to order the university to reinstate the women’s swimming team and women’s water polo team for the
2006-2007 academic year.
175 The argument was that the public interest was best served by the university using its federal funds to “support the essential academic functions of a public university, and thereby encourage a wide and diverse range of academic disciplines and degree programs, rather than provide a specific, extracurricular athletic opportunity for a small number of individual students.” 176 The court agreed with this argument but stated that it was nonetheless impermissible for
169
Id.
at 583.
170
See id.
; see also Tom Farrey, Football Grabs Stronger Hold on Purse
Strings , ESPN.
COM (Feb. 25, 2003), http://espn.go.com/gen/s/2003/0225/1514457.html.
171
Favia , 812 F. Supp. at 583.
172
Id. at 584-85.
173
See, e.g.
, Barrett v. W. Chester Univ. of Pa., No. 03-CV-4978, 2003 WL
22803477, at *15 (E.D. Pa. Nov. 12, 2003).
174
Id.
175
Choike v. Slippery Rock Univ., No. 06-622, 2006 WL 2060576, at *10 (W.D.
Pa. July 21, 2006).
176
Id.
(citation omitted) .

2010] LEAVE IT ON THE FIELD 291 the university to provide extracurricular opportunities (if it chose to provide them) in disproportionately large numbers to men.
177 The court also noted that if the university implemented a plan that brought it into compliance with Title IX, such as a roster management policy that it could demonstrate actually worked, it might be permitted to eliminate the women’s swimming and women’s water polo teams.
178 In this way, the court made it clear that its ruling was not meant to impose a specific plan upon Slippery Rock University’s athletic department, therefore depriving it of its choice as to what sports teams to field and fund, but rather to prevent the university from taking steps to bring it further out of compliance with Title IX.
Despite the Choike court’s statement that it “[did] not mean to minimize SRU’s valid concern of judicial interference with its independence in deciding how to allocate its limited financial resources,” 179 it easily concluded that the estimated
$65,000 it would cost the university to maintain the women’s swimming and women’s water polo teams for the 2006-2007 academic year was “minimal” compared to the potential harm to the plaintiff athletes if their teams were eliminated.
180
Notably, in this instance, Slippery Rock University’s athletic department had not haphazardly chosen to eliminate some of its women’s sports teams. In fact, five of the eight teams that were eliminated as part of the budget-reducing plan were men’s teams, and the decisions were based on “a spreadsheet with a set of criteria by which all 23 teams would be assessed and ranked.” 181 These criteria “included both financial data . . . and non-financial evaluative measures, such as how competitive each team was, the academic performance of the student-athletes, the quality of the coaching staff, and the condition of the facilities.” 182 Missing from the university’s spreadsheet, despite
177
Id.
178
Id.
at *9.
179
Id.
180
Id.
at *10. In a similar circumstance involving judicial override of a university’s decision as to how to use its resources, the Biediger court, in assessing potential harm to a university by granting a prohibitory injunction, stated that it was
“unconvinced that the ‘space crunch’ at Quinnipiac [was] so severe that the University would be unable to accommodate the volleyball team’s practice and competition schedule on the Burt Kahn Court where they currently play[ed], or to make other arrangements for the team.” Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277, 293 (D.
Conn. 2009).
181
Choike , 2006 WL 2060576, at *3.
182
Id.

292 BROOKLYN LAW REVIEW [Vol. 76:1 recommendations by the University Athletic Council that they be included, were considerations about gender equity and Title IX compliance.
183 Further, the university president deliberately disregarded the University Athletic Council’s advice on this matter because “he wanted to keep financial decisions completely separate from Title IX decisions.” 184
3.
Achieving the Balance
As Choike and other cases illustrate, the desire to keep financial considerations distinct from Title IX decisions is wholly unrealistic. Decisions made in order to comply or maintain compliance with Title IX are oftentimes not financially convenient for a university, and may even be financially injurious. The bottom line is that schools must accept this reality and courts should not accept the “budget crunch” excuse to gender discrimination. At the same time, when fashioning remedies, courts should keep in mind the
OCR’s intention to “provide[] institutions with flexibility and choice regarding how they will provide nondiscriminatory participation opportunities” in their athletic programs.
185
Courts have recognized the importance of allowing schools to maintain a degree of autonomy in making funding decisions. For instance, in a case in which state university students challenged as unconstitutional the school’s refusal to fund certain religious-oriented activities out of its segregated fee account, the court noted “that it would not be in the public interest to enter a permanent injunction that compels the university to fund, or prohibits the university from refusing to fund, any particular category of activity.” 186 Likewise, courts have employed “balancing of interests” approaches in related contexts. For instance, in fashioning remedies under the
Individuals with Disabilities in Education Act, courts often balance the interests of a school district, taking into account its use of resources, with the interests of the disabled student and his or her family.
187 We are at juncture where great strides have been made, and yet significant action remains necessary to
183
Id.
184
Id.
185
Clarification Memo, supra note 28.
186
Roman Catholic Found. v. Regents of the Univ. of Wis., 578 F. Supp. 2d
1121, 1140 (W.D. Wis. 2008).
187 e.g.
, Ferren C. v. Sch. Dist. of Phila., 595 F. Supp. 2d 566, 578-80 (E.D.
Pa. 2009).

2010] LEAVE IT ON THE FIELD 293 eliminate gender discrimination in sports and where schools face unprecedented budgetary constraints.
188 Especially given these circumstances, courts must balance competing interests to enforce Title IX effectively while minimizing judicial interference in the functions of educational institutions.
B. The Substantial Proportionality Standard and the
Meaningful Participation Requirement Should Remain
Objective
In Choike, the real trouble for Slippery Rock University was that it was aware that it had not been compliant with Title
IX at least from 2001 through 2005 (either in achieving substantial proportionality or in satisfying the other requirements of the OCR’s regulations) 189 and that it eliminated women’s sports teams.
190 In other words, knowing that a disproportionately small number of its athletic participants were women, it still took measures that worked to aggravate, rather than rectify, the situation. The court granted a preliminary injunction in Biediger for virtually the same reasons.
191 Furthermore, in Choike , as in Biediger , the university was relying on a roster management policy as an integral part of the overall plan to bring it into compliance with
Title IX and, specifically, with the “substantial proportionality” standard of the first prong.
192 However, in both cases, the courts found that the roster management policies as implemented did not provide the “meaningful participation” required by the first prong.
193 Specifically, both courts found that athletic participation opportunities were offered in numbers substantially proportional to the gender compositions of the schools’ student bodies only on paper .
194
188
See generally Alex Johnson, US Schools in ‘Category 5’ Budget Crisis ,
MSNBC.
COM (Mar. 18, 2010), http://www.msnbc.msn.com/id/35883971/ (discussing how the recession has led to a nationwide slashing of state education budgets); Graham
Watson, Programs in Precarious Position , ESPN.
COM (July 14, 2009), http://sports. espn.go.com/ncaa/news/story?id=4313320 (explaining how the economic crisis has led to cuts in men’s and women’s athletic programs).
189
A consultant group hired by the university to perform a Title IX compliance report also found that “SRU was not compliant with Title IX with respect to the provision of financial assistance, equipment, uniforms, facilities, coaching recruitment funds and publicity as it related to women.” Choike , 2006 WL 2060576, at *2.
190
Id.
at *3.
191
Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277, 298 (D. Conn. 2009).
192
Choike , 2006 WL 2060576, at *4-5.
193
Biediger , 616 F. Supp. 2d at 298; Choike , 2006 WL 2060576, at *3.
194
See sources cited supra note 193.

294 BROOKLYN LAW REVIEW [Vol. 76:1
In Choike , the problem that prevented participation opportunities from being “meaningful” was that the university provided no evidence that it had the ability to fill all of the roster spots it allotted to women’s teams.
195 In Biediger , the roster management policy created more complex impediments to achieving “meaningful participation.” In the years since implementation, women tried out for the teams in sufficient numbers to fill the set roster spots.
196 However, many of the women who represented the “extra” roster spots—added through the roster management policy—did not remain on the team throughout the season; rather, the coaches either cut them or they chose to leave.
197 Understandably, the court concluded that regardless of what the EADA reports showed, women who did not remain on a team for a significant portion of the season were not “meaningful” participants.
198 The concerning aspect of the court’s opinion is its assertion that even if the women remained on the team throughout the season, their participation might not be “meaningful” such that they would count as participants for purposes of the first prong of the OCR Policy Interpretation’s three-part test.
199 The OCR has specifically said that athletes who only practice with, but do not compete on, a team may be counted as participants for purposes of Title IX.
200 It should not be the court’s role to decide if an athlete who has chosen to remain on a team, whether on the competition roster or in a practice-only capacity, is a meaningful participant in athletics. The fact that an athlete has made the decision to remain on the team signifies that the experience is “meaningful” enough to her to justify her commitment to the team. How meaningful a judge perceives that personal experience to be should not factor into the equation. In other words, it should not be the role of a court to examine the quality of an athlete’s participation in determining whether to count that athlete for purposes of compliance with the “substantial proportionality” standard.
If courts were to take the activist approach implied in
Biediger , what factors would they use in determining whether the quality of participation met the threshold for being
195
Choike , 2006 WL 2060576, at *8.
196
Biediger , 616 F. Supp. 2d at 286.
197
Id.
198
Id.
at 297.
199
Id . at 296.
200
Clarification Memo, supra note 28.

2010] LEAVE IT ON THE FIELD 295
“meaningful”? Arguably, this approach would create confusion and lead to arbitrary results. The 1979 OCR Policy
Interpretation laid out three specific areas to help guide institutions in their compliance efforts: equal athletic financial assistance, equal treatment and benefits for athletic teams, and effective accommodation of student interests and abilities.
201 The
OCR Policy Interpretation included the three-part test in order to define what constitutes the third of these areas, effective accommodation of students’ interests and abilities.
202 Therefore, regardless of whether, or how, an institution complies with the
OCR Policy Interpretation’s three-part test, it is still required to show compliance in the other two areas: equal athletic financial assistance, and equal treatment and benefits for athletic teams.
203 Presumably, factors such as the amount of financial assistance and the treatment and benefits afforded an athletic team would affect how “meaningful” participation is for the athletes on that team. However, these factors are considered independently of the OCR Policy Interpretation’s three-part test and should play no role in an assessment of whether an institution satisfies the first prong of that test, the “substantial proportionality” standard. The first prong is intended to be an objective standard, and despite the arguments against it being considered a “safe harbor,” there are important reasons why it should remain objective.
C. The Biediger Court Should Not Have Expanded the Scope of
Analysis Under the Substantial Proportionality Prong
As this part of the note has already discussed, Title IX compliance can impose significant challenges for universities by requiring them to use what are often limited financial resources for athletic programs in ways that do not necessarily maximize financial gain and in ways that inevitably leave certain parties dissatisfied.
204 Despite these challenges, Title IX has proven instrumental in providing more equitable collegiate athletic opportunities for women, who were largely excluded from such opportunities for many years.
205 Therefore, the
201
44 Fed. Reg. 71,413, 71,414 (Dec. 11, 1979).
202
Nat’l Wrestling Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 935 (D.C.
Cir. 2004); 44 Fed. Reg. at 71,414.
203
See supra note 28 and accompanying text; see also 34 C.F.R. § 106.41(c) (2003).
204
See supra note 185 and accompanying text.
205
See supra note 156.

296 BROOKLYN LAW REVIEW [Vol. 76:1 statute and its regulations continue to have great importance in this arena, and the challenges they impose upon universities are justified by the rewards. Nevertheless, universities serve extremely important functions beyond their athletic programs, and their ability to execute these functions is compromised when they become embroiled in litigation. OCR’s pattern of regulations, interpretations of those regulations, and clarification memoranda regarding Title IX in the area of collegiate athletics indicates its intention to guide institutions in their efforts by clearly defining their responsibilities.
206 The phrase “[e]ffective [a]ccommodation of student[s’] [i]nterests and [a]bilities” 207 is an ambiguous standard. The OCR apparently recognized this ambiguity in its adoption of the three-part test. Within that test, the OCR rightfully included a largely objective standard, the “substantial proportionality” standard, which would allow universities to work toward the clear and comprehensive goal of providing participation opportunities for male and female students in numbers substantially proportionate to their respective enrollments, and therefore would entitle them to a presumption that effective accommodation has been satisfied.
208 The OCR’s 1996
Clarification Memorandum also stated, as the Choike and
Biediger courts noted, that the “participation opportunities must be real, not illusory.” 209 The Choike court went on to say that the participation opportunities had to be “meaningful” but explicitly defined meaningful in this situation as “filled” with actual athletes.
210 The Biediger court used the word “genuine” as a contrast to “illusory” yet went further than Choike , suggesting that “filled” might not be enough to satisfy the requirement.
211 In terms of analysis under the first prong of the
OCR Policy Interpretation’s three-part test, the Biediger court should not have gone further than Choike by entering the territory of examining the quality of an athlete’s personal experience to determine whether it was sufficiently “genuine.”
Regardless of the outcome of this particular case on the merits,
206
For a summary of these Title IX compliance requirements, see Requirements
Under Title IX of the Education Amendments of 1972 , U.S.
D EP ’ T OF E DUC ., http://www2.ed.gov/about/offices/list/ocr/docs/interath.html (last updated Mar. 14, 2005).
207
44 Fed. Reg. at 71,417.
208
Clarification Memo, supra note 28.
209
Id .
210
Choike v. Slippery Rock Univ., No. 06-622, 2006 WL 2060576, at *8 (W.D.
Pa. July 21, 2006).
211
Biediger v. Quinnipiac Univ., 616 F. Supp. 2d 277, 297 (D. Conn. 2009).

2010] LEAVE IT ON THE FIELD 297 however, courts should refrain from expanding analysis under the “substantial proportionality” standard in this manner.
D. Roster Floors Should Be Permitted
The Biediger court held that the plaintiffs were likely to succeed on the merits because “[e]ither one of those problems— inaccurate roster numbers or setting false roster floors—is sufficient to knock Quinnipiac out of compliance with Title IX.” 212
The court’s reference to “false” roster floors indicated the policy required coaches to take more athletes on a team than they would otherwise choose based on the needs and resources of the team.
213 In one regard, the court in Biediger was justified in looking with a critical eye at roster floors as part of a university’s roster management policy. It is clear why the use of roster floors raises a red flag in terms of the potential for reported numbers that are not backed by actual athletes; there can be little doubt that participation opportunities that only exist on paper are illusory. The court in Biediger noted that there was no case law in which the use of roster floors specifically had been upheld.
214 While the court did not commit to a blanket prohibition on roster floors as a means of complying with Title IX, it certainly came close: “Even if Quinnipiac’s roster numbers are accurate, it still has a problem complying with Title IX because it relies on a roster management policy of setting roster floors.” 215 In fact, Quinnipiac’s roster management policy involved setting target roster numbers for each team, which were viewed as floors by most of the women’s team coaches and as caps by most of the men’s team coaches.
216 As previously discussed, roster management policies, which have become a fairly common strategy college athletic departments use to achieve compliance with Title IX, typically involve such a combination of caps and floors.
217
There are several reasons why universities should not depend on upon roster floors in roster management policies.
The strongest reason is that no one benefits when coaches are required to carry more athletes than they require and
212
Id.
at 298.
213
Id.
214
Id.
at 296.
215
Id.
at 298.
216
Id.
at 283-84.
217
See Steinbach, supra note 137; Kasavana, supra note 139.

298 BROOKLYN LAW REVIEW [Vol. 76:1 can afford.
218 Coaches faced with these difficulties may disregard the roster floor and cut players that they feel they are unable to dedicate proper attention to (or who do not contribute positively to the team due to inadequate skill level or desire). Alternatively, athletes may be dissatisfied with the experience and leave voluntarily. There was strong evidence in Biediger that this situation had occurred with some of the women’s sports teams at Quinnipiac.
219 There was also evidence that the university’s athletic department had not gone about implementing the roster management policy in a sensible fashion.
220 There are, however, strategies that universities can utilize to make roster management policies work effectively, including those that incorporate an appropriate number of roster floors.
221
Decisions regarding how many and what sports teams a university will provide in any given year take considerable planning and forethought.
222 A great deal of effort goes into preparing facilities, purchasing equipment, scheduling practices and games, staffing, and recruiting.
223 Further, although university athletic departments can use past and current enrollment figures as a gauge for the upcoming year, the gender composition of a student body may vary from year to year.
224
Therefore, the athletic participation ratio of men to women that a university needs to achieve “substantial proportionality” is often “a moving target.” 225 This challenge makes roster management policies a particularly appealing option, as it allows a university to make decisions in advance about sports offerings and to make minor adjustments in target roster sizes for each team based on enrollment.
226 For these reasons, it would be detrimental for a court to hold the use of roster floors to be a per se invalid means of achieving compliance with Title IX.
218
See Steinbach, supra note 137.
219
Biediger , 616 F. Supp. 2d at 284.
220
Id.
at 285-86.
221
See Steinbach, supra note 137.
222
See, e.g.
, Fact Sheet: Rutgers is Committed to a Successful and Accountable
Intercollegiate Athletics Program , R UTGERS M EDIA R EL ., http://news.rutgers.edu/ medrel/fact-sheets/2008/08/rutgers-is-committed-20080801; 2006-2007 Operating Budget
Executive Summary , U NIV .
OF F LA .
A THLETIC A SS ’ N , http://www.uaa.ufl.edu/uaa/
OPERATING-BUDGET-08-18-06.pdf.
223
See, e.g.
, sources cited supra note 222.
224
See Steinbach, supra note 137.
225
Id.
226
See id.

2010] LEAVE IT ON THE FIELD 299
C ONCLUSION
This note explores the question whether an objective standard should be available to universities for assessing their compliance with Title IX in the area of collegiate athletics. It argues that an objective standard should be available and that the court in Biediger improperly applied a subjective analysis beyond the scope of what the OCR intended in issuing its regulations. To return to the hypothetical posed in the
Introduction, it is not the proper role of the courts to examine the quality of the woman’s participation on the softball team when assessing the university’s compliance with Title IX under the “substantial proportionality” standard contained in the first prong of the OCR Policy Interpretation’s three-part test. The important point is that the woman chose to join the team and to remain on the team throughout the season. This should indicate, for purposes of this prong, that the participation was sufficiently meaningful. Requiring a heightened showing to prove that participation is “meaningful” would result in unnecessary confusion and arbitrary decision-making.
Furthermore, if the coach offered this woman a spot on the practice roster because of an obligation to comply with a roster floor, the use of such a roster floor should also be permissible as a means of complying with Title IX.
A DDENDUM
On July 21, 2010, following a bench trial held from June
21 to June 25, 2010, the District of Connecticut Court issued a decision on the merits in Biediger v. Quinnipiac University .
227
Consistent with many of its initial findings supporting the grant of a preliminary injunction, 228 the court concluded that
Quinnipiac violated Title IX during the 2009-2010 academic year by failing to offer equal athletic participation opportunities for female students.
229 In the opinion, the court analyzed the plaintiffs’ three main arguments for why the university was not in compliance with Title IX: (1) that members of the competitive cheerleading team should not be counted as athletes under the statute; (2) that certain cross-
227
Biediger v. Quinnipiac Univ., No. 3:09cv621, 2010 WL 2977043 (D. Conn.
July 21, 2010).
228
See Biediger v. Quinnpiac Univ., 616 F. Supp. 2d 277 (D. Conn. 2009).
229
Biediger , 2010 WL 2977043, at *1.

300 BROOKLYN LAW REVIEW [Vol. 76:1 country, indoor track, and outdoor track athletes were improperly counted multiple times; and (3) that the university’s roster management policies led to roster manipulation as well as artificially undersized men’s teams and artificially oversized women’s teams.
230
With respect to the first argument, the court agreed that members of the cheerleading team could not be counted as athletes because that team did not qualify as a varsity sport for purposes of Title IX.
231 With respect to the second argument, the court agreed that some female cross-country runners had been improperly counted multiple times for their required participation on the indoor and outdoor track teams.
232 In addressing the third argument, the subject of this note, the court concluded:
Finally, although I find, as a matter of fact, that Quinnipiac is no longer engaged in the same roster manipulation that was the basis for my preliminary injunction order, the University is still continuing to deflate the size of its men’s rosters and inflate the size of its women’s rosters. Although that roster management is insufficient to conclude that Quinnipiac violated Title IX as a matter of law, it supports the ultimate conclusion that the University is not offering equal participation opportunities for its female students.
233
The court noted the existence of little precedent “on judging whether an athlete’s experience on a varsity team qualifies as a genuine participation opportunity—i.e., whether his or her participation opportunity is real, and not illusory.” 234
On this point, the court was persuaded by the government’s encouragement, expressed in its amicus brief, to “‘look beyond
[the] numbers’ and examine the quality of opportunities being offered.” 235 An examination of the quality of opportunities is precisely the type of analysis this note argues should remain limited when courts evaluate Title IX compliance under the
“substantial proportionality” standard.
236 Nonetheless, despite
230
Id.
at *1-2.
231
Id.
at *1.
232
Id.
233
Id.
at *2.
234
Id.
at *30.
235
Id.
(quoting Brief for the United States as Amicus Curiae at 11, Biediger v.
Quinnipiac Univ., No. 3:09cv621, (D. Conn. July 21, 2010)).
236
See supra Part IV.B.

2010] LEAVE IT ON THE FIELD 301 finding that roster manipulation 237 did not occur during the
2009-2010 school year, the court engaged in a detailed analysis of “whether Quinnipiac’s mandatory roster numbers are appropriately set and afford athletes genuine varsity participation opportunities.” 238 After comparing the sizes of
Quinnipiac’s athletic team rosters with both the conference and national averages, the court concluded that with some exceptions, Quinnipiac appeared to set its men’s team rosters relatively small and its women’s team rosters relatively large, although the differences were not dramatic.
239
The Biediger court took a middle-of-the-road approach in addressing the plaintiffs’ argument that the university’s roster management policies resulted in too few genuine athletic participation opportunities for women. Specifically, in light of the finding that the university clearly “set its roster targets with the intent of producing statistics showing that it provides substantially proportional athletic participation opportunities for women,” the court noted that this was “not necessarily wrong.” 240 Therefore, on its own, the evidence with respect to the university’s roster management policies did not entitle the plaintiffs to relief.
241 Nonetheless, the court noted that this evidence served two other purposes.
242 First, it strengthened the plaintiffs’ other argument that the university was improperly counting female cross-country runners multiple times for their required participation on the indoor and outdoor track teams.
243
Further, it indicated to the court “that the University’s roster targets were carefully chosen and managed, and any shortfall in the number of Quinnipiac’s female athletes is attributable to
University decision-making and not other external factors.” 244
Therefore, the court upheld the use of roster management policies, including setting roster ceilings and floors, as a valid means of achieving Title IX compliance.
245 In doing so, however, it seemed to suggest that a university employing a roster
237
Roster manipulation refers to the “suspicious trend of men’s teams adding players, and women’s teams dropping players, after the first date of competition.”
Biediger , 2010 WL 2977043, at *7.
238
Id.
at *8.
239
Id.
at *9.
240
Id.
at *45.
241
Id.
242
Id.
243
Id.
244
Id.
245
See id.

302 BROOKLYN LAW REVIEW [Vol. 76:1 management system similar to that of Quinnipiac may be subject to enhanced scrutiny in evaluating Title IX compliance.
It remains to be seen how other courts will address challenges to roster management policies under Title IX.
Carolyn Davis †
†
J.D. Candidate, Brooklyn Law School, 2011; B.A. Middlebury College,
2008. Thank you to my family and friends for their love and support and to the
Brooklyn Law Review staff for all of their hard work.

I
NTRODUCTION
Legislators and prosecutors in Britain are reevaluating laws and procedures concerning corporate crime. In an effort to modernize and strengthen corporate criminal laws, British policymakers are examining and, in some instances,
“importing” corporate criminal laws and procedures from the
United States. This exchange of legal theories is rooted in comparative law, which allows attorneys, legislators, and scholars to understand and learn from legal systems in foreign jurisdictions.
1 As in this instance, policymakers may be so influenced by a foreign legal system that they decide to incorporate a version of the foreign system into their domestic legal structure.
2
The director of the Serious Fraud Office (SFO), the
British counterpart to the United States Department of Justice
(DOJ), 3 has publicly advocated changing both the substantive
1
The practice of comparing substantive laws and legal procedures is “at once very old and very modern.” Klaus J. Hopt, Comparative Company Law 1162 (Max Planck
Inst. for Private Law & ECGI, Working Paper No. 77/2006, 2006), available at http://ssrn.com/abstract=980981. Comparative company law is “old” because “ever since companies and company laws first existed, trade has not stopped at the frontiers of countries and states.” Id . Academic treatment of comparative law in the corporate context, however, is a fairly recent development that was driven by “the spread of 1930s
American securities regulation into Europe, the company law harmonization efforts of the
European Community . . . [and] the rise of the corporate governance movement.” Id.
at
1162-63. The corporate governance “international bandwagon” started in the United
States and the United Kingdom, traveled over to Continental Europe and Japan, and has since “permeated practically all industrialized countries.” Id.
at 1163.
2
See id.
at 1167 (“Comparative law has always been considered to be an enrichment of the stock of legal solutions . . . .”) (internal quotation marks omitted).
3
The SFO has “jurisdiction in England, Wales, and Northern Ireland, but not in Scotland, the Isle of Man, or the Channel Islands.” Who We Are , S ERIOUS F RAUD
O FFICE , http://www.sfo.gov.uk/about-us/who-we-are.aspx (last visited Nov. 1, 2010).
For purposes of this note, I use “Great Britain” and “United Kingdom” and variations thereof to describe the territories over which the SFO has jurisdiction, recognizing that
SFO jurisdiction does not correspond directly to the political or geographical territories designated by these terms. The United Kingdom, as a sovereign state, is comprised of the constituent countries and political entities of England, Scotland, Wales, and
303

304 BROOKLYN LAW REVIEW [Vol. 76:1 corporate criminal laws and the procedural mechanisms in
Great Britain to better combat corporate crime.
4 In order to change the substantive law, the director has suggested lowering the required mens rea 5 for corporate criminal liability.
6 Although this change has not yet been implemented by Parliament, the SFO has made changes to its legal procedures by developing and using what I refer to herein as
“Compliance Agreements” when dealing with corporate wrongdoers. These Compliance Agreements bear a strong resemblance to American Deferred and Non-Prosecution
Agreements.
7 However, the SFO is using these Compliance
Agreements in conjunction with civil, rather than criminal, laws in an effort to fight corporate crime.
8
Legislators in Britain are examining substantive laws and procedures in the United States for a variety of reasons, including the success that the United States government— specifically the United States Attorney’s Office for the
Southern District of New York (SDNY) 9 —has had in prosecuting corporations for their crimes. Moreover, the United
Kingdom and the United States both have “strong judiciaries, low levels of government corruption, and highly developed stock markets,” which facilitate the comparison and exchange of laws and legal procedures.
10 Both jurisdictions also use the same general legal framework for corporate criminal culpability, and provide largely similar due process rights to
Northern Ireland. Great Britain, as a territory, refers to England, Scotland, and Wales, but excludes Northern Ireland.
4
Vivian Robinson, Gen. Counsel, Serious Fraud Office, Speech: International
Co-operation in the Investigation of Serious Fraud and Corruption (Aug. 13, 2009), available at http://www.sfo.gov.uk/about-us/our-views/other-speeches/speeches-2009.aspx
(follow “International Co-operation in the investigation” hyperlink).
5
Mens rea is “an element of criminal responsibility; . . . a criminal intent.
Guilty knowledge and willfulness.” B LACK ’ S L AW D ICTIONARY 985 (6th ed. 1990).
6 supra note 4.
7
Deferred and Non-Prosecution Agreements are essentially contracts whereby the government agrees to defer or to cease prosecuting a corporation that has engaged in some unlawful conduct in return for the corporation’s admission of wrongdoing and pledge to institute remedial reforms. See infra Part III.
8
Id.
9
The SDNY represents the interests of the United States government in a variety of matters. It has jurisdiction in New York County and seven other counties.
The director, the United States Attorney for the Southern District of New York, reports to the United States Attorney General. For an overview of the DOJ and its agencies, see Department of Justice Agencies , U.S.
D EP ’ T J UST . (Apr. 30, 2010), http://www. justice.gov/agencies/index-org.html.
10
John Armour et al., Private Enforcement of Corporate Law: An Empirical
Comparison of the United Kingdom and the United States , 6 J.
E MPIRICAL L EGAL S TUD .
687, 689 (2009) (footnotes omitted).

2010] IMPORTATION OF CORPORATE COMPLIANCE 305 defendants.
11 Further, the prosecuting offices frequently work together or in parallel investigations to resolve multijurisdictional cases, especially those concerning foreign bribery and corruption.
12
While British policymakers have looked to the United
States for guidance in combating corporate crime, this note argues that American policymakers should similarly learn from the developments in Britain. The SFO is currently adopting a procedure that has been widely criticized since its inception in the United States.
13 The SFO should familiarize itself with the criticisms of Deferred and Non-Prosecution Agreements, as they predict many of the likely problems that the SFO will face in adding Compliance Agreements to its procedural toolkit. The
SFO should also anticipate unique problems that might arise from incorporating into a civil system a procedure that was designed for use in the criminal context.
Despite importing such a controversial procedure, the
SFO has been successful in at least two instances in achieving corporate reform through the use of Compliance Agreements.
These successes emphasize the drawbacks of the American corporate criminal system as a whole and demonstrate that civil laws and procedures may, in fact, achieve corporate reform without fostering adversarial relationships between the government and corporate entities. American policymakers
11
J ESSICA DE G RAZIA , R EVIEW OF THE S ERIOUS F RAUD O FFICE 2 (2008), available at http://www.sfo.gov.uk/media/34318/de%20grazia%20review%20of%20sfo.pdf.
12
See Richard Alderman, Dir., Serious Fraud Office, Speech: The SFO and
DOJ ‘Special Relationship’: The Future of UK/US Co-operation against Overseas
Corruption and Other Crimes (Dec. 9, 2009), available at http://www.sfo.gov.uk/aboutus/our-views/speeches/speeches-2009.aspx (follow “The SFO and DOJ ‘Special
Relationship’” hyperlink) (discussing the interaction between the SFO and the DOJ in
Foreign Corrupt Practices Act (FCPA) cases, relating the SFO’s progress concerning
“global settlements,” and discussing extradition policies of the United States and
United Kingdom). One recent example of a parallel investigation by the SFO and the
SDNY is the Allied Deals cases. DE G RAZIA , supra note 11, at 37. The conspiracies charged in these cases involved two brothers, one in New York City and the other in
London, who operated a Ponzi scheme by which bank loans were laundered through
Allied Deals, Inc., and an international network of companies that were purportedly engaged in metal trading. United States v. Chu, 183 F. App’x 94, 96 (2d Cir. 2006). See infra Part III for a full discussion of the foreign bribery statutes in the United Kingdom and the United States; see also infra notes 39-55 and accompanying text (discussing the parallel investigation and global settlement in R v. Innospec Ltd., [2010] EW Misc.
(EWCC) 7 (Eng.)).
13
The Accountability in Deferred Prosecution Act of 2009, H.R. 1947, 111th
Cong. § 4 (2009), which was introduced in Congress for consideration by the House
Judiciary Committee, Subcommittee on Commercial and Administrative Law, illustrates many of the criticisms of the use of Deferred and Non-Prosecution
Agreements.

306 BROOKLYN LAW REVIEW [Vol. 76:1 should examine the developments in Great Britain and consider making changes to corporate criminal laws and procedures in light of the SFO’s achievements.
Part I of this note examines the development of corporate criminal laws in the United States and Britain. Part
II describes how policymakers at the SFO have suggested changes in substantive British laws to mimic corporate criminal laws in the United States. Part III compares corporate reform under Deferred and Non-Prosecution Agreements to corporate reform under British Compliance Agreements. Part
IV describes the likely problems the SFO faces by importing a procedure that was designed for use in criminal prosecutions.
Finally, Part V describes some of the successes of British
Compliance Agreements, and uses the developments in the
United Kingdom as a basis to suggest changes in corporate criminal procedures and substantive laws in the United States.
I. T HE H ISTORY AND C OMPARISON OF S UBSTANTIVE
C ORPORATE C RIMINAL L AWS IN THE U NITED S TATES AND
G REAT B RITAIN
Until the early 1900s, American corporate criminal law 14 closely followed English common law doctrine, which did not provide a basis for imputing liability to a corporation based on the actions of employees. However, an American case in the early 1900s established a distinctive theory of corporate criminal liability. While English law has since evolved, the two legal systems retain differences in the scope of liability for corporate entities. However, in the last several years,
Parliament has passed new legislation broadening the scope of liability for corporations in some specific instances, thereby mimicking the theory of liability in the United States and reversing the flow of influence.
It is well established that, in the United States today, an organization 15 may be held vicariously liable for the crimes that its employees commit within the scope of their employment. Until 1909, American courts declined to hold
14
This note focuses on federal laws and federal crimes. State laws may differ.
15
An “organization” is “a person other than an individual.” 18 U.S.C. § 18 n.1. The term includes “corporations, partnerships, associations, joint-stock companies, unions, trusts, pension funds, unincorporated organizations, governments and political subdivisions thereof, and non-profit organizations.” Id .

2010] IMPORTATION OF CORPORATE COMPLIANCE 307 organizations liable for the acts of individuals.
16 Then, in New
York Central Hudson River Railroad Co. v. United States , the
Supreme Court upheld a statute subjecting a corporate entity to criminal liability.
17 The Court explained the theory behind vicarious liability for corporations for intent-based crimes, stating that a “corporation is held responsible for acts not within the agent’s corporate powers strictly construed, but which the agent has assumed to perform for the corporation when employing the corporate powers actually authorized.” 18
The Court imputed liability, citing public policy concerns and reasoning that “[s]ince a corporation acts by its officers and agents, their purposes, motives, and intent are just as much those of the corporation as are the things done.” 19
The New York Central decision “upheld a statute that expressly punished corporations. It did not suggest that statutes silent on the subject should be read to [impute liability to businesses].” 20 Rather, the Court noted that “there are some crimes, which in their nature cannot be committed by corporations.” 21 After this decision, however, the Supreme Court and other courts in the United States routinely read criminal statutes to impose liability on corporations under a theory of respondeat superior.
22
Current federal law applies an expansive interpretation of this theory, holding that an organization can be convicted of nearly any crime committed by an employee, provided that he or she was acting within the scope of his or her authority and acted “with the intention to help the company, even if the
(1909).
16
N.Y. Central Hudson River R.R. Co. v. United States, 212 U.S. 481, 493-94
17
Id .
18
Id.
19
Id.
at 492-93 (citations omitted).
20
Albert W. Alschuler, Two Ways to Think About the Punishment of
Corporations , 46 A M .
C RIM .
L.
R EV .
1359, 1363 (2009).
21
N.Y. Central , 212 U.S. at 494.
22 supra note 20, at 1363. Respondeat superior is the principle that authorizes corporate punishment whenever “an agent or other person acting for or employed by the corporation acting within the scope of employment violate[s] a statute’s prohibitions.” Id.
at 1364. Some states in America, by contrast, have limited the standard of liability to cases in which “the commission of the offense was authorized, requested, commanded, performed, or recklessly tolerated by the board of directors or by a high managerial agent acting on behalf of the corporation within the scope of his office or employment.” Id .
(citing M ODEL P ENAL C ODE § 2.07(1)(c) (Proposed
Official Draft 1962)).

308 BROOKLYN LAW REVIEW [Vol. 76:1 employee was violating express directions or corporate policies.” 23 A corporation can be held criminally liable if: the criminal conduct is undertaken without the knowledge of top management; the criminal activity was performed by a low-level employee; the primary purpose was to benefit only the miscreant employee; there was no actual benefit to the corporation; the criminal acts were performed in direct violation of instructions from the company; . . . no single individual had the requisite intent or knowledge sufficient to violate the law; it is never possible to identify the actual employee or agent responsible for the crime; or the offending employees are all acquitted of the same offense.
24
This exposes corporations to liability for a vast array of federal crimes.
25 In fact, the scope of the modern rule is so expansive that “a single errant employee can cause the downfall of a multinational corporation and the loss of thousands of jobs.” 26
Unlike American courts that apply an expansive theory of corporate criminal liability, British courts are hesitant to impose liability on business organizations for the acts of employees. As early as the seventeenth century, English courts held that a corporation could not be indicted for wrongful acts, or misfeasance, 27 because it exists “not as a natural person, but
23
Robert J. Ridge & Mackenzie A. Baird, The Pendulum Swings Back:
Revisiting Corporate Criminality and the Rise of Deferred Prosecution Agreements ,
33 U.
D AYTON L.
R EV . 187, 189 (2008). The requirement that employees must be acting within the scope of their employment “has been interpreted so expansively that it is practically invisible in many contexts.” Andrew Weissmann & David Newman,
Rethinking Criminal Corporate Liability , 82 I ND .
L.
J.
411, 422 (2007) (adding that the scope of employment is the agent’s “actual or apparent authority” (emphasis added)).
The requirement that the employee intended to help the corporation has also been expanded “because courts recognize that many employees act primarily for their own personal gain.” Id.
(quoting Kendel Drew & Kyle A. Clark, Corporate Criminal
Liability , 42 A M .
C RIM .
L.
R EV .
277, 282 (2005)). An agent does not have to be acting with the sole motivation to assist the corporation, and organizations have been held liable for acts of agents “no matter what their place in the corporate hierarchy.” Id.
at
423; see also id.
at 423 n.37 (“Corporate criminal liability has been predicated on the actions of low-level employees, including salespeople, manual laborers, truck drivers, and clerical workers.”).
24
Ridge & Baird, supra note 23, at 189 (quoting Preet Bharara, Corporations
Cry Uncle and Their Employees Cry Foul: Rethinking Prosecutorial Pressure on
Corporate Defendants , 44 A M .
C RIM .
L.
R EV .
53, 64-65 (2007)).
25
“Examples of the unlawful activity of [American] corporations range from routine ‘union busting,’ violations of environmental regulations, and price-fixing, to illegal foreign payments, smuggling, and fraud of various kinds.” Kent Greenfield,
Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (With Notes on How
Corporate Law Could Reinforce International Law Norms) , 87 V A .
L.
R EV . 1279, 1287-
88 (2001) (footnotes omitted).
26 supra note 20, at 1364 .
27
“Misfeasance” is an “improper performance of some act which a person may lawfully do.” B LACK ’ S L AW D ICTIONARY , supra note 5, at 1000.

2010] IMPORTATION OF CORPORATE COMPLIANCE 309 as an artificial entity.” 28 Courts reasoned that a corporate entity
“lacked physical, mental, and moral capacity to engage in wrongful conduct, or to suffer punishment. It could neither commit criminal acts, entertain criminal intent, nor suffer imprisonment,” and therefore could not be subject to liability.
29
During this time however, a variety of cases demonstrated that a corporation could be held “liable on a presentment of nonfeasance.” 30
In 1846, in the leading case of The Queen v. Great North
England Railway , 31 the court recognized that a corporation could also be liable for misfeasance and “imposed corporate criminal liability for the misconduct of employees acting within the scope of employment” by “borrowing a theory of vicarious liability from tort law.” 32 Despite recognizing that liability could attach to corporations for the acts of their employees, English courts resisted a broad interpretation of the “corporation-asperson metaphor” and continued to hold corporations liable only where statutes provided strict liability, since corporate entities could not manifest the required mens rea for crimes that had a “moral dimension.” 33
Today, British courts will hold entities liable where an offense makes an express provision for corporate liability, as the United States Supreme Court reasoned in New York
Central .
34 Where no express statutory provision exists, however,
British law provides that a corporation will have imputed to it the acts and state of mind of “those who represent the
[company’s] directing mind and will.” 35 Whether the court will
28
Corporate Criminal Accountability: A Brief History and an Observation , 60 W ASH .
U.
L.
Q. 393, 396 (1982).
29
Id.
30
Id.
at 401 (citing Case of Langforth Bridge, (1635) 79 Eng. Rep. 919 (K.B.)).
“Nonfeasance” is “the omission of an act which a person ought to do.” B LACK ’ S L AW
D ICTIONARY , supra note 5, at 1000.
31
(1846) 115 Eng. Rep. 1294 (Q.B.).
32 supra note 28, at 402-03 (footnotes omitted).
33
Weissmann Newman, note 23, at 419.
34
S ERIOUS F RAUD O FFICE , G UIDANCE ON C ORPORATE P ROSECUTIONS 2-4, available at http://www.sfo.gov.uk/media/65228/com1%20joint%20guidance%20on%20 corporate%20prosecutions%20for%20publication.pdf (last visited Nov. 1, 2010).
35
Id.
at 4 (citing Lennards Carrying Co. & Asiatic Petroleum, [1915] A.C. 705
(H.L.) (appeal taken from Eng.); R v. Andrews Weatherfoil, [1972] 56 Crim. App. 31
(A.C.) (Eng.); Bolton Eng’g Co. v. Graham, [1957] 1 Q.B. 159 (Eng.)). “Directing mind and will” is restricted to “the Board of Directors, the Managing Director, and perhaps other superior officers who carry out functions of management and speak and act as the company.” Id.
(quoting Tesco Supermarkets Ltd. v. Nattrass, [1972] A.C. 153 (H.L.)
(appeal taken from Eng.)).

310 BROOKLYN LAW REVIEW [Vol. 76:1 attribute acts of a natural person to the entity will be determined by evaluating the constitution of the company concerned (including articles of association, minutes of the general meetings, and various memoranda) and definitions in the applicable statute.
36
Although British law provides for vicarious liability, it rarely arises in trial because proving a corporation’s state of mind such that liability could be imputed is “notoriously difficult.” 37 Because British law requires the prosecution to
“identify an individual as the directing mind and will of the company in respect of the relevant activity” in order to attribute that individual’s state of mind to the company, 38 prosecution of corporations in Britain today occurs with much less frequency than in the United States.
Prosecutions of corporations, however, do occur in
Britain. A recent example is the case of R v. Innospec Ltd.
, where a British company and wholly owned subsidiary of a
Delaware corporation, Innospec Inc., pleaded guilty to conspiracy to corrupt pursuant to section 1 of the Criminal Law
Act 1997.
39 The DOJ, the Securities and Exchange Commission
(SEC), and Office of Foreign Asset Control (OFAC) began investigating the parent company, Innospec Inc., in July 2005, and in October 2007 notified the SFO, which began its own investigation in May 2008.
40 The American investigation revealed that between 2001 and 2004, Innospec Inc. entered into five contracts under the United Nations’ Oil for Food
Program with the Iraq Ministry of Oil to sell tetraethyl lead, 41
36
Id.
In this way, British law resembles the United States Model Penal Code and the laws of some individual states which have limited the principle of respondeat superior to offenses that were authorized or tolerated by a corporation’s board of directors or by high managerial staff acting on behalf of the corporation or within the scope of employment. See supra notes 20-22 and accompanying text.
37
Jonathan , I NT ’ L F IN .
L.
R EV ., T HE 2009 G UIDE TO L ITIGATION , Apr.
1, 2009 (internal quotation marks omitted), available at http://www.iflr.com/Article/2176832/Channel/193438/United-Kingdom-A-newmore-American-world.html. Thus even today “criminal corporate liability would not normally extend to crimes such as rape and murder” because they involve a moral dimension, and it would be unlikely that the court could find that the “directing mind and will” of the corporation “acted in the scope of employment and at least in part to benefit the company” such that vicarious liability could attach. Weissmann & Newman, supra note 23, at 419 n.17.
38
Cotton, supra note 37.
39
R v. Innospec Ltd., [2010] EW Misc. (EWCC) 7, [1] (Eng.).
40
Id . at [6].
41
Tetraethyl lead, or TEL, is an antiknock fuel additive, which has been phased out of use by regulators since the 1970s because of health and environmental concerns. Id . at [4].

2010] IMPORTATION OF CORPORATE COMPLIANCE 311 agreeing to pay the Ministry ten percent of the contract price as a bribe.
42
Investigators also discovered that in addition to the bribes of the Iraq Ministry of Oil, Innospec Ltd., the British subsidiary, bribed Indonesian officials to secure contracts from the Indonesian government for the supply of tetraethyl lead.
43
The Crown Court ultimately found that directors of Innospec
Ltd., whose executive offices were in Britain, had conspired with the company and others to make payments of approximately $8 million to senior government officials in
Indonesia in violation of section 1 of the Prevention of
Corruption Act 1906.
44 In September 2008, independent directors of Innospec Inc. admitted to the criminal offenses and began discussions with American prosecutors to reach a “global settlement.” 45
In late 2009, the company agreed to plead guilty both to offenses in the United States and the United Kingdom, subject to court approval in both jurisdictions.
46 Prosecutors at the SFO and DOJ began discussions about the terms of the settlement and how the penalty should be divided, finally deciding in
January 2010 that the SFO, DOJ, and the SEC and OFAC together, would each receive a proportion of the settlement, resulting in $14.1 million to the DOJ, $11.2 million to the SEC,
$2.2 million to OFAC, and $12.7 million to the SFO.
47 Although the fines and other penalties could have exceeded $400 million in the United States and $150 million in the United Kingdom, this would have put the company out of business. Thus prosecutors agreed, in light of the company’s full admission and cooperation, to limit the penalty.
48 Innospec Ltd. also agreed to establish a compliance and ethics program and to submit to corporate monitoring for a period not less than three years, with the monitor to be chosen in agreement with the SFO.
49
42
Id . at [6]. After the United Nations Oil for Food Program was discontinued,
Innospec Inc. continued to make bribes resulting in a total of $5.8 million paid or promised. Id .
43
Id . at [4].
44
Id . at [1], [4]-[5].
45
Id . at [7].
46
Id . at [8].
47
Id . at [13]. The SFO sought to recover $6.7 million of this amount in a criminal penalty for the Indonesian corruption and $6 million in a civil recovery for the
Iraq corruption. Id . at [17(v)].
48
Id . at [7].
49
Id . at [18].

312 BROOKLYN LAW REVIEW [Vol. 76:1
Although the British court eventually approved the global settlement, it held that prosecutors lack the authority to set the penalty amount of such agreements.
50 The court held that in criminal cases involving a plea agreement between the defendant (whether natural or artificial) and the government, a prosecutor may assist the court in determining the appropriate penalty.
51 However, the court held that “principles of transparent and open justice require a court sitting in public itself first to determine by a hearing . . . the extent of the criminal conduct on which the offender has entered the plea, and then, on the basis of its determination as to the conduct, the appropriate sentence.” 52 This holding effectively limits the ability of British prosecutors to negotiate and agree upon a settlement amount with either the defendant corporation or with foreign authorities.
53
The court approved the power of prosecutors to issue a
Civil Recovery Order (CRO) for property obtained through the unlawful conduct of a corporation.
54 The court noted, however, that it would “rarely be appropriate for criminal conduct by a company to be dealt with by means of a [CRO].” 55 Rather, a civil penalty may provide a means of compensation in addition to a fine in the case of corporate criminality. As a result, British
50
Id . at [26].
51
Id . at [27].
52
Id .
53
The court noted that while “there may be discussion and agreement as to the basis of plea, a court must rigorously scrutinize in open court in the interests of transparency and good governance the basis of that plea and to see whether it reflects the public interest.” Id .
54
Id . at [37]; see infra Part III.B (discussing CROs). The SFO sought approximately half of its share of the $12.7 million settlement in a civil recovery for the conduct in Iraq. Innospec , [2010] EW Misc. (EWCC) at [13]. The SFO sought a civil recovery, rather than a criminal penalty, in part because the SFO was concerned that imposing a criminal penalty for the same conduct charged in the United States would subject the corporation to double jeopardy. Id . at [37]. The British court disagreed, and further stated that that in light of the unavailability of funds, the criminal penalty for the conduct in Indonesia should not have been reduced by requiring a civil recovery for the conduct in Iraq. Id . at [38]. Rather, the court noted that states should “adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state.” Id . at [31]. The court reasoned that “[i]f the penalties in one state are lower than in another, businesses in the state with lower penalties will not be deterred so effectively from engaging in corruption in foreign states, whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states.” Id .
55
Id . at [38]. The court stated that “[i]t would be inconsistent with basic principles of justice for the criminality of corporations to be glossed over by a civil as opposed to a criminal sanction.” Id .

2010] IMPORTATION OF CORPORATE COMPLIANCE 313 prosecutors may be required to seek a criminal penalty, rather than a civil recovery, where the “directing mind and will” of the corporation has committed some unlawful conduct such that liability could be imputed to the corporation. Nevertheless, R v.
Innospec Ltd.
demonstrates that while prosecutions of corporations in Britain occur with less frequency than in the
United States, they do happen and have serious consequences.
II. C HANGES TO S UBSTANTIVE L AWS AND P ROCEDURES IN
B RITAIN
The SFO and Parliament have been considering and implementing changes to the substantive laws and procedural mechanisms in Britain to strengthen the government’s ability to combat corporate crime and to institute corporate reforms.
These developments widen the scope of corporate criminal liability and alter the interaction between the SFO and business organizations operating in Britain.
A. Changes to Substantive Corporate Criminal Laws
While legislators in Britain have not yet changed the general standard for imputing criminal liability to corporations, Parliament has recently passed several statutes that include specific offenses for corporate entities, thereby broadening corporate criminal liability in certain instances.
In 2007, Parliament passed the Corporate
Manslaughter and Corporate Homicide Act, which created a new homicide offense in which an organization will be found guilty “if the way in which its activities are managed or organised—(a) cause the person’s death, and (b) amounts to a gross breach of a relevant duty of care owed by the organisation to the deceased.” 56 The Act does not require that the corporation’s “directing mind and will” be responsible.
57 In early
2010, Parliament also passed the Bribery Act, which created new offenses for bribing a foreign public official and for the
56
Corporate Manslaughter and Corporate Homicide Act, 2007, c.19, § 1(1) (U.K.).
57
However, a corporation will only be found guilty if the “way in which its activities are managed or organised by its senior management is a substantial element” of the breach of the duty of care.
Id.
§ 1(3). “Senior level” means individuals
“who make significant decisions about the organisation or substantial parts of it.”
M INISTRY OF J USTICE , U NDERSTANDING THE C ORPORATE M ANSLAUGHTER AND
C ORPORATE H OMICIDE A CT 2007, at 1 (2007), available at http://www.justice.gov.uk/ guidance/docs/manslaughterhomicideact07.pdf.

314 BROOKLYN LAW REVIEW [Vol. 76:1 failure of a corporation to prevent a bribe from being made on its behalf.
58 These changes to the laws considerably broaden the scope of liability for corporate entities and demonstrate a shift toward the American framework.
Further, the United Kingdom Law Commission, a body appointed by the Lord Chancellor to examine and reform the laws, is evaluating the existing corporate criminal laws as a part of its project on the codification of substantive criminal law.
59 This suggests that further changes to the British system should be anticipated.
B. Developments at the Serious Fraud Office and Changes to Legal Procedures
While Parliament considers reforming the substantive laws, the SFO is undergoing structural changes and making significant amendments to its procedures for dealing with corporate wrongdoers.
60 The SFO was established in 1988 by the Criminal Justice Act 1987.
61 The SFO is an independent government department that investigates and prosecutes, as a part of the British criminal justice system, overseas corruption cases and “serious and complex fraud” cases exceeding a value
58
Bribery Act, 2010, c.23, §§ 1-3 (U.K.).
59
Corporate Criminal Liability , L AW C OMMISSION (July 2, 2008), http://www. lawcom.gov.uk/1150.htm.
60
Practical developments have also emerged, including an increase in the level of fines or civil penalties and disgorgements that British companies have been required to pay as a result of their wrongdoing. These increases resemble the high fines levied against corporations in the United States. Cotton, supra note 37. Further, individuals in the United Kingdom who have been involved in corporate crime are being subjected to longer prison sentences, and the SFO has imposed greater asset confiscation orders on these individuals, which are more reflective of the penalties imposed on individuals in the United States. Id.
“British law enforcement agents have said they [also] want to develop their use of the American ‘campaign based approach’ . . . in which investigators identify an industry they think is highly corrupt and then try to bring simultaneous prosecution against a large number of people in it.”
Stephanie Kirchgaessner & Michael Peel, FBI Sting Nets 22 Executives in Bribery
Probe , F IN .
T IMES (Jan. 19, 2010, 11:00 PM), http://www.ft.com/cms/s/0/516f276c-054d-
11df-a85e-00144feabdc0.html (follow “Register For Free” hyperlink; then follow “Sign
Up” hyperlink under “Registered” column for free access).
61
History & Legislation , S ERIOUS F RAUD O FFICE , http://www.sfo.gov.uk/ about-us/history--legislation.aspx (last visited Nov. 1, 2010). During the 1970s and early 1980s, the British public was unhappy with officials for failing to investigate and prosecute serious and complex fraud. The government then established the Fraud
Trials Committee, which recommended that a new organization be responsible for investigating and prosecuting these types of fraud. The Committee’s report spurred the introduction of the Criminal Justice Act 1987 and, thereby, the SFO. Id .

2010] IMPORTATION OF CORPORATE COMPLIANCE 315 of £1 million.
62 Like the DOJ, through the individual United
States Attorney’s Offices (like the SDNY), the SFO handles both the investigation and prosecution of various cases.
63
In 2006, the SFO, then under the direction of the
British Attorney General Lord Peter Goldsmith and SFO
Director Robert Wardle, was widely criticized for its decision to halt investigation of BAE Systems for bribery after Saudi
Arabia threatened to cease purchasing aircrafts and sharing anti-terrorism intelligence with Britain.
64 In March 2007, Lord
Goldsmith decided that the agency “needed a thorough makeover.” 65 He invited Jessica de Grazia, a thirteen-year
62
Who We Are , supra note 3; see also Does the Fraud Fit SFO Criteria?
,
S ERIOUS F RAUD O FFICE , http://www.sfo.gov.uk/about-us/our-policies-and-publications/ does-the-fraud-fit-sfo-criteria.aspx (last visited Nov. 1, 2010). The SFO investigates a variety of frauds including investment fraud, bribery, corruption, corporate fraud, and public sector fraud. See Kirchgaessner & Peel, supra note 60. “Fraud is a type of criminal activity, defined as ‘intentional deception to obtain an advantage, avoid an obligation, or cause loss to another person or company.’” Fraud , S ERIOUS F RAUD O FFICE , http://www.sfo.gov.uk/fraud.aspx (last visited Nov. 1, 2010); see also Fraud Act, 2006, c.35, §§ 1-4 (U.K.) (defining fraud as false representation, failure to disclose information, and abuse of position to require intent to realize personal gain or gain for another, to cause loss to another, or to expose another to risk of loss). Factors that will be examined in accepting a case of suspected fraud are whether there is “a significant international dimension;” whether “the case [is] likely to be of widespread concern;” whether “the case require[s] highly specialised knowledge, e.g. of financial markets;” and whether “there [is] a need to use the SFO’s special powers, such as section 2 of the Criminal Justice Act.”
Richard Alderman, Dir., Serious Fraud Office, Speech: An Update from the Serious Fraud
Office: The Way Forward (Feb. 26, 2009), available at http://www.sfo.gov.uk/about-us/ourviews/speeches/speeches-2009.aspx (follow “An Update from the Serious Fraud Office:
The Way Forward” hyperlink). Section 2 of the Criminal Justice Act refers to the investigatory powers of the SFO where there are reasonable grounds to suspect that a serious and/or complex fraud or corruption has been committed.
Criminal Justice Act,
1987, c.38, § 2, sch. 1 (U.K.).
63
DE G RAZIA , supra note 11, at 2 . The DOJ and the United States Attorney’s
Offices are over two centuries old, however, while the SFO is only twenty years old and still evolving. Id.
64
A Bit of an Old Boy’s Club , FCPA B LOG (Feb. 2, 2009, 7:22 PM), http:// www.fcpablog.com/blog/2009/2/3/a-bit-of-an-old-boys-club.html. The SFO was investigating the affairs of BAE Systems with regard to the Al Yamamah defense contract with the government of Saudi Arabia, and ceased the investigation citing “the need to safeguard national and international security.” Press Release, Serious Fraud Office, BAE
Systems Plc/Saudi Arabia (Dec. 14, 2006), available at http://www.sfo.gov.uk/pressroom/latest-press-releases/press-releases-2006/bae-systems-plcsaudi-arabia.aspx. The investigation centered on allegations that the company had bribed Saudi Arabian government officials in exchange for the sale of Typhoon jet fighters. SFO to Request
Prosecution of BAE , FCPA B LOG (Sept. 30, 2009, 8:13 PM), http://www.fcpablog. com/blog/2009/10/1/sfo-to-request-prosecution-of-bae.html. On September 30, 2009, the
SFO announced that it intended “to seek the Attorney General’s consent to prosecute
BAE Systems for offenses relating to overseas corruption,” but the sales to Saudi
Arabia were not part of the request for the prosecution. Id.
65
David , T IMES
O NLINE (U.K.) (Feb. 1, 2009), http://business.timesonline.co.uk/tol/business/economics/ article5627453.ece.

316 BROOKLYN LAW REVIEW [Vol. 76:1
Assistant District Attorney in Manhattan to evaluate the agency with “unrestricted remit.” 66 Her commentary
“amount[ed] to one of the most damning official indictments of a government agency ever penned.” 67 In her 157-page final report, de Grazia emphasized that the “SFO uses significantly more resources per case” than the SDNY and the District
Attorney’s Office of New York (DANY) and “achieves significantly less for its efforts, as measured by both its productivity (the number of defendants prosecuted) and its conviction rate.” 68 She traced these facts to both external factors, including “laws, government policy, and legal professional rules and practices,” and internal factors of “the
SFO’s own policies and practices,” including skills shortages, inadequate management and leadership, lack of clarity about roles and responsibilities, insufficient early case screening, unfocused investigations, risk-averse culture, and ineffective use of powers.
69
As a result of the report, in April 2008, several top officials at the SFO were fired, along with Director Wardle, who was replaced by Richard Alderman, a senior lawyer at HM
Revenue & Customs.
70 Under Alderman, the SFO began a
66
Id.
67
Id.
68
DE G RAZIA , supra note 11, at 3. For example, in a prosecution of criminal conspiracy in the Allied Deals case where the acts on both sides of the Atlantic were the same, SDNY used a total team of eight to convict 14 defendants in a third of the time that it took for an
SFO team totaling 31 to prosecute four defendants, three of whom were convicted after an eight-month trial.
Id.
With regard to productivity and conviction rate,
[i]n 2007, the SFO employed 56 staff attorneys and spent an additional
£4,227,000 on external counsel. . . . During the five-year period FY 2003-2007, the
SFO prosecuted to conclusion a total of 166 defendants. In contrast the DANY
Frauds Bureau . . . which is staffed by only 19 lawyers (slightly less than a third of the SFO’s permanent legal staff) and [which] does not contract out any aspect of its work to the external bar, concluded the prosecution of 124 defendants in the same period.
Id.
; see also infra notes 131-32 and accompanying text (discussing contract staff).
Further, “during the five-year period of 2003-2007, the SFO’s average conviction rate was only 61% of defendants whose cases were concluded during this period. During the same period, DANY’s Frauds Bureau had a 92% conviction rate.” DE G RAZIA , supra note 11, at 3.
69
DE G RAZIA , supra note 11, at 6-13.
70
Leppard, supra note 65. The Financial Services Authority (FSA), an independent body that regulates the financial services industry, has also been reviewing its procedures and appointed a new Chief Criminal Counsel in March 2009.
Cotton, supra note 37.

2010] IMPORTATION OF CORPORATE COMPLIANCE 317
“fundamental rethink about its role, its culture and how it operates.” 71 At a speech only two months into his tenure,
Alderman indicated that he believed the SFO needed to have a bigger presence in the City 72 and that it should develop its role in order to “provide the framework that is needed for a leading financial centre.” 73 He noted that, under his predecessor,
“everything [was] geared to investigating complex cases and getting them to court for often lengthy trials.” 74 Alderman, however, believed that prosecution would not always be appropriate and began to look for alternatives.
75
Alderman became interested in incorporating some of the procedural tools that the DOJ had at its disposal, specifically Deferred and Non-Prosecution Agreements.
76 In the view of SFO General Counsel Vivian Robinson, these agreements are an “efficient and cost-effective way of disposing of appropriate cases as an alternative to often drawn-out prosecution through the courts . . . [and] have considerable deterrent effect.” 77 Further, she believed that these agreements produce corporate reform by incentivizing corporations to selfpolice and report wrongdoing to the government.
78
While the SFO does not yet have the ability to enter into
Deferred or Non-Prosecution Agreements with corporations that have acted unlawfully, the SFO has begun to incorporate some of the central features of these agreements into
Compliance Agreements, 79 which are used in conjunction with civil statutes to achieve corporate reform. These changes, both in procedure and in substance, alter the relationship between the SFO and corporate entities, and strengthen the ability of the SFO to reform the behavior of corporate wrongdoers.
71
Richard Alderman, Dir., Serious Fraud Office, Speech: Rotary Club of the
City & Shoreditch (July 17, 2008), available at http://www.sfo.gov.uk/about-us/ourviews/speeches/speeches-2008.aspx (follow “Rotary Club of the City & Shoreditch” hyperlink).
72
The “City” refers to the “Square Mile” of the financial and commercial heart of Britain in London. It is used colloquially the same way as “Wall Street” is used in the United States to indicate a concentration of capital, legal, and regulatory systems of the financial market. Like the colloquial “Wall Street,” the “City” refers to both a physical place where many financial buildings are located as well as the greater theoretical place of financial markets.
73 supra note 71.
74
Id.
75
Id.
76
Id.
77 supra note 4.
78
Id.
79
See infra Part III.B.

318 BROOKLYN LAW REVIEW [Vol. 76:1
III. C OMPARISON OF B RITISH C OMPLIANCE A GREEMENTS AND
A MERICAN D EFERRED AND N ON -P ROSECUTION
A GREEMENTS
In the United States, with Deferred and Non-
Prosecution Agreements, reformation of a corporate wrongdoer is largely a process that occurs within the criminal law context.
With the British adoption of Compliance Agreements, reformation of a corporate wrongdoer may occur within the civil law arena. Despite this fundamental difference, the SFO has created a procedure that achieves many of the aims of the
DOJ, including providing incentives for corporations to selfpolice ex ante and, once a corporation is found to have engaged in some unlawful conduct, to institute reforms and pay restitution ex post.
A. Reforming Corporate Behavior Through Deferred and
Non-Prosecution Agreements
The most widely used procedure in American corporate criminal cases today is Deferred and Non-Prosecution
Agreements. Although these agreements have existed since the early 1980s, they were rarely used in the corporate criminal context until 2003, 80 when the Holder Memorandum, 81 and subsequently the Thompson Memorandum, 82 provided for their
80
Lisa
Procedure , 82 N.Y.U. L. R EV . 311, 315-17 (2007). The first case in which a procedure resembling a Deferred Prosecution Agreement was used was a government investigation into Salomon Brothers for securities fraud violations. Peter Spivak &
Suijit Raman, Regulating the ‘New Regulators’: Current Trends in Deferred Prosecution
Agreements , 45 A M .
C RIM .
L.
R EV . 159, 163-64 (2008). The first actual Deferred
Prosecution Agreement involving a major company occurred in 1994, when the SDNY
“agreed to defer prosecution of Prudential Securities for securities fraud for three years, in return for substantial internal reforms.” Id.
at 164.
81
The Holder Memorandum was issued in 1999, by then-Deputy Attorney
General Eric Holder, and set forth guidelines for indicting corporations as a response to
“a group of private practitioners complaining that there was no uniformity in the way in which prosecutors decided to indict corporations.” Peter Lattman, The Holder Memo and Its Progeny , W ALL S T .
J.
L.
B LOG (Dec. 13, 2006, 8:47 AM), http://blogs.wsj.com/ law/2006/12/13/the-holder-memo.
82
The Thompson Memorandum was issued in 2003, by then-Deputy Attorney
General Larry Thompson. See Memorandum from Larry D. Thompson, Deputy Att’y
Gen., on Principles of Fed. Prosecution of Bus. Orgs. to the Heads of Dep’t Components
& U.S. Attorneys (Jan. 20, 2003), available at http://www.justice.gov/dag/cftf/corporate
_guidelines.htm. The McNulty Memorandum was issued in 2006 and made two major changes to the Thompson Memorandum in light of United States v. Stein , 435 F. Supp.
2d 330 (S.D.N.Y. 2006): the DOJ (1) could no longer consider as a negative factor a company’s refusal to waive attorney-client privilege and (2) could no longer cut off the payment of legal fees for employees who were being investigated by the government.

2010] IMPORTATION OF CORPORATE COMPLIANCE 319 use as an alternative to indicting a corporation and proceeding with trial.
Deferred and Non-Prosecution Agreements are essentially contracts offered by the prosecutor to a corporation after an alleged wrongdoing within the organization has occurred. Such agreements are signed and filed at the charging stage, at which point a criminal Complaint or Information is filed with the court.
83 Typically, these agreements require that the company (1) pledge to admit wrongdoing, (2) waive the statute of limitations, (3) consent to the agreement being admissible in court, (4) agree to cease violating the law, (5) assist the government in prosecuting individuals associated with the crimes, (6) pledge that employees will not violate the terms of the agreement, and (7) pay restitution and fines.
84 In exchange, the prosecutor guarantees that he or she will postpone or drop prosecution.
85 Deferred and Non-Prosecution
Agreements can be, in essence, a form of probation for the corporation, typically lasting between approximately one and three years.
86
Deferred and Non-Prosecution Agreements make it possible for the government to extract promises from corporate entities to improve their structure and behavior, without having to prove any misconduct beyond a reasonable doubt in a court of law. Deferred and Non-Prosecution Agreements incentivize corporations to self-police ex ante by establishing
See Memorandum from Paul J. McNulty, Deputy Att’y Gen., on Principles of Fed.
Prosecution of Bus. Orgs. to the Heads of Dep’t Components & U.S. Attorneys (Dec. 12,
2006), available at http://www.justice.gov/dag/speeches/2006/mcnulty_memo.pdf. In United
States v. Stein , KPMG came under investigation for illegal tax shelters. The Thompson
Memorandum provided that advancing attorney’s fees to employees of a target corporation might viewed by the government as “protection” of individual actors, and prosecutors were instructed that they could take this into account in deciding whether to indict the corporation. Stein , 435 F. Supp. 2d at 337-38. Although KPMG had a policy of paying the attorney’s fees of its employees, KPMG decided in light of its conversations with the government to withhold attorney’s fees if the employee refused to cooperate with the government. Id.
at 345-46. The court held that the government, by pressuring KPMG to cut off the legal fees of individual employees in order to meet the terms of the Deferred Prosecution Agreement, violated the Fifth and Sixth
Amendment rights of the individual defendants. Id.
at 345. The Second Circuit Court of
Appeals upheld the decision to dismiss the charges against the individual employees because no remedy could cure the government’s constitutional violations. United States v. Stein, 541 F.3d 130 (2d Cir. 2008).
83
Structural Reform Prosecution , 93 V A .
L.
R EV . 853,
888-89 (2007).
84
Lawrence D. Finder et al., Betting the Corporation: Compliance or
Defiance?
, 28 C ORP .
C OUNS .
R EV . 1, 4 (2009).
85
Id.
86
See Griffin, supra note 80, at 321.

320 BROOKLYN LAW REVIEW [Vol. 76:1
“voluntary” corporate compliance programs to avoid prosecution altogether, or to avoid more punitive sentences if they are nevertheless found to have participated in some wrongful conduct.
87 The agreements have this effect in part because the prosecutor is instructed to evaluate whether the corporation has adopted and implemented a “truly effective” compliance program in deciding whether or not to enter into the Deferred or Non-Prosecution Agreement after a finding of corporate misconduct.
88 If the corporation has done so, the prosecutor may decide to charge only the corporation’s employees and agents, or to mitigate charges or sanctions against the corporation.
89 As a result of Deferred and Non-
Prosecution Agreements and changes to corporate law brought by the Sarbanes-Oxley Act of 2002, 90 a vast majority of corporations in the United States have established “voluntary” compliance programs largely out of the fear of the threat of prosecution.
91
Deferred and Non-Prosecution Agreements also give the federal government a greater ability to pursue individual wrongdoers.
92 In deciding whether to enter into a Deferred or
Non-Prosecution Agreement with a corporation, prosecutors are instructed to consider the adequacy of prosecuting the individuals responsible for the corporation’s wrongdoing.
93 The prosecutor is further instructed to evaluate the corporation’s willingness to replace responsible management or to discipline or terminate the responsible employees.
94 In order to pursue individual wrongdoers, prosecutors often require corporations to conduct an internal investigation, which includes disclosing information about individual actors in order to receive
87
Miriam Hechler Baer, Corporate Policing and Corporate Governance: What
Can We Learn from Hewlett-Packard’s Pretexting Scandal?
, 77 U.
C IN .
L.
R EV . 523, 526
(2008) (footnotes omitted).
88
D EP ’ T OF J USTICE , U.S.
A TTORNEY ’ S M ANUAL § 9-28.800 (as amended in 2008) [hereinafter USAM]. The programs must also be “designed, implemented, reviewed, and revised, as appropriate . . . .” Finder et al., supra note 84, at 23.
89 supra note 88, § 9-28.800.
90
Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in scattered sections of 15 U.S.C.).
91
See Finder et al., supra note 84, at 14 n.42. As of January 22, 2009 “over
89% of publicly traded companies [in the United States] have a compliance program,
8% have only an ethics program, and 5% have neither an ethics program nor compliance program . . . .” Id.
Further, “69% of private companies have a compliance program, 12% have only an ethics program, and 29% have neither . . . .” Id.
92
See Alschuler, supra note 20.
93 supra note 88, § 9-28.300.
94
Id.

2010] IMPORTATION OF CORPORATE COMPLIANCE 321 mitigating credit for cooperating with the government.
95 This requirement gives prosecutors unparalleled access to information about the alleged crimes and actors, thereby allowing the government to bring charges that may not have otherwise been possible due to insufficient evidence.
96 In this regard, the corporation becomes a type of “investigative partner” to the government.
97
With the use of Deferred and Non-Prosecution
Agreements, federal prosecutors also seek to institute reforms of corporate wrongdoers to ensure that the unlawful activity does not continue or recur. These agreements assist prosecutors in achieving this goal by requiring the corporation to hire a monitor, typically charged with retraining employees, suggesting changes to the pre-existing compliance program, restructuring whole sectors, and removing executives.
98 These monitors are notoriously expensive.
99
The threat of criminal prosecution also gives prosecutors the power to demand that a target corporation pay significant fines when it executes a Deferred or Non-
Prosecution Agreement. The payments may be styled as damages, punitive fines, compensation to settle civil lawsuits, disgorgements, or back-taxes.
100 These fines have ranged from thousands of dollars to hundreds of millions of dollars and are often vastly disproportionate to the monetary value of the wrongdoing.
101
Because of the increased ability of prosecutors to reform business organizations through Deferred and Non-Prosecution
95
An internal investigation requires a corporation to disclose the “relevant facts” concerning misconduct of the corporation and of individuals. Memorandum from
Mark R. Filip, Deputy Att’y Gen., on Principles of Fed. Prosecution of Bus. Orgs. to
Heads of Dep’t Components & U.S. Attorneys 9-11, 15-16 (Aug. 28, 2008), available at http://www.justice.gov/opa/documents/corp-charging-guidelines.pdf.
96
See Erik Paulsen, Imposing Limits on Prosecutorial Discretion in Corporate
Prosecution Agreements , 82 N.Y.U. L. R EV . 1434, 1458 (2007).
97
E.g.
, United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) (where the government required the corporation to conduct an extensive internal investigation in order to satisfy the terms of a Deferred Prosecution Agreement); see also supra note
82 (discussing Stein ).
98
Kathleen M. Boozang & Simone Handler-Hutchinson, “Monitoring”
Corporate Corruption: DOJ’s Use of Deferred Prosecution Agreements , 35 A M . J. L. &
M ED . 89, 100-01 (2009).
99
Id.
100 supra note 83, at 900.
101
Id.
From January 2003 to January 2007, the DOJ entered into thirty-five agreements producing a total of $4.95 billion in restitution and averaging $141 million per agreement. Id .

322 BROOKLYN LAW REVIEW [Vol. 76:1
Agreements, these agreements have become the “sanction of choice” in cases of corporate misconduct.
102 From 1993 to 2008, the United States government entered into a total of 112 agreements with various corporations.
103 During this time, the government refrained from filing any criminal charges against a major corporation without also entering into a Deferred or
Non-Prosecution Agreement.
104
These agreements are most frequently used in cases where entities have violated the Foreign Corrupt Practices Act
(FCPA), 105 which prohibits corporations and employees from bribing foreign officials and requires corporate entities to meet certain accounting requirements, including maintaining accurate accounting records and a system of internal accounting controls.
106 But Deferred and Non-Prosecution
Agreements have been used in a variety of instances of corporate wrongdoing, most notably in cases of tax evasion, securities fraud, and health care fraud. With the widespread use of Deferred and Non-Prosecution Agreements, “pretrial diversion has become the ‘standard’ means for conducting corporate criminal investigations.” 107
B. The British Civil Recovery Order and Corporate
Compliance Agreements
In Britain, the intent requirement in many corporate crimes is relatively high, and, as a result, successful
102
Boozang
103
Hutchinson, note 98, at 97.
Finder et al., supra note 84, at 1. See id.
at 3 for a list of the agreements from 2006-2008.
104
Spivak & Raman, supra note 80, at 167. Milberg Weiss Bershad &
Schulman and Reliant Energy Services are “arguable exceptions” because Milberg refused to enter into a Deferred Prosecution Agreement citing that the waiver of attorney-client privilege was “too onerous,” and, in the case of Reliant, although the government believed that it was “uncooperative” with the investigation, Reliant finally agreed to enter into an agreement in return for the dismissal of the indictment. Id.
at n.42; see also infra note 159 (discussing the demise of Arthur Andersen after refusing to cooperate with authorities).
105
Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494
(codified as amended in scattered sections of 15 U.S.C.).
106
David Hess & Christie L. Ford, Corporate Corruption and Reform
Undertakings: A New Approach to an Old Problem , 41 C ORNELL I NT ’ L L.J. 307, 313-14
(2008); see also Marika Marris & Erika Singer, Foreign Corrupt Practices Act , 43 A M .
C RIM .
L.
R EV . 575, 580-81 (2006). The Organization on Economic Cooperation and
Development (OECD) Anti-Bribery Convention went into effect in 1999 and all countries that ratified the agreement, including the United Kingdom, now have similar statutory provisions to the FCPA. The Convention requires that each signatory country
“criminalize the bribery of foreign officials.” Id.
at 594.
107
Spivak Raman, note 80, at 159.

2010] IMPORTATION OF CORPORATE COMPLIANCE 323 prosecution by the SFO of corporate wrongdoers is difficult.
Therefore corporations in Britain do not face a threat of criminal prosecution comparable to that faced by corporations operating in the United States, and the SFO cannot rely upon
Deferred and Non-Prosecution Agreements to regulate corporate criminal misconduct. Instead of importing Deferred and Non-Prosecution Agreement procedures unchanged, the
SFO has adopted a form of these agreements—the Compliance
Agreement—to be used in conjunction with civil statutes. One such civil statute is the Proceeds of Crime Act 2002, in which
Parliament gave the SFO the right, through the use of a Civil
Recovery Order (CRO), to recover from a person, natural or artificial, any property “which is or represents property obtained through unlawful conduct.” 108 The CRO does not require the government to prove the culpability of any person, but rather requires it to proceed in rem against any proceeds traceable to any unlawful conduct and thereby obtain restitution for the wrongdoing.
109 By using the CRO in conjunction with a Compliance Agreement, the SFO is able to regulate corporate conduct and institute reforms, thereby achieving many of the same goals of prosecutors in the United
States. This also allows the SFO to conserve resources for cases of corporate wrongdoing severe enough to merit prosecution.
In 2008, the SFO successfully obtained its first CRO against a major business organization. Balfour Beatty, an engineering and construction corporation, had been engaged in a joint venture to build the Bibliotheca Alexandria in Egypt.
110
The corporation monitored its own accounting practices as required under section 221 of the Companies Act 1985, which sets forth the standards for maintaining accurate business records.
111 During the project, Balfour Beatty discovered
108
Proceeds of Crime Act, 2002, c.29, pmbl. (U.K.).
109
Id.
§§ 243, 304.
110
Press Release, Balfour Beatty, Balfour Beatty Reaches Full Settlement of
Issues Relating to Bibliotheca Alexandria Project (Oct. 6, 2008) [hereinafter Balfour Press
Release], available at http://www.balfourbeatty.com/bby/media/press/2008/2008-10-06.
111
Press Release, Serious Fraud Office, Balfour Beatty plc (Oct. 6, 2008)
[hereinafter SFO Press Release], available at http://www.sfo.gov.uk/press-room/latestpress-releases/press-releases-2008/balfour-beatty-plc.aspx. Section 221 of the Companies
Act, 1985, c.40 (U.K.), provides that
[e]very company shall keep accounting records which are sufficient to show and explain the company’s transactions and are such as to (a) disclose with reasonable accuracy, at any time, the financial position of the company at that time, and (b) enable the directors to ensure that any balance sheet and profit and loss account prepared under this Part complies with the requirements of this Act.

324 BROOKLYN LAW REVIEW [Vol. 76:1 inaccurate accounting records due to “certain payment irregularities” at one of its subsidiaries, and reported this finding to the SFO.
112 As a result, Balfour Beatty agreed to forfeit to the government £2.25 million obtained through unlawful conduct and to contribute to the costs of proceedings.
113 The SFO pursued civil recovery rather than criminal prosecution, concluding that an indictment could not be brought against the corporation or any individual since no financial benefit was derived by any individual employee and most of the “relevant individuals” were no longer employed at
Balfour Beatty or its subsidiaries.
114
The SFO combined its civil recovery procedure with a
Compliance Agreement that largely mirrored a Non-
Prosecution Agreement. Though the Companies Act does not require companies to self-police ex ante, Balfour Beatty had established a voluntary compliance program as previously suggested by the SFO, conducted its own “fully documented internal investigation of the irregularities,” and reported its findings to the SFO for further investigation.
115 Once Balfour
Beatty came under investigation, it cooperated fully with the
SFO and “voluntarily” agreed to introduce certain compliance systems.
116 This involved requiring Balfour Beatty to take
“comprehensive steps to review and improve its control processes,” and to submit to a form of external monitoring for a set period of time.
117
The SFO touted the power it wielded in the case of
Balfour Beatty as a demonstration of its “commit[ment] to combating improper corporate behaviour in line with similar efforts being made in other jurisdictions.” 118 While the SFO did not prosecute the company, it publicized its ability to obtain civil restitution and to mandate corporate reformation, thereby demonstrating its ability to sanction a major corporate
Id . The Companies Act also describes the information that the accounting records must contain. Id.
112
Balfour Press Release, supra note 110.
113
Id.
114
SFO Press Release, supra note 111.
115
Balfour Press Release, supra note 110.
116
SFO Press Release, supra note 111.
117
Id.
No further details exist as to the remedial measures that Balfour
Beatty was required to undertake pursuant to the agreement, either with regard to the identity or duties of the monitor, or as to the length of time that he or she was to remain with the corporation. For a discussion of monitors, see infra Part V.C.
118
SFO Press Release, supra note 111.

2010] IMPORTATION OF CORPORATE COMPLIANCE 325 wrongdoer without the use of criminal laws.
119 The SFO emphasized that Balfour Beatty would be the first of many cases that would require a corporate wrongdoer to self-police, report to the government, pay restitution, and institute reforms, as corporations do under the Deferred and Non-
Prosecution procedure in the United States.
Despite the success in the case of Balfour Beatty, the
SFO has imported a controversial American procedure and
Compliance Agreements will likely be subject to many of the same criticisms of Deferred and Non-Prosecution Agreements.
However, the achievement of corporate reform and restitution without the threat of criminal sanctions may suggest ways in which Deferred and Non-Prosecution Agreements can be improved.
IV. P
ROBLEMS WITH
I
MPORTING A
F
ORM OF
D
EFERRED AND
N
ON
-P
ROSECUTION
A
GREEMENTS
By importing a form of Deferred and Non-Prosecution
Agreements, the SFO will likely face many of the same criticisms as the DOJ since it began to use these agreements, including the production of inconsistent agreements that are not regulated by statute or subject to judicial review. But the
SFO may face unique problems, including the failure to prompt corporate entities to report wrongdoing and the production of uncertainty in the application and use of Compliance
Agreements. These anticipated shortcomings stem in part from the fact the SFO is importing a procedure that was designed for use in the criminal context.
A. Inconsistency Between Agreements and Lack of Oversight
One of the most significant criticisms of Deferred and
Non-Prosecution Agreements in the United States is that the guidelines for offering and entering into these agreements are not regulated by statute. Instead, the DOJ “has published a series of memoranda designed to guide its prosecutors in developing a more uniform approach to corporate conduct and to inform the defense bar and general public about the factors that [DOJ] prosecutors may take into consideration when making charging decisions.” 120 Because the guidelines are not
119
Id.
120
Ridge Baird, note 23, at 191.

326 BROOKLYN LAW REVIEW [Vol. 76:1 codified, they may change with every new Attorney General, each of whom may put forth his or her own agreement policy.
121
While the guidelines have been recently incorporated into the
United States Attorney’s Manual (USAM), they are still subject to change without approval from any legislative body.
122
Although the Proceeds of Crime Act and the CRO procedure in Britain were enacted by Parliament, a memorandum promulgated by SFO Director Alderman gave prosecutors the power to enter into and set the terms of
Compliance Agreements. The Approach of the SFO to Dealing with Overseas Corruption, known as “the Guide” for prosecutors, was published after the investigation of Balfour
Beatty at the request of corporate executives in the City.
123 The
Guide, which pertains only to overseas corruption cases like that of Balfour Beatty, may be changed or replaced without the consent of Parliament.
Compounding this problem is the fact that Compliance
Agreements, like Deferred and Non-Prosecution Agreements, are not subject to judicial oversight. Although prosecutors must appear before a judge in order to obtain a CRO, the judge does not retain any discretion over the terms of the Compliance
Agreement. Deferred and Non-Prosecution Agreements have been widely criticized for this reason in the United States because federal prosecutors have the unilateral authority to decide whether the corporation has engaged in any unlawful activity, and if so, to determine what the terms of the resulting agreement will be and whether the corporation or its employees have met or breached the terms of the agreement, without any judicial review.
124
Another problem with Deferred and Non-Prosecution
Agreements is that the DOJ does not require public disclosure
121
For example, Attorney General Paul McNulty promulgated significant changes to Deferred and Non-Prosecution Agreement procedures in a 2006
Memorandum. See supra notes 81-82.
122
See id.
; USAM, supra note 88, ch. 9-28.
123
S ERIOUS F RAUD O FFICE , A PPROACH OF THE S ERIOUS F RAUD O FFICE TO
D EALING WITH O VERSEAS C ORRUPTION 1 (2009) [hereinafter SFO Guide], available at http://www.sfo.gov.uk/media/28313/approach%20of%20the%20sfo%20to%20dealing%20 with%20overseas%20corruption.pdf.
124
Federal judges have oversight of plea agreements and charging decisions, however. Garrett, supra note 83, at 906. Judges can either accept or reject plea agreements, and can “examine voluntariness, factual basis, fairness, abuse of discretion, or infringement on the judge’s sentencing power” in their review. Id.
Although the “[f]ederal courts are more involved in reviewing plea bargains than charging decisions, . . . judges still remain highly deferential.” Id .

2010] IMPORTATION OF CORPORATE COMPLIANCE 327 of the terms of the agreements.
125 In the United States, some agreements have never been made public. The SFO has required slightly more disclosure, though not enough. The
Guide provides that after the corporation has come under investigation by the SFO and agreed to forfeit a specified amount to the government, the corporation must make a public statement.
126 While the SFO and the target entity must agree on the content of the public statement, the Guide does not describe what facts must be disclosed.
127 Indeed, very little has been disclosed by Balfour Beatty or the SFO in press releases, and the actual terms of the agreement are not public.
128
Another major criticism of Deferred and Non-
Prosecution Agreements in the United States is the inconsistency between agreements in different cases.
Inconsistency has resulted, in part, because “ninety-four
United States Attorney’s Offices and six divisions of Main
Justice” have the authority to enter into, and to set the terms of, Deferred and Non-Prosecution Agreements.
129 Inconsistency between agreements also results from the particular requirements and needs of the prosecutor. In many cases, the terms of an agreement “could very likely turn on the luck of the draw regarding which office happens to handle the prosecution.” 130
The SFO may be able to avoid this basic problem of inconsistency, as it is the only office thus far in the United
Kingdom that has entered into Compliance Agreements. This ensures that, at the very least, the prosecutor offering the agreement may be familiar with and have access to the terms of prior agreements. Whether or not the prosecutor chooses to follow the terms set forth in prior agreements, however, is within the discretion of the individual attorney, and thus agreements may still be inconsistent. Further, the SFO, unlike
United States Attorney’s Offices, uses contract attorneys who
125
See Spivak & Raman, supra note 80, at 180-81.
126
SFO G UIDE , supra note 123, at 3.
127
Id.
at 3-4.
128
See Balfour Press Release, supra note 110; SFO Press Release, supra note 111.
129
See Ridge & Baird, supra note 23, at 191.
130
Spivak & Raman, supra note 80, at 171-72. See id.
at 171-75 for a comparison of requirements in Deferred and Non-Prosecution Agreements issued by the SDNY and the District of New Jersey. Further complicating this issue in the
United States is that prosecutors at the state Attorney General’s offices also have authority to prosecute corporations and to enter into their own Deferred and Non-
Prosecution Agreements.

328 BROOKLYN LAW REVIEW [Vol. 76:1 conduct all Crown Court and appellate advocacy, including the preparatory work.
131 Contracting out cases to attorneys undermines the accountability of prosecutors and of the SFO as a whole, and it jeopardizes the continuity of knowledge and decision-making in both specific cases and the SFO’s prosecution practices in general.
132
By importing American procedures without improving upon them, the SFO is likely to face many of the same criticisms as the DOJ. The SFO’s refusal to provide uniform, codified guidance on the use and terms of these agreements is likely to result in uncertainty and inconsistency in different cases. The absence of judicial oversight leaves prosecutors with powerful tools that are unchecked and may be abused. The
SFO’s failure to require public disclosure also creates uncertainty among corporate directors in making risk assessments ex ante, which heaps substantial costs on companies, employees, and shareholders, and could present problems for attorneys and consultants who are often hired to advise on corporate compliance programs.
133
Despite these likely problems, policymakers at both the
DOJ and the SFO maintain that by providing only “general” guidelines on the terms of the agreements, prosecutors have the flexibility to tailor the agreements on a case-by-case basis and to experiment, which may over time lead to the emergence of best practices.
134 However, as shown in the past decade in the
United States, “best practices” are unlikely to emerge. Instead,
“best practices” simply become the most “common practices.” 135
131
DE G RAZIA , supra note 11, at 57. In 2006-2007, the SFO spent £4,227,000 on contract barristers alone. Id.
at 3. The Crown Court deals with more serious criminal cases, some of which are referred or on appeal from the Magistrates’ Court. Id.
at 120. Neither the DOJ nor any state prosecutors in the United States contract out any part of a prosecution. See id.
at 3, 57.
132
De Grazia suggested that the SFO cease using contract attorneys for this reason. See id. at 6-7.
133
Spivak & Raman, supra note 80, at 173. However, the failure to provide this guidance could have the opposite effect, making certain attorneys (such as ex-SFO staff) more valuable if they have internal, specific expertise about the SFO and its prosecutorial decision-making processes that is otherwise difficult to acquire.
134 id.
at 173-74.
135
See David Zaring, Best Practices , 81 N.Y.U. L.
R EV . 294, 294 (2006). “Best practices” with regard to regulations set forth by agencies, for example, often create harmonized practices rather than prompt regulators to develop alternatives. Id.
at 325.
And on a global level, “best practices” may simply become a tool of international harmonization. Id.
at 318-21.

2010] IMPORTATION OF CORPORATE COMPLIANCE 329
And the only consistent trait of Deferred and Non-Prosecution
Agreements is that they are inconsistent.
136
B. Limitations in Reporting Wrongdoing Despite
Incentivizing Corporations to Self-Police
One goal of Deferred and Non-Prosecution Agreements is to create incentives for corporations to self-police ex ante and thereby establish corporate cultures designed to deter employee misconduct. The DOJ achieves this goal by promising less punitive sentences if the target entity was found to have established an “effective” compliance program before the wrongdoing occurred.
137 Similarly, the SFO seeks to “bring about behavioral change within businesses themselves” by incentivizing corporations to establish voluntary compliance programs, designed and implemented by management, which set forth internal regulations and programs to assist compliance officers in self-policing.
138
The SFO creates these incentives by first recommending in the Guide that corporations have self-policing programs in place before ever coming under investigation.
139 The SFO also threatens higher sanctions if it discovers unlawful activity within the corporation without the assistance of the entity itself.
140 In such case, “[t]he prospects of a criminal investigation followed by prosecution and confiscation order are much greater, particularly if the corporat[ion] was aware of the problem and had decided not to self report.” 141
One common problem of both Deferred and Non-
Prosecution Agreements and Compliance Agreements is that even a corporation’s good faith effort to self-police may still lead to a failure of the corporation to report unlawful activity to the government. This may occur, for example, because the compliance officer failed to find the fraud despite a strong selfpolicing program. In this case, both the DOJ and the SFO
136 supra note 80, at 172-73; see also Finder et al., supra note 84, at 11-13 (discussing how Deferred and Non-Prosecution Agreements have changed over time with regard to the needs of the government in each case).
137 supra notes 87-89 and accompanying text.
138
SFO G UIDE , supra note 123, at 2.
139
See id. at 1-2.
140
Id .
141
Id.

330 BROOKLYN LAW REVIEW [Vol. 76:1 would hold the failure to self-report as a negative factor against the company.
142
The requirement that a corporation self-police and report the unlawful activity to the SFO in order to gain mitigation points creates unique problems in Britain. If a compliance officer detects that low-level employees, rather than the “directing mind and will” of the corporation, committed a crime, he may be eager to report to the SFO because the corporation itself will likely only face civil penalties. Such was the case in the Balfour Beatty investigation.
143 However, if the compliance officer anticipates that the corporation’s high-level employees, or the “directing mind and will” of the corporation, committed the crime, he may be reluctant to report to the SFO, knowing that the corporation would be more likely to face criminal charges. Compounding this problem is the fact that the SFO has not provided any guidance as to whether a corporation could gain mitigation credits for reporting wrongdoing if a criminal prosecution resulted from the investigation. As a result, the SFO’s policy to give credit to corporations that establish corporate compliance programs and self-police may only assist the SFO in identifying instances of wrongdoing by low-level employees, necessarily resulting only in civil penalties.
C. Uncertainty in the Application of the Compliance
Agreement Procedure
In the United States, Deferred and Non-Prosecution
Agreements can be used in response to any type of criminal activity. In Britain, Compliance Agreements have only been used in cases of foreign bribery, and then only in conjunction with CROs.
144 There is also no indication that the SFO would consider entering into a Compliance Agreement in a situation where the corporation could be held criminally responsible for violating a statute that provides a specific offense for corporations, such as the Corporate Manslaughter and
Corporate Homicide Act and the Bribery Act.
145
142
Id . at 8.
143
See
144
See supra Part III.B.
145
See supra Part II.A. In fact, the case of R v. Innospec Ltd.
, [2010] EW Misc.
(EWCC) 7 (Eng.), may prohibit the SFO from seeking a civil recovery where criminal penalty is possible. See supra notes 39-55 and accompanying text.

2010] IMPORTATION OF CORPORATE COMPLIANCE 331
If the recent history of corporate criminal prosecution in the United States is any prediction, it is likely that the SFO will increase its efforts to encourage companies to self-police for all types of criminal wrongdoing. Congress enacted the FCPA in 1977, which provided criminal sanctions for individuals who bribed public officials, and encouraged public companies to create and maintain records of the way that employees used corporate assets.
146 As a result of the passage of the FCPA, attorneys began advising corporate clients of the need to create and maintain “internal processes” designed to deter employees from acting in contravention of the statute.
147 As a result, most, if not all, American corporations have some kind of self-policing program in place that now detects a variety of employee misconduct.
148
Similarly, after the SFO’s positive response to Balfour
Beatty’s internal monitoring program that detected foreign bribery, British attorneys have begun to advise corporate clients of the increased need to establish internal processes designed to monitor all types of employee misconduct.
149 In addition, statutes such as the Corporate Manslaughter and
Corporate Homicide Act encourage corporations to self-police and report wrongdoing to the government.
150 Moreover,
146
See
147
Miriam Corporate Compliance , 50 B.C. L. Rev. 949, 962-
963 (2009).
148
See supra note 91 and accompanying text.
149
Client Alerts about the increased need for corporate compliance programs have been published by a number of international firms. See, e.g.
, The UK’s Serious
Fraud Office Announces Guide to Self-Reporting of Overseas Corruption by
Corporations , I NT ’ L R EG .
B ULL .
(Bryan Cave LLP), July 23, 2009, available at http:// www.bryancave.com/bulletins/list.aspx?Date=2009 (follow “The UK’s Serious Fraud
Office Announces Guide to Self-Reporting of Overseas Corruption by Corporations” hyperlink); The Criminalisation of Corporate Conduct , B RIEFING (Freshfields
Bruckhaus Deringer LLP), May 2009, available at http://www.freshfields.com/ publications/pdfs/2009/may09/25753.pdf; William Jacobson et al., Two Recent Cases
Show UK Is Active in Enforcement of Foreign Bribery Laws , F ULBRIGHT B RIEFING
(Fulbright & Jaworski LLP), Oct. 13, 2008, available at http://www.fulbright.com/ index.cfm?fuseaction=publications.detail&pub_id=3619&site_id=494&detail=yes; Sarah
E. Steicker & James T. Parkinson, US DOJ and SEC Aggressively Pursuing FCPA Cases;
SEC Forms Specialized FCPA Enforcement Unit , FCPA W ATCH (Mayer Brown LLP),
Aug. 20, 2009, available at http://www.mayerbrown.com/publications/article.asp?id
=7442&nid=6; see also Richard Alderman, Dir., Serious Fraud Office, Speech: Recent
Developments at the Serious Fraud Office (Sept. 10, 2009), available at http://www.sfo. gov.uk/about-us/our-views/speeches/speeches-2009.aspx (follow “Recent developments” hyperlink) (discussing the SFO’s plan to continue using Compliance Agreements).
150
The Corporate Manslaughter and Homicide Act provides that in considering the actions of corporations, the jury can evaluate “the extent to which the evidence shows that there were attitudes, policies, systems, or accepted practices within the organisation that were likely to have encouraged any such failure [of due

332 BROOKLYN LAW REVIEW [Vol. 76:1
Alderman has announced that he seeks to expand the use of
Compliance Agreements 151 and may do so by using those agreements in response to different kinds of misconduct.
Consequently, corporations are more likely to establish programs designed to deter all kinds of employee wrongdoing, and the SFO may increasingly consider these programs when evaluating the liability of the corporation and whether to pursue prosecution.
With policymakers in the United Kingdom importing procedures designed to effect corporate reform, multinational organizations face additional burdens. For example, differing substantive laws in various countries subject multinational corporations to different standards of liability and varying penalties. One pertinent example is the statutes governing foreign corruption in each jurisdiction which define bribery differently. Federal substantive law allows for facilitation payments, 152 while British law does not.
153 A compliance program in a multinational corporation would have to account for these differences. Facilitation payments are only one example of thousands of variations in the laws that could trigger liability in one jurisdiction but not the other. The converse is also true; unlawful conduct committed by employees in one office in a care] . . . or to have produced tolerance of it . . . .” Corporate Manslaughter and
Homicide Act, 2007 c.19, § 8(3)(a) (U.K.).
151
In April 2009, Alderman stated that the SFO was “already identifying cases where there is clear evidence to establish that property was obtained through unlawful conduct” such that a CRO could be issued. Richard Alderman, Dir., Serious
Fraud Office, Speech: The Changing Face of Fraud Trials (Apr. 30, 2009), available at http://www.sfo.gov.uk/about-us/our-views/speeches/speeches-2009.aspx (follow “The
Changing Face of Fraud Trials” hyperlink). As recently as July 15, 2010, Alderman stated that the SFO “remain[s] very committed to [its] guidance and to the use of civil recovery in appropriate cases” and that, in addition to issuing more CROs, “[t]here will be more prosecutions to follow.” Richard Alderman, Dir., Serious Fraud Office, Speech:
Eversheds Round Table Discussion (July 15, 2010), available at http://www.sfo.gov.uk/ about-us/our-views/speeches/speeches-20010.aspx (follow “Evershed Round Table
Discussion” hyperlink).
152
Facilitation payments assist a corporation in securing the issuance of work papers, police protection, mail delivery, electrical or plumbing services, or product clearance through customs. In order to qualify for exemption from liability, the payments must (1) “relate to a routine government action and be modest in amount,”
(2) the corporation must be able to show that the payment “affected the timing rather than the substance” of the government action, and (3) the corporation must be able to show that payment was required in order to protect against the destruction of an important commercial interest or risk to employees. Richard Alderman, Dir., Serious
Fraud Office, Speech: Talking Corruption with the SFO (Oct. 20, 2009), available at http://www.sfo.gov.uk/about-us/our-views/speeches/speeches-2009.aspx (follow “Talking
Corruption with the SFO” hyperlink).
153
Id.

2010] IMPORTATION OF CORPORATE COMPLIANCE 333 multinational corporation may subject it to further investigation and liability in multiple jurisdictions.
154
In addition, the SFO and the DOJ may not look to the same factors in evaluating the effectiveness of a compliance program. The SFO Guide states that prosecutors will examine a variety of enumerated factors, 155 while the USAM has no formulaic requirements. Further complicating the issue is that neither the DOJ nor the SFO will evaluate a corporation’s compliance program in advance of an investigation to give an opinion as to whether it would be viewed as “effective” in a later proceeding.
156 This leaves multinational corporations operating in both jurisdictions with different sets of vague standards by which to model their compliance programs.
V. S
UCCESSES OF
C
OMPLIANCE
A
GREEMENTS AND
S
UGGESTIONS FOR
I
MPROVING
D
EFERRED AND
N
ON
-
P
ROSECUTION
A
GREEMENTS
Despite the anticipated shortcomings of the Compliance
Agreement procedure, the SFO’s ability to achieve many of the same goals as American prosecutors by using a civil, rather than a criminal procedure may suggest ways to improve the
American system. At the very least, the British successes demonstrate an alternative method of achieving corporate reform and restitution after a finding of corporate misconduct.
154
See supra note 39-55 and accompanying text (discussing R v. Innospec
Ltd., [2010] EW Misc. (EWCC) 7 (Eng.) in which a subsidiary of Innospec Inc. came under investigation in the United Kingdom after the DOJ began investigating the parent company for foreign bribery).
155
In assessing whether the corporation has instituted an effective compliance program, the Guide states that prosecutors at the SFO will examine whether the corporation has a code of ethics; a statement of anti-corruption culture that is “fully and visibly supported at the highest levels;” individual accountability for wrongdoing; training mechanisms; regular checks and auditing in a “proportionate manner” to the activity being performed; a corporate helpline which enables employees to report concerns; and “appropriate and consistent disciplinary processes.” SFO G UIDE , supra note 123, at 7-8. The DOJ states that as long as the corporation’s program is not merely a “paper program,” it has no “formulaic requirements” for the program. USAM, supra note 88, § 9-28.800(B). In evaluating a corporation’s compliance system, federal prosecutors are instructed to evaluate whether the program is “well designed,” “applied earnestly and in good faith,” and whether the program “work[s].” Id.
156
The SFO does, in some instances, provide advisory opinions in advance of a transaction, as other regulatory bodies do in the United States and Britain. The SFO has stated that it will provide guidance in a situation where a corporation is proposing to take over another corporation, but during its due diligence, discovers evidence of overseas corruption, and the corporation seeks to understand what remedial measures the SFO would require if the transaction were to occur. SFO G UIDE , supra note 123, at 2. There is no indication that the SFO would provide an advisory opinion in any other circumstance.

334 BROOKLYN LAW REVIEW [Vol. 76:1
A. Limiting Adversarial Relationships Between
Corporations and Governments
Deferred and Non-Prosecution Agreements require the target corporation to cooperate with the government under threat of criminal prosecution. Thus, one criticism of these agreements is that they are inherently coercive and create adversarial relationships between the government and corporations operating in the United States.
157 In contrast,
Compliance Agreements do not threaten future sanction for a corporation’s failure to cooperate with the government.
Criminal prosecution can only result if evidence emerges during the investigation that the “directing mind and will” of the organization was engaged in unlawful conduct.
158 In fact, the SFO Guide does not describe the course of action that the
SFO would take if the target corporation failed to meet the terms provided in the Compliance Agreement.
Threat of criminal prosecution for noncompliance with the terms in a Deferred or Non-Prosecution Agreement may give corporations greater motivation to comply with the demands of the government in the United States than in the
United Kingdom. Some have argued that because the consequences of an indictment are so severe, business organizations will go to almost any length in order to appease the prosecutor.
159 This means that the government, in turn, can expect the target corporation to be amenable to virtually every demand it makes.
160 This is especially so because it is the
157
See Peter J. Henning, The Organizational Guidelines: R.I.P.?
, 116 Y ALE
L.J. 312 (Pocket Pt. 2007); see also Baer, supra note 147, at 949.
158
See supra note 35 and accompanying text.
159
Indeed, some have argued that an indictment is a “death-sentence” for a corporation, citing the indictment of Arthur Andersen for its role in the Enron scandal.
See, e.g.
, Spivak & Raman, supra note 80, at 165-66. When the government approached
Arthur Andersen with a Deferred Prosecution Agreement, it “refused initially to accept responsibility for its misconduct and would not agree to major structural reforms.” Id.
at 165. Negotiations finally “collapsed, principally because the company viewed prosecutors’ demands for cooperation as too onerous.” Id.
The company was then indicted and convicted, which “effectively put the eighty-nine-year old firm out of business and forced tens of thousands of people to find new jobs.” Id.
at 166 (quoting
Christopher A. Wray & Robert K. Hur, Corporate Criminal Prosecution in a Post-Enron
World , 43 C RIM .
L.
R EV .
1095, 1097 (2006)).
160 supra note 80, at 327. A DOJ official commented, “There’s a right way and a wrong way to respond when the government comes knocking at your door,” when comparing Arthur Andersen’s indictment to Merrill Lynch’s settlement agreement. Id.
(quoting John R. Emshwiller & Ann Davis, Merrill Takes Enron
Responsibility , W ALL S T .
J., Sept. 18, 2003, at A3).

2010] IMPORTATION OF CORPORATE COMPLIANCE 335 prosecutor who ultimately decides whether the entity has sufficiently met all the terms of the agreement.
161
Under this view, British Compliance Agreements, because they do not threaten criminal indictment, give target corporations less motivation to cooperate with the government.
However, cases like Balfour Beatty 162 and AMEC plc, 163 suggest that regardless of whether or not the threat of criminal indictment exists, corporations seek to comply with the government’s demands. Thus, the cooperation of a target entity need not be predicated upon the threat of future criminal prosecution. Instead, civil sanctions combined with Compliance
Agreements may achieve the same goals as Deferred and Non-
Prosecution Agreements, while diminishing the adversarial and coercive relationship between the government and corporations. British Compliance Agreements have the added benefit of giving a target entity greater ability to advocate for terms of an agreement in its favor and to negotiate with the government to find mutually acceptable remedial measures, thereby achieving one of the goals of both the DOJ and SFO— to create agreements that are flexible and individually tailored for each corporation.
164
161
See Griffin, supra note 80 at 320-21. However, some argue that the threat of criminal prosecution may not be as severe as some once believed. For example, a jury recently acquitted W.R. Grace, and three of its executives, which had been indicted for violating the Clean Air Act, 42 U.S.C. §§ 7401-7671 (2006), by releasing asbestoscontaminated vermiculite. Bob Van Voris et al., W.R. Grace Acquittal Clears Way for
End to 8-Year Bankruptcy , B LOOMBERG (May 9, 2009, 12:01 AM) http://www. bloomberg.com/apps/news?pid=newsarchive&sid=a6WFdRnfLuNE.
162 supra Part III.B.
163
In March 2008, AMEC reported to the SFO a finding of irregular payments which were made when the company was associated in a project in which it was a shareholder. Press Release, Serious Fraud Office, SFO Obtains Civil Recovery Order against AMEC plc. (Oct. 26, 2009) [hereinafter AMEC Press Release], available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/sfo-obtainscivil-recovery-order-against-amec-plc.aspx. The SFO determined that the unlawful conduct amounted to a failure to comply with section 221 of the Companies Act, 1985, c.40 (U.K). Id . AMEC agreed to pay £4,943,648 in restitution and pledged to improve their compliance procedure and appoint a monitor to report back to the SFO. Id .
164
Too little adversarialism comes with its own problems, however. Without some adversarial posture, prosecutors and regulators can become too lenient and can lose the “healthy dose of skepticism necessary to monitor and discipline” corporate actors.
Baer, supra note 147, at 981 (citing William Bratton, Enron, Sarbanes-Oxley and
Accounting: Rules Versus Principles Versus Rents , 48 V ILL .
L.
R EV . 1023, 1032 (2003)).

336 BROOKLYN LAW REVIEW [Vol. 76:1
B. The Ability of the SFO to Pursue Individual Corporate
Wrongdoers
Another goal of the federal government in entering into
Deferred and Non-Prosecution Agreements is the increased ability to pursue individual wrongdoers by obtaining additional information from the target entity.
165 However, Deferred and
Non-Prosecution Agreements have come under attack in recent years for including terms that require corporations to hand over privileged documents and that force employees to speak with prosecutors. In fact, because of United States v. Stein and internal DOJ responses to perceived prosecutorial overreaching, prosecutors are now limited in what they may demand from corporations during negotiations.
166 The DOJ may no longer compel a corporation to cease payment of promised attorneys’ fees to employees, and eligibility for cooperation credit can no longer be given solely based upon the corporation’s waiver of attorney-client privilege protection.
167
The DOJ may not request the disclosure of certain communications between employees and their attorneys or corporate counsel, including communications with attorneys that occurred prior to or at the time of the underlying conduct, 168 and it cannot request any “non-factual or core attorney work product.” 169 The limit in what prosecutors may now demand from a target corporation illustrates how coercive the investigations and negotiations can become.
The British procedure demonstrates that prosecutors may be able to pursue individual wrongdoers without the threat of criminal indictment. The SFO Guide provides that, in deciding whether or not to enter into a Compliance Agreement, prosecutors will evaluate whether the corporation “is prepared
165 supra note 80, at 329-32.
166
See note 82 and accompanying text. However, the limitations on the DOJ provided in the McNulty Memorandum as a result of United States v. Stein , 435 F. Supp.
2d 330 (S.D.N.Y. 2006), could be reduced or modified by subsequent memoranda as the guidelines are not statutorily codified. See supra notes 121-22 and accompanying text.
167 supra note 88, § 9-28.720 to 9-28.730.
168
This is limited to situations only with regard to communications between attorneys and individuals where the defendant has a “legitimate factual basis to support the assertion of the advice-of-counsel defense.” USAM, supra note 88, § 9-28.720.
169
“Non-factual or core-attorney work product” is defined, by way of example, as an attorney’s “mental impressions or legal theories.” Id.
The government may still compel the disclosure of records and witness testimony through subpoenas as it would in any other criminal investigation, thereby giving prosecutors the ability to obtain information from the corporation and individuals alike. Id.

2010] IMPORTATION OF CORPORATE COMPLIANCE 337 to work with [the SFO] on the scope and handling of any additional investigation [that the SFO] consider[s] to be necessary,” including taking “appropriate action . . . against individuals.” 170 In the investigation of AMEC for receipt of irregular payments and failure to comply with reporting standards in section 221 of the Companies Act, 171 the SFO entered into a Compliance Agreement and obtained a CRO that required the corporation to make a financial forfeiture, but the
SFO continued to investigate the individuals at AMEC because of their positions in the company.
172 The AMEC case was settled with respect to the corporation, which provided information about individual actors during the investigation, but a criminal investigation continued against individual employees.
173 The
SFO requested the relevant facts regarding the employee misconduct in order for the corporation to meet the terms of the
Compliance Agreement and gain mitigation points. However, there is no evidence that the SFO required the corporation to turn over privileged documents, or that employees were forced to speak with the government in order for the corporation to meet the terms of the agreement. The AMEC investigation demonstrates that the threat of criminal prosecution may not be necessary in order for the government to pursue its goals, including the goal of securing information about individual actors. And in fact, the SFO may have more flexibility in requesting certain documents and interviews because the investigation into the corporation’s activities is civil, rather than criminal in nature.
C. The Benefits of “Light Touch” Monitoring
Another goal of the government in entering into
Deferred and Non-Prosecution Agreements is the ability to
170
SFO G UIDE , supra note 123, at 3-4. In determining possible criminal charges against individuals, the SFO will examine to what extent they were involved in the unlawful activity, what action the entity has taken with respect to them, and whether the individuals benefitted, and were continuing to benefit financially from the unlawful conduct. Id.
171
Companies Act, 1989, c.40, § 221(1) (governing accounting records).
172
Richard Alderman, Dir., Serious Fraud Office, Speech: The 4th ICAC
Symposium (Dec. 15, 2009), available at http://www.sfo.gov.uk/about-us/our-views/ speeches/speeches-2009.aspx (follow “The 4th ICAC Symposium” hyperlink); see also
AMEC Press Release, supra note 163.
173 supra note 172. This is dissimilar from the case of Balfour Beatty, where the SFO concluded that the responsible individuals were no longer employed by the company and ceased further investigation. See Alderman, supra note 12.

338 BROOKLYN LAW REVIEW [Vol. 76:1 require corporate wrongdoers to retain a monitor whose
“primary responsibility should be to assess and [to] review a corporation’s compliance with those terms of the agreement that are specifically designed to address and [to] reduce the risk of recurrence of the corporation’s misconduct.” 174
In the United States, the imposition of a monitor of the government’s choosing has been a source of significant criticism of Deferred and Non-Prosecution Agreements. The first denunciation of monitors came after United States Attorney and subsequent governor of New Jersey, Christopher J.
Christie, awarded his former boss, Attorney General John
Ashcroft and his consulting firm, the Ashcroft Group, a multimillion dollar contract to monitor Zimmer Holdings, a medicalsupply company that had come under investigation for paying kickbacks to doctors.
175 As a result, the DOJ distributed the
Morford Memorandum in March 2008, which set forth guidelines for prosecutors in requiring corporations to hire a monitor.
176 The Morford Memorandum suggests that now, where a prosecutor requires a target corporation to hire a monitor, the corporation must be allowed to select the individual, subject to veto by the prosecutor, or, where a prosecutor feels that he must play a “greater role” in the
174
Memorandum from Craig S. Morford, Acting Deputy Att’y Gen., on
Selection and Use of Monitors in Deferred Prosecution Agreements and Non-
Prosecution Agreements with Corporations to Heads of Dep’t Components & U.S.
Attorneys 5 (Mar. 7, 2008), available at http://www.justice.gov/dag/morford-useof monitorsmemo-03072008.pdf. Despite the insistence by federal prosecutors that target corporations hire a monitor, some argue that monitors have not been successful in reducing corporate misconduct nor have they helped shareholders by improving corporate performance. See Jayne W. Barnard, Corporate Therapeutics at the Securities and Exchange Commission , 73 C OLUM .
B US .
L.
R EV . 793, 833-34 (2008) (stating that the most recent studies find “no significant correlation” between monitors and the reduction in corporation misconduct (citations omitted)). An extreme example of the failure of monitors to reduce corporate misconduct came in the case of Bristol-Myers
Squibb. The company was charged by the SEC in 2004 with various accounting frauds and agreed to appoint a monitor who was given the responsibility of reviewing the accounting practices of the corporation. Press Release, SEC, Bristol-Myers Squibb
Company Agrees to Pay $150 Million to Settle Fraud Charges (Aug. 4, 2004), available at http://www.sec.gov/news/press/2004-105.htm; see also Barnard, supra , at 835. Three years later, despite the fact that the appointed monitor was “a former United States
Attorney and a retired federal judge,” the company was charged with “inflating its drug prices on bills to for insurers and government agencies” and, later, for entering into “a secret non-compete agreement [with a competitor].” Barnard, supra , at 835-36 (citing
Sue Reisinger, Doctor’s Orders , C ORP .
C OUNSEL (Oct. 1, 2007), http://www.law.com/jsp/ cc/PubArticleCC.jsp?id=900005491068).
175
Philip , N.Y. T IMES ,
Jan. 10, 2008, at A1.
176
Morford note 174.

2010] IMPORTATION OF CORPORATE COMPLIANCE 339 selection of a monitor, he should consider at least three qualified candidates.
177
The SFO noted the intense criticism of monitors in the
United States and instituted a policy of “light touch” monitoring, whereby a target corporation may nominate a monitor, subject to veto by the SFO.
178 With the use of British
Compliance Agreements, both the method for choosing the monitor and the responsibilities of the monitor exist independent from the threat of criminal prosecution. Thus, the corporation may have a greater ability to negotiate the length of time that a monitor is required, the person who fills this seat, and the breadth and scope of the monitor’s review.
D. Predictability in Required Restitution
The final major goal of the government in entering into a Deferred or Non-Prosecution Agreement is to secure an agreement that the target corporation will pay restitution, often in excess of the actual value of the corporation’s wrongdoing. Financial restitution under Deferred and Non-
Prosecution Agreements is designed in part to serve the criminal law goals of general and specific deterrence and retributivisim; however, the penalties that are now imposed on corporations by prosecutors are “more a matter of bargaining before charges are ever filed, and less an analysis of the proper punishment” of a target corporation’s misconduct.
179 This punishment falls upon innocent shareholders, creditors, and clients, who ultimately pay the fines.
British Compliance Agreements, however, do not themselves support payment of a fine by the target corporation.
Rather, the government must obtain a CRO in order to collect financial restitution.
180 These orders are statutorily capped at the amount equal to the proceeds that the corporation obtained through unlawful activity plus costs.
181 The CRO is also subject to judicial oversight.
182 The statutory cap and the role that judges play in reviewing the fines sought by the government
177
Id.
at 3-4.
178
SFO G UIDE , supra note 123, at 6.
179 supra note 157, at 315.
180
See supra Part III.B.
181
See supra notes 108-09 and accompanying text.
182
See supra note 124 and accompanying text.

340 BROOKLYN LAW REVIEW [Vol. 76:1 provide the target entity with some predictability and relative fairness in the fines levied upon it for its wrongdoing.
In adopting Compliance Agreements that work in conjunction with civil statutes, the SFO has made some improvements to the American procedure. The successes of both the Balfour Beatty and AMEC cases demonstrate that the threat of criminal indictment may be unnecessary in many cases to achieve corporate reform and appropriate sanctions.
The SFO has, with the establishment of Compliance
Agreements, attempted to work within the confines of the substantive laws to strike a compromise between the coercive nature of Deferred and Non-Prosecution Agreements and the inadequacy of government regulation that previously existed in
Britain. Further, the substantive corporate criminal laws in
Britain as they presently exist, strike a balance between the overly expansive application of corporate criminal liability in the United States and the elimination of corporate criminal liability altogether.
C ONCLUSION
A comparison of the corporate criminal laws and procedures in the United States and United Kingdom leads to a larger question of whether a corporation, as an entity, should be subject to criminal prosecution for the actions of its employees. Punishing corporations often does not discipline the entity as a whole, which acts only through individual employees, but rather harms the people associated with the corporation whose guilt remains unproven. The substantive criminal laws in Britain, as they stand, may attain a balance between the vast potential liability for the entity in the United
States for virtually any misdeed of an employee and the elimination of corporate liability altogether. British law reflects the notion that corporations should not be held criminally liable unless the entity, at its highest level of management, was responsible for the wrongdoing. This stringent standard leaves culpability in place for corporations that are, at their core, mismanaged and severely corrupt, 183 while removing the threat of criminal prosecution for corporations that are
183
A recent example might be American International Group (AIG) and the dishonest financial practices initiated under Hank Greenberg, AIG’s CEO, particularly in reference to the extremely risky trading in derivatives by its financial products unit that subsequently caused its collapse.

2010] IMPORTATION OF CORPORATE COMPLIANCE 341 managed responsibly, but mistakenly employ errant employees. While British Compliance Agreements may fall victim to many of the same criticisms as American Deferred and Non-Prosecution Agreements, they achieve many of the same goals of prosecutors in the United States without producing coercive and adversarial relationships between the government and target corporations.
With the British importation of American corporate compliance procedures, the world’s two leading financial centers are aligning their interests to fight corporate crime.
These developments create a stronger, more intrusive international corporate compliance regime by incentivizing corporations, directly or indirectly, to adopt programs designed to ward off internal misconduct. The result is that most, if not all, public corporations, regardless of a threat of future indictment, will establish some internal monitoring processes, if they have not yet done so. This creates an unprecedented international system of corporate compliance quasi-regulation.
But, by largely mimicking the procedures of the United States, the SFO is abandoning an opportunity to develop a better system than the one that presently exists. This may lead to an international system of corporate compliance based upon common, rather than best practices. Policymakers in both the
United States and the United Kingdom should examine these developments and reevaluate their own procedures accordingly.
Jessica Naima Djilani †
†
J.D. Candidate, Brooklyn Law School, 2011; B.A. Hamilton College 2006. I wish to thank Professor Miriam H. Baer for her invaluable feedback and guidance in writing this note, and Professor Aliza Kaplan for her assistance and encouragement. I also wish to thank current and former members of the Brooklyn Law Review , especially
Nick Kaluk, Sarah White, Sasha Linney, Jameson Dempsey, Tammy Linn, and Andrei
Takhteyev for their tireless efforts in editing this note. I am forever grateful for and indebted to my parents, Lamine and Adrienne Djilani, and my brother, Michael
Djilani, for their love and endless support.

In the early morning of June 27, 2005, Captain
Sellathurai Mahalingam was at the helm of the MV Semlow , a fifty-eight-meter-long cargo ship owned by the Kenya-based
Motaku Shipping Agency.
1 The ship, chartered by the United
Nations, was thirty nautical miles off the coast of Somalia and contained 850 tons of rice for the victims of the December 2004 tsunami.
2 Suddenly, three small skiffs appeared, fired at the ship, and forced it to stop.
3 At that point, somewhere between fifteen and twenty emaciated Somalis armed with pistols, AK-47s, and rocket-propelled grenade launchers boarded the ship.
4 The pirates looted the captain’s safe and the crewmembers’ valuables and forced the ship to sail 100 miles northeast to the Somali capital of
Mogadishu.
5 There, Captain Mahalingam was forced to call the ship’s owner and demand a ransom of $500,000.
6 Two months later, the crew, still in captivity, witnessed the hijacking of an
Egyptian ship before the crews of both ships were again forced to sail elsewhere.
7 Finally, the pirates were paid $135,000 ransom, and all the hostages were released unharmed.
8
This horrific scene of raiding, looting, and hostagetaking has become increasingly common across the globe, but especially in the Gulf of Aden, off the Somali coast.
9 The combination of a failed government in Somalia, a depleted
1
Peter Lehr & Hendrick Lehman, Somalia—Pirates New Paradise , in
V IOLENCE AT S EA : P IRACY IN THE A GE OF G LOBAL T ERRORISM 1, 1-3 (Peter Lehr ed.,
Routledge 2007); Edward Harris, U.S. Navy Muscles In on Old Foe: Pirates; Operations
Off Africa Reflect Growing Threat , W ASH .
P OST , Nov. 11, 2007, at A19.
2
Lehr Lehman, note 1, at 2.
3
Id.
4
Id.
5
Id.
6
Id.
7
Id.
at 3.
8
Id.
9
Abukar Albadri & Edmund Sanders, Somalia’s Pirate Problem Grows More
Rampant , L.A.
T IMES , Oct. 31, 2008, at A1, available at http://articles.latimes.com/
2008/oct/31/world/fg-pirates31.
343

344 BROOKLYN LAW REVIEW [Vol. 76:1 regional fishing industry, and a close proximity to significant shipping lanes makes the Somali coast a hotbed for pirate activity.
10 Indeed, in a nation with a per-capita GDP of $600 and an average male life expectancy of forty-seven, the
$150,000 payout for a single hijacking is a lucrative alternative to poverty.
11 As one hijacker admitted, “[w]hen evil is the only solution[,] you do evil.” 12 The result has been an explosion of pirate raids on commercial vessels.
13 While multinational naval forces in the Gulf of Aden thwarted some pirate attacks, there were a staggering 214 attacks and 74 hijackings in 2009.
14 The number of reported pirate incidents has decreased slightly in
2010.
15 Between January and June of 2010, there were 196 reported incidents, compared to 240 over the same period in
2009.
16 At any rate, those 196 reported incidents included 31 hijackings, and resulted in 16 injuries, 1 death, and 597 crewmembers taken hostage.
17
In addition to the substantial threat to human life, piracy has cost shipping companies between $13 billion and
$16 billion.
18 In 2008 alone, insurance costs for shipping companies increased ten-fold.
19 In December 2009, pirates claimed they received a $4 million ransom payment from the
Chinese government.
20 One maritime security firm explained that, if left unaddressed, the costs of piracy to shipping
10
Id.
11
Eugene of Somalia , 13 A M .
S OC .
I NT ’ L L.
I NSIGHTS 2 (Feb. 6, 2009), available at http://www.asil. org/insights090206.cfm.
12
James Kraska & Brian Wilson, Piracy Repression, Partnering and the Law ,
40 J.
M AR .
L.
& C OM . 43, 44 (2009).
13
Albadri Sanders, note 9.
14
Record Number of Somali Pirate Attacks in 2009 , N.Y.
T IMES , Dec. 30, 2009, at A9 (quoting statistics from the International Maritime
Bureau’s Piracy Reporting Center as of Dec. 29, 2009), available at http://www. nytimes.com/2009/12/30/world/africa/30piracy.html.
15
Pirates Face New Resistance as Navies Strike Back, Says IMB , ICC C OM .
C RIME S ERVICES (July 15, 2010), http://www.icc-ccs.org/index.php?option= com_content&view=article&id=418:pirates-face-new-resistance-as-navies-strike-backsays-imb&catid=60:news&Itemid=51 [hereinafter Pirates Face New Resistance ].
16
Id.
17
Id.
18
Kraska & Wilson, supra note 12, at 45.
19
Jerry Seper, Blackwater Joins Fight Against Sea Piracy , W ASH .
T IMES ,
Dec. 4, 2008, at B1, available at http://washingtontimes.com/news/2008/dec/04/ blackwater-joins-fight-against-sea-piracy.
20
Corey Flintoff, A Record Year for Pirate Attacks , N AT ’ L P UB .
R ADIO (Dec. 30,
2009), http://www.npr.org/templates/story/story.php?storyId=122066185. The Chinese government described the return of the ship as a “rescue.” Id.

2010] UNCHARTED WATERS 345 companies will only increase.
21 These costs, including added danger payments for crew members, higher ransom payments, and prolonged negotiations for hijacked ships, will lead to increasing prices for consumers.
22 Although these costs are significant, maritime security commentators warn that pirate attacks remain too rare to generate meaningful attention from the governments of the world.
23 In fact, less than one percent of all ships traveling through the Gulf of Aden is attacked by pirates.
24 As such, at least in the short term, it will be left up to private sector firms to protect their ships, their cargo, their crew, and their bottom line.
This note will examine two distinct contexts in which the private sector will have to combat the threat of piracy and the complex legal framework in which it must operate. Shipping companies should—and can—minimize the threat of piracy to commercial vessels while also taking adequate precautions to prevent both criminal and civil liability. States may also utilize private security companies to hunt down piracy without diverting important military resources.
Part I of this note addresses the shortcomings of state protection against pirates and the need for the private sector to take a more active role in securing the high seas. Part II examines the rights and responsibilities of shipping companies in fighting piracy. Finally, Part III considers the possibility of using private security contractors to hunt down pirates and the potential liabilities for these firms.
I. P UTTING THE B URDEN ON THE P RIVATE S ECTOR
A. Ancient
For centuries, combating piracy was substantially the prerogative of states.
25 Since Ancient Roman times, pirates were deemed “common enemies of mankind” and were subject to universal jurisdiction.
26 Some of the earliest known legal references to pirate raids date back to Justinian’s Digest in 529
21 supra note 19 .
22
Id.
23
See Dennis M. Zogg, Why the U.S. Navy Should Not Be Fighting Piracy off
Somalia (May 1, 2009) (unpublished manuscript) (on file with Joint Military
Operations Dep’t, Naval War College).
24
Id.
25
Max Then and Now , F OREIGN A FF ., July/Aug. 2009, at 94, 99.
26
Id.
at 99.

346 BROOKLYN LAW REVIEW [Vol. 76:1
AD.
27 In 1698, Great Britain became the first nation to specifically criminalize piracy.
28 The rise of global commerce and exploration made piracy as relevant as ever.
29 As the
Spanish explored and colonized the New World, they sent naval convoys across the Atlantic twice a year with their acquired treasures.
30 Merchant ships not protected by the fleet sailed at their own risk.
31 One of these ships, seized by Sir Francis
Drake, was worth $18 million in today’s currency.
32
The United States, most notably, dealt with piracy in the late eighteenth and early nineteenth centuries in the North
African Barbary States.
33 The pirates, sanctioned by the
Barbary States, posed such a threat to American merchant ships that the U.S. government entered into agreements to give ships safe passage in exchange for goods and cash.
34 For example, an agreement made in 1795 transferred $1 million in goods and cash to the government of Algiers.
35
By 1801, President Jefferson recognized that “nothing will stop the eternal increase of demands from these pirates but the presence of an armed force.” 36 The U.S. Navy fought the pirates until 1815, when the Barbary States finally agreed to stop attacking American ships—a concession that had been made to the British and French decades earlier.
37
27
Zou , 8 C HINESE J.
I NT ’ L L. 323, 323 (2009); see also 1 T HE D IGEST OF J USTINIAN , Book 13, para. 18 (Alan
Watson ed. 1998).
28
Keyuan, supra note 27, at 323.
29
See Douglass C. North, Sources of Productivity Change in Ocean Shipping,
1600-1850 , 76 J.
P OL .
E CON . 953 (1968).
30 supra note 27, at 323.
31 supra note 25, at 100.
32
Id.
33
Id.
at 102.
34
Id.
35
Treaty of Peace and Amity, U.S.-Algiers, Sept. 5, 1795, 2 U.S.T. 275. The treaty stated in relevant part:
[I]f war vessels or merchant vessels belonging to our friend the American ruler meet on the open sea with war vessels or merchant vessels belonging to
Algiers, and they become known to each other, they shall not be allowed to search or to molest each other, and that none shall hinder the other from wending its own way with honor and respect. Also, that whatever kind of travelers there are on board, and wherever they go with their goods, their valuables, and other properties, they shall not molest each other or take anything from each other, nor take them to a certain place and hold them up, nor injure each other in any way.
Id.
36 supra note 25, at 102.
37
Id.

2010] UNCHARTED WATERS 347
B. Lowering the Ship’s Guard
From the sixteenth to late eighteenth century, adequate ship defenses were a necessary cost for shipping companies.
38
Ships would be armed like warships, with extra personnel and weaponry to fend off pirate attacks.
39 In the early nineteenth century, these companies began to rethink arming their ships because of several factors.
40 First, as competition among shipping companies increased during the Industrial Revolution, speed became a premium, and companies could not afford to weigh down their ships with ammunition and extra personnel.
41
Furthermore, busier shipping lanes patrolled by a strong British
Navy led to a global decline in piracy.
42 As a result, ships began to disarm, carrying fewer personnel and armaments.
43 As
Professor Douglass C. North, formerly of the University of
Washington, observed, the increased security of shipping routes led to a steady decrease in maritime insurance rates, labor costs, and ammunition costs.
44 He further noted that, in areas such as the West Indies, lingering piracy threats continued to translate into higher costs to shipping companies.
45
Shipping companies’ decisions to disarm their ships in favor of lower costs and increased efficiency became the norm from the nineteenth century until recently.
46 Except during wartime, few ships carried armed guards or even ammunition.
47
The recent reemergence of pirates as a threat to merchant vessels has forced shipping companies to once again consider arming their ships.
48 While shipping companies were initially hesitant, more and more have armed their ships because of the insufficient
38
John W. Miller, Loaded: Freighters Ready to Shoot Across Pirate Bow ,
W ALL S T .
J., Jan. 6, 2010, at A9, available at http://online.wsj.com/article/
SB126265833983415885.html.
39
Id.
; see also North, supra note 29, at 960.
40
See Miller, supra note 38.
41
Id.
42
Will Terrorism Defeat Globalization?
, in N O M ORE S TATES ?
G LOBALIZATION , N ATIONAL S ELF DETERMINATION , AND T ERRORISM 36 (Richard N.
Rosecrance & Arthur A. Stein eds., 2006).
43 supra note 29, at 960.
44
Id .
45
Id.
at 959-60.
46 supra note 38.
47
Id .
48
Id.

348 BROOKLYN LAW REVIEW [Vol. 76:1 international response to piracy and recent reductions in insurance premiums for ships that carry armed guards.
49
International
The reemergence of piracy, especially the high-profile taking of the U.S.-flagged MV Maersk Alabama , has drawn some response from the international community.
50 The United
Nations, for example, has passed resolutions on the matter, and many of the world’s navies have devoted resources to the
Gulf of Aden.
51 Despite these measures, pirate attacks remain a considerable threat.
52 As such, shipping companies, particularly in the short term, must not rely on governmental entities to keep their ships safe.
53
In the Gulf of Aden, warships from the United States,
United Kingdom, Russia, China, India, South Korea, and several other nations have been deployed to fight piracy.
54 For the most part, these multilateral efforts are controlled by the U.S.
Combined Task Force 151 and the European Union’s Operation
Atalanta .
55 The U.S. Navy has established a “Maritime Security
Patrol Area,” a heavily patrolled area that merchant vessels are encouraged to navigate.
56 In addition to military collaboration, the United Nations has taken a leading role in coordinating global antipiracy policy through the International Maritime
Organization (IMO).
57 The IMO is an United Nations entity with
168 member nations whose mission includes global coordination
“for legal issues, technical co-operation, and maritime security including anti-piracy efforts.” 58
In 2008, the United Nations Security Council (“Security
Council”) passed four resolutions that were significant to nations fighting piracy.
59 Most notably, these resolutions allowed states to enter the territorial waters of Somalia and
49
Id.
50
See Zogg, supra note 23, at 7-8.
51
Id.
52
Id.
53
Id.
at 9-12.
54
Id.
at 1.
55
Id.
at 8.
56
Id.
at 10.
57
L AUREN P LOCH ET AL ., C ONG .
R ESEARCH S ERV ., R40528, P IRACY O FF T HE
H ORN OF A FRICA 18 n.41 (2009).
58
Id.
59 supra note 23, at 7.

2010] UNCHARTED WATERS 349 urged states to commit naval vessels and aircraft to the Somali region.
60 The Security Council’s resolutions certainly laid important groundwork for nations to combat piracy.
61 Still, the resolutions only “urged” nations to commit resources to the fight against piracy.
62 As Lieutenant Daniel Zogg of the U.S.
Naval War College points out, there is presently little incentive for nations to do more to fight piracy.
63
Lieutenant Zogg suggests that pirate attacks remain a very rare phenomenon and will not receive the requisite attention necessary to provide optimal security, especially without a connection to terrorist groups.
64 Less than one percent of all ships traveling through the world’s hot spot for piracy is attacked, and the $16 billion lost annually is a drop in the multi-trillion-dollar bucket that is international shipping.
65
The overall effectiveness of naval patrols is a problem in itself.
66
Patrol ships must cover 1.1 million square miles of ocean and must be able to respond to a hijacking within fifteen minutes,
60
Id.
(quoting S.C. Res. 1816, ¶ 7(a), U.N. Doc. S/RES/1838 (June 2, 2008);
S.C. Res. 1838, ¶ 2, U.N. Doc. S/RES/1838 (Oct. 7, 2008); S.C. Res. 1846, ¶ 15, U.N.
Doc. S/RES/1846 (Dec. 2, 2008); S.C. Res. 1851, ¶ 6, U.N. Doc. S/RES/ 1851 (Dec. 16,
2008)). Zogg summarized the resolutions as such:
UNSCR 1816 (June 2, 2008) authorized . . . [other states] to “enter the territorial waters of Somalia for the purpose of repressing acts of piracy and armed robbery at sea.”
UNSCR 1838 (October 7, 2008) urged “states interested in the security of maritime activities to take part actively in the fight against piracy on the high seas off the coast of Somalia, in particular by deploying naval vessels and military aircraft.”
UNSCR 1846 (December 2, 2008) extended by twelve months the authorization initially established under UNSCR 1816 for foreign countries to pursue pirates into Somalia’s territorial waters. It also urged all “parties to the [1988] SUA [Suppression of Unlawful Acts Against the Safety of
Maritime Navigation] Convention to fully implement their obligations under said Convention . . . to build judiciary capacity for the successful prosecution of persons suspected of piracy and armed robbery at sea off the coast of
Somalia.”
UNSCR 1851 (December 16, 2008) authorized for a period of twelve months states to “undertake all necessary measures that are appropriate in Somalia,” essentially paving the way for attacks against piracy infrastructure ashore.
Id.
(footnotes omitted) .
61
Id.
62
Id.
63
Id.
64
Id.
65
Id.
at 2.
66
Id.
at 9.

350 BROOKLYN LAW REVIEW [Vol. 76:1 the time it generally takes to hijack a ship.
67 The Navy has projected that it would take sixty-one ships to adequately patrol a small corridor within the pirates’ operational space—a dramatic increase from the twelve to sixteen ships that currently patrol the corridor.
68 While the current naval presence in the Gulf of Aden has lead to a slight decrease in pirate incidents, pirates have proven to increase their operational capabilities to up to 1000 nautical miles off the
Somali coast, and their reach continues to grow.
69 In 2009, the
International Maritime Bureau reported twenty-eight attacks off the coast of Nigeria, 70 and in July 2010, pirates attacks were reported north of the naval patrols’ reach in the Red Sea.
71
In addition to encouraging nations to join the fight against piracy, the Security Council resolutions made one mention of shipping companies.
72 Resolution 1846 urges shipping companies, nations, and the International Maritime
Organization to advise ships on “best practices” in dealing with pirate attacks.
73 The International Maritime Bureau—a nonprofit organization not affiliated with the IMO—suggests that these practices include:
[R]eview of the ship’s security plan (SSP), crew briefing and drills regarding emergency measures, an emergency communication plan, additional security watches, group transits, transits as far from territorial waters as possible, daytime transits through high-risk regions, as well as myriad practices in the event that an attack occurs.
74
Still, these suggestions are merely guidelines and, like any Security Council resolution, they are not binding on the shipping private sector.
75 In short, absent a dramatic change in international policy, shipping companies will retain great
67
Id.
Zogg’s 1.1 million square mile figure refers to the area in which the
Somali pirates have displayed operational success. Id.
68
Id.
at 11.
69
Pirates Face New Resistance , supra note 15.
70
Jon Gambrell, Nigeria: 12 Foreign Sailors Kidnapped by Pirates ,
A SSOCIATED P RESS (July 3, 2010), http://www.google.com/hostednews/ap/article/
ALeqM5jFgtdm4PvHOfaFjZnYMcaAmrfvgD9GNJRVG2.
71
NATO Fears Somali Pirates Moving to South Red Sea ,
A SSOCIATED P RESS (July 21, 2010), http://www.google.com/hostednews/ap/article/
ALeqM5gB7YMEDuCwwY9ncDOtPAkEI4-H2wD9H3I9884.
72
Michelle Nakamura, Piracy off the Horn of Africa: What is the Most
Effective Method of Repression?
9 (May 4, 2009) (unpublished manuscript) (on file with
Joint Military Operations Dep’t, Naval War College).
73
Id.
at 9-10.
74
Id.
75
Id.

2010] UNCHARTED WATERS 351 responsibility and broad discretion in securing their ships against pirate attacks.
II. T HE S HIPPING C OMPANY
While the international community struggles to craft policies to stabilize Northern Africa and eradicate piracy, it is clear that shipping companies will primarily be responsible for keeping their ships safe. Piracy has cost shipping companies, cargo owners, and ship owners billions of dollars over the last decade.
76 Pointing out the numerous costs and considerations facing shipping companies, practitioner D. Joshua Staub writes in the Journal of Maritime Law and Commerce ,
If a shipping line must take a route around the Cape of Good Hope instead of through the Suez Canal, it will incur additional annual costs of $89 million. War risk insurance premiums for vessels transiting the Gulf of Aden could reach as much as $400 million per annum. A Saudi oil tanker forced to travel to the United States by way of the Cape of Good Hope will reduce its annual delivery capacity by 26% and expend an additional $3.4 million per year to bring its payload to market. These examples do not include emotional damages to hostages and their families, or special damages from loss of use of impounded vessels, lost cargo, ransom payments, difficulty in retaining mariners or increased cost of goods for consumers.
77
Shipping companies cannot ignore these observations. As pirates become stronger, bolder, and acquire more resources, shipping corporations will continue to pay a high cost of doing business. The decision to pay ransoms, the hiring of private security, and the adoption of increased safety precautions represent three complex legal issues that shipping companies must face in fighting piracy.
A. Ransoms
Unlike their predecessors, pirates of the twenty-first century do not have the capability or the desire to plunder the cargo of the hijacked ships.
78 Their true capabilities lie not in
76
See supra note 12 and accompanying text.
77
D. Joshua Staub, Letters of Marque: A Short Term Solution to an Age Old
Problem , 40 J. M AR .
L.
& C OM .
261, 262-63 (2009).
78
James W. Carbin, Pirates: Hostis Humanis Generis , 56 F ED . L., Sept. 2009, at 50, 55.

352 BROOKLYN LAW REVIEW [Vol. 76:1 the capture of ships but in the negotiations that follow.
79 In fact, by 2009, ransoms paid for the release of cargo and crew approached $50 million.
80 These payments have become so commonplace that they are factored into the general calculation of a ship’s liability.
81 Like other liabilities, ransom payments are paid from a ship’s general average.
82 The recent spike in piracy has required some carriers, cargo owners, and others who contribute to a ship’s general average to seek additional protection through insurance.
83 Kidnapping and ransom (“K&R”) policies are now being extended to ships and their crew with rates increasing substantially.
84 The payment of ransoms has become not only a general practice for shipping companies, but also a business in itself.
85
Ransom payments by private parties to pirates remains legal practice in countries such as the United States and Great
Britain.
86 The British legal system acknowledged the payment of ransoms as early as 1590.
87 In Hicks v. Palington Moore’s , the court held that a ransom paid voluntarily by a master to ransom a ship and its cargo can and should be paid from the ship’s general average.
88 Similarly, in the American legal tradition, James Carbin, a maritime law practitioner who advises shipping companies on paying pirate ransoms, points out, “The U.S. Supreme Court cited [ Hicks ] with approval in
Ralli v. Troop . . . , and subsequent authorities have followed the analysis. Indeed, the Digest of Justinian , Rhodian Law , and Consolado Del Mare , which cover the sixth through the
[fifteenth] centuries A.D., appear to endorse ransom as a
General Average expense.” 89
79
Id.
80
Id.
at 54.
81
Id.
82
Hull Insurance and General Average—Some Current
Issues , 83 T UL .
L.
R EV . 1227, 1261 (2009). The doctrine of General Average is defined as “a rule allowing a carrier to require cargo owners and the shipowner to contribute pro rata to the cost of protecting the ship and its cargo.” B LACK ’ S L AW D ICTIONARY 518
(8th ed. 2004).
83 supra note 82, at 1260.
84
Id . at 1259.
85
Id. at 1259-60.
86
See Fred C. Ikle & Stephen G. Rademaker, Coddling Pirates Aids
Terrorists , W ASH .
T IMES (Jan. 11, 2009), http://www.washingtontimes.com/news/2009/ jan/11/coddling-pirates-aids-terrorists.
87
Hicks v. Palington, (1590) 72 Eng. Rep. 590 (K.B.).
88
Id .
89 supra note 78, at 54 (citation omitted).

2010] UNCHARTED WATERS 353
While paying ransoms has become common practice, commentators have indicated that refraining from doing so could actually deter piracy.
90 Following the capture of a Saudi supertanker in November 2008, British Foreign Secretary
David Miliband stated,
There is a strong view of the British Government, and actually the international community, that payments for hostage-taking are only an encouragement to further hostage-taking and we will be approaching this issue in a very delicate way, in a way that puts the security and safety of the hostages to the fore.
91
Former American policymakers Fred C. Ikle and Stephen G.
Rademaker suggest an international regime to prevent payment of pirate ransoms.
92 They point to United Nations
Security Council Resolution 1373, which outlaws any financial support to terrorists and terrorist organizations.
93 Of course, this ban, along with the American policy of not negotiating with terrorists, applies only to state actors.
94 As the U.S.
Department of State makes clear, “U.S. Government policy is to make no concessions to terrorist demands. However, such a decision on the part of private individuals or companies is a personal one and in some special circumstances may be made by the family or company of the victim.” 95 Thus, companies, as private actors, can choose whether to pay the ransoms.
96
On its face, an international ban on paying pirate ransoms seems to be an important step in combating piracy.
97
Still, there are several problems with such a policy. Most strikingly, the payment of ransoms often makes good business
90
See, e.g
., Ikle & Rademaker, supra note 86; Michelle Caruso-Cabrera, A
Sure-Fire Cure for Pirate Hijackings , CNBC N EWS (Apr. 8, 2009), http://www. cnbc.com/id/30109142.
91
Xan Rice & Matthew Weaver, Sirius Star Pirates Demand $25m Ransom ,
G UARDIAN (Nov. 20, 2008), http://www.guardian.co.uk/world/2008/nov/20/piracy-somalia; see also Brent Lang, Gates: Stop Paying Ransom to Pirates , CBS N EWS (Apr. 17, 2009), http://www.cbsnews.com/blogs/2009/04/17/politics/politicalhotsheet/entry4952864.shtml
(reporting on United States Secretary of Defense Robert Gates’ speech to the United
States Naval War College in which he referred to corporations paying pirate ransoms as “part of the problem”).
92
Ikle Rademaker, note 86.
93
S.C. Res. 1373, U.N. Doc. S/RES/1373 (Sept. 28, 2001).
94
The United States Department of State re-affirmed this posture in a report by its Overseas Security Advisory Council. U.S.
D EP ’ T OF S TATE O VERSEAS S EC .
A DVISORY C OUNCIL , S ECURITY A WARENESS O VERSEAS : A N O VERVIEW (1991), available at http://www.state.gov/documents/organization/19792.pdf.
95
Id. at 13-14.
96
Id . at 14.
97
See P LOCH ET AL ., supra note 57, at 10-11.

354 BROOKLYN LAW REVIEW [Vol. 76:1 sense for a corporation.
98 As the Congressional Research Service points out, shipping corporations today will often secure insurance policies that will cover ransom payments in the event of a hijacking.
99 As such, these costs may be considerably lower than the cost of securing a vessel against pirate attacks.
100
Such costs could include rerouting ships, arming the vessel, and hiring private security.
101 Defending the ship or counting on naval assistance also greatly increases the risk to the cargo and to human life.
102 However, to date, few pirate attacks in the Gulf of Aden have turned deadly.
103 Among the most notable casualties was the owner of a French sailboat who was killed in a gunfight between pirates and the French Navy.
104
Furthermore, the negotiated ransom is often minute compared to the substantial value of a ship’s cargo.
105 The owners of the aforementioned supertanker, MV Sirius Star (carrying oil valued at $100 million), agreed to pay a ransom of $3 million to the pirates.
106
As such, in the short term, many shipping companies will continue to consider paying pirate ransoms.
107 However, as the Wall Street Journal points out, increases in pirate attacks, ransom amounts, and insurance costs have forced many companies to reconsider defending their ships.
108 More and more, companies are looking to private security and additional safety measures instead of acquiescing to the pirates.
109
B. Hiring Private Security
1. A Growing Industry
Though the threat of piracy is a danger, it has not escalated to a point that would dramatically increase naval
98
Id.
at 11.
99
Id.
at 10-11.
100
Id.
at 11.
101
Id.
at 10-11.
102
Id.
at 11.
103
Id.
at 8.
104
Id. at 9.
105
Id. at 11; Miller, supra note 38.
106
See supra note 78 and accompanying text; Saudi Tanker ‘Freed Off
Somali , ’ BBC N EWS (Jan. 9, 2009), http://news.bbc.co.uk/2/hi/africa/7820311.stm.
107 supra note 38.
108
Id.
109
Id.

2010] UNCHARTED WATERS 355 presence in the Gulf of Aden.
110 As such, shipping companies have increasingly relied on private contractors to provide security for their ships and cargo.
111 The U.S. State Department observed that
“[i]n appropriate circumstances, onboard armed security, private or military, can provide an effective deterrent to pirates in the
Horn of Africa region for certain vessels deemed to be at high risk.” 112 Professor Claude Berube of the U.S. Naval Academy theorizes that private contractors may be used in two distinct contexts.
113 First, private contractors can be hired by shipping companies to provide security on board their ships.
114 Second, private contractors can be commissioned by the government to hunt down pirates.
115 The former is quickly becoming a common practice for pirate-plagued shipping companies.
116
While some states have resorted to placing naval personnel on private ships, most shipping companies have turned to private security contractors.
117 This practice is far from new.
118 In the days of the British Empire, the British East
India Company regularly subcontracted the protection and transport of goods to armed merchant ships.
119 In the twentyfirst century, an entire industry is devoted to maritime security.
120 Among the companies in this growing industry is
110
See supra notes 23-24 and accompanying text.
111
Splashing, and Clashing, in Murky Waters: Piracy and Private Enterprise ,
E CONOMIST , Aug. 22, 2009, at 53. [hereinafter Splashing, and Clashing ].
112
Id.
113
Blackwaters for the Blue Waters: The Promise of Private
Naval Companies , 51 O RBIS 601, 607, 609 (2007).
114
Id . at 609.
115
Id . at 608. See infra Part III for a discussion of private pirate hunters.
116 supra note 38. Many shipping companies have been advocating the use of private contractors only if the United States Government is unable to provide armed military escorts for its ships. Currently, the Department of Defense has declined to provide individual escorts for American-flagged ships. See Piracy Against United
States-Flag Vessels: Lessons Learned: Hearing Before the Subcomm. on Coast Guard &
Mar. Transp. of the H. Comm. on Transp. & Infrastructure , 111th Cong. 2 (2009)
(statement of the American Maritime Officers; International Organization of Masters,
Mates, & Pilots; Marine Engineers’ Beneficial Association; and Seafarers International
Union), available at http://transportation.house.gov/Media/file/Coast%20Guard/2009
0520/industry%20testimony.pdf; Id.
(statement of Arthur J. Volkle, Jr., Vice President of American Cargo Transport, Inc.), available at http://www.marad.dot.gov/documents/
Testimony-Arthur_Volkle,Jr-American_Cargo_Transport.pdf [hereinafter Volkle Statement]
(“Historically, the primary mission of the Navy has been the protection of U.S. merchant shipping, and we believe that that mission is as important today as it was when the Navy responded to the last major threat of piracy against our ships 200 years ago.”).
117
See Splashing, and Clashing , supra note 111.
118 supra note 113, at 611.
119
Id .
120
Splashing, , supra note 111.

356 BROOKLYN LAW REVIEW [Vol. 76:1
British-based Eos Risk Management, which claims to have fended off fifteen attacks between January and August of
2009.
121 Eos, like most private contractors, employs ex-military personnel, often with strong naval experience.
122 Their personnel is instructed to use non-lethal defenses, such as earpiercing acoustic weaponry and high-pressured water hoses, to repel pirate attackers.
123 Security companies are hesitant to use lethal force, because it could cause pirates to better arm themselves and thus escalate hostilities.
124 Moreover, as the
United Kingdom-based Olive Group explained, pirate contacts in African ports can warn their comrades of which ships have security and should be avoided.
125 Many firms share the view of
Virginia-based Securewest International that the mere presence of contractors can scare away pirates.
126 While this view has been the norm, more companies are considering the presence of armed guards.
127
Following its high-jacking in April 2009, the MV Maersk
Alabama turned to an armed security team.
128 Only seven months later, the ship was again attacked 300 miles off the
Somali coast.
129 This time, the contractors were able to successfully repel the attack.
130 Slow, bulky ships, like the MV
Maersk Alabama , are coming to realize that armed guards are an effective option.
131 Insurance companies are providing further incentive.
132 Companies such as Hiscox, Ltd. are offering fifty-percent reductions in shipping-company insurance rates to those that contract for armed security.
133 In fact, these trends have led to new strategic partnerships between insurance brokers and maritime security firms. One of the world’s largest
121
Id .
122
Id . France-based Secoplex and California-based RSB International are also providing security on ships in East Africa and Southeast Asia. Id.
123
Id .
124
Miller, supra note 38.
125
Case Study #3: Dealing with Piracy at Sea , S ECUREWEST I NT ’ L , http://www.securewest.com/pg/case_study_3.ikml (last visited Oct. 3, 2010); Private
Security Firms Join Battle Against Somali Pirates , F OX N EWS ( Oct. 26, 2008), http://www.foxnews.com/story/0,2933,444103,00.html.
126
See sources cited supra note 125 .
127 supra note 38.
128
Id.
129
Id.
130
Id.
131
Id.
132
Id.
133
Id.

2010] UNCHARTED WATERS 357 insurance brokers, Marsh, has partnered with maritime security firm, REDfour, offering clients discounts in both insurance coverage and security services, when purchased together.
134
Blackwater Worldwide, 135 which came to prominence for its controversial role in providing security services for the
United States in Iraq, has also found opportunity in armed security.
136 Rather than provide armed guards on merchant vessels, the company purchased and retro-fitted an 183-foot research vessel with “state-of-the-art navigation systems,” advanced communication systems, helicopters, a hospital, and a highly trained crew of forty-five.
137 The ship, named the
MacArthur , will offer patrols and security for its clients in lieu of armed guards aboard the merchant vessel.
138
The U.S. Maritime Administration, within the
Department of Transportation, recently released an advisory that makes several recommendations when considering the use of private security forces.
139 Most significantly, shipping companies must consider the legality of having armed security forces aboard and bringing them into foreign ports.
140 Under
American law, shipping companies are permitted to employ armed guards on ships. Section 383 of title 33 of the United States
Code, titled “Resistance of Pirates by Merchant Vessels,” states,
The commander and crew of any merchant vessel of the United
States, owned wholly, or in part, by a citizen thereof, may oppose
134
Press Release, Marsh and REDfour Team to Help Shipowners Address
Risks Associated With Piracy Attacks in Gulf of Aden (Oct. 9, 2009), available at http://global.marsh.com/news/press/pr20091009.php. Eos Risk Management has also partnered with kidnap and ransom insurance firms and has launched a “High Risk
Premium Discount Programme.” The program similarly purports to give shipping companies a 50% discount on insurance premiums. Press Release, Leading Insurer
Reduces High Risk Transit Premiums for Eos Clients (Jan. 10, 2009), available at http://www.eosrisk.com/news.php?Leading-Insurer-Reduces-High-Risk-Transit-Premiumsfor-Eos-Clients&news_id=1254348236.
135
In 2009, Blackwater Worldwide changed its name to “Xe” in an effort to shift its business focus. Dana Heddgpeth, Blackwater Sheds Name, Shifts Focus ,
W ASH .
P OST (Feb. 14, 2009), http://www.washingtonpost.com/wp-dyn/content/article/
2009/02/13/AR2009021303149_pf.html. For ease of reference, the company and its subsidiaries will be referred to as “Blackwater” henceforth.
136 supra note 19 .
137
Id.
138
Id.
139
Advisory, U.S. Maritime Admin., Maritime Advisory 2009-07 (Sept. 9, 2009), available at http://www.marad.dot.gov/new_room_landing_page/maritime_advisories/ advisory/advisory2009-07.htm.
140
Id.
In the United States, there is no express ban on armed personnel aboard a ship. In fact, the advisory suggests that ship owners consider using armed and unarmed guards. Id. ¶ 7(d).

358 BROOKLYN LAW REVIEW [Vol. 76:1 and defend against any aggression, search, restraint, depredation, or seizure, which shall be attempted upon such vessel, or upon any other vessel so owned, by the commander or crew of any armed vessel whatsoever, not being a public armed vessel of some nation in amity with the United States, and may subdue and capture the same; and may also retake any vessel so owned which may have been captured by the commander or crew of any such armed vessel, and send the same into any port of the United States.
141
The U.S. Supreme Court examined this statute in the classic piracy case, The Marianna Flora .
142 Writing for the Court,
Justice Story held that “[p]irates may, without doubt, be lawfully captured on the ocean by the public or private ships of every nation; for they are, in truth, the common enemies of all mankind, and, as such, are liable to the extreme rights of war.” 143 Other nations, including Spain, have also passed laws that explicitly allow ships to carry armed guards.
144 Meanwhile, nations such as Malaysia and Indonesia have outlawed the use of armed guards and have stated that these guards would be subject to arrest if found in territorial waters.
145 Armed guards traveling through the territorial waters of Singapore are required to disassemble and lock their weapons.
146 While hiring armed guards is becoming a more accepted practice, shipping companies face three legal hurdles in employing armed guards—weapons exportation laws, command and control issues, and potential liability for defending the ship.
2. Regulation of Armed Guards a. “Weapons Trafficking”
While their cargo might not be weaponry, ships carrying armed guards are subject to both international and domestic weapons-trafficking laws.
147 Because shipping companies have increasingly turned toward private contractors, the U.S. Coast
141
33 U.S.C. § 383 (2006).
142
24 U.S. (11 Wheat.) 1 (1826).
143
Id . at 19 (emphasis added).
144
Martin Roberts, Spain Allows Armed Guards on Ships in Danger Zones ,
R EUTERS (Oct. 30, 2009), http://www.reuters.com/article/idUSLU707043.
145
Private Security Companies in the Fights Against Piracy in
Asia 6-7 (Asia Research Ctr., Working Paper No. 120, 2005), available at http:// wwwarc.murdoch.edu.au/wp/wp120.pdf.
146
Id.
at 7.
147
Port Security Advisory (4-09)(rev 2), United States Coast Guard, Restrictions for U.S.-Flagged Vessels (Nov. 4, 2009), available at http://www.simsl.com/Loss-Prevention/
USCGPSA409Rev2.pdf [hereinafter Nov. 4, 2009 Port Security Advisory].

2010] UNCHARTED WATERS 359
Guard (“Coast Guard”) has issued an advisory about compliance with American firearms laws.
148 While armed guards are not “importing” and “exporting” their firearms to be sold in port, American flagged vessels must comply with
American domestic law, including the Gun Control Act of
1968 149 and the National Firearms Act, 150 as well as the
International Traffic in Arms Regulations (ITAR) set forth by the Departments of State and Justice.
151 Shipping companies can comply by applying for a temporary export license, which allows the ship to import and export approved weapons for a four-year period and does not permit the transfer of weapons to other individuals.
152 Armed guards could also carry their weapons under a personal-use exception of ITAR; however, this alternative severely limits the quantity of guns and ammunition that could be carried, and the exception would need to be reissued upon each entry.
153
Still, as the Coast Guard admits, this is far from the only obstacle to importing weapons.
154 In addition to American law, shipping companies must comply with state and local laws as well as the laws of foreign ports.
155 In testifying before the
House Subcommittee on the Coast Guard and Maritime
Transportation, Arthur J. Volkle, Jr., Vice President of
America Cargo Transport, Inc., 156 explained that varying restrictions and prohibitions in domestic and foreign ports creates a significant burden on shipping companies.
157
Domestically, Volkle points out that temporary export permits are “impossible” to get, as they require authorization from all of the ports to which the ship will be traveling.
158 As a result, vessels have the burden of constantly applying for personal effects exemptions for each of their armed guards.
159
Internationally, the lack of uniformity in the rules and
148
Id.
149
18 U.S.C. §§ 921-931 (2006).
150
26 U.S.C. §§ 5801-5822 (2006).
151
Nov. 4, 2009 Port Security Advisory, supra note 147.
152
Id.
153
Id.
; see also 22 C.F.R. § 123.17 (2009) (the ITAR personal use exception).
154
Nov. 4, 2009 Port Security Advisory, supra note 147.
155
Id.
156
America Cargo Transport Corp. is a United States-based shipping company.
157
Volkle Statement, supra note 116, at 2-5.
158
Id.
at 3.
159
Id.

360 BROOKLYN LAW REVIEW [Vol. 76:1 regulations of foreign ports overburdens the companies, and regulatory violations can delay the unloading of a vessel.
160
To address these problems, Volkle advocates several policy recommendations. Most notably, the United States, according to Volkle, should broker agreements with foreign governments that set forth uniform rules for the entry of ships with armed guards.
161 In the interim, the United States should provide a clear list of the various requirements of foreign states for the entry of arms.
162 Finally, Volkle asserts that there should be new regulations and procedures for licensing private security contractors and allowing them to carry firearms on board.
163 These are worthwhile recommendations that would better equip the private sector to combat piracy while not requiring further commitment of military assets. b. Command and Control
Once the private contractors are on the vessel, for whom do they work? As most advocates for arming merchant ships would agree, shipping companies do not want to arm their own crews, but instead hire a private, third party to defend their ships.
164 As such, there is currently some ambiguity in exactly who is in control of the private contractors once the vessel is at sea.
165 In choosing to deploy their weapons, contracts with private security firms often only require the security force to consult the ship’s captain “if there is time.” 166 Otherwise, the decision when to deploy and use weapons lies with the contractors.
167 This outcome directly conflicts with the longstanding tradition of the supremacy of the captain while a ship is at sea.
168 The International Convention for the Safety of
Life at Sea (SOLAS), Regulation 34-1 states,
160
Id.
at 2-5.
161 at 2-3.
162
Id.
at 3.
163
Id.
at 4.
164 at 2-3; see also Confronting Piracy off the Coast of Somalia: Hearing
Before S. Comm. on Foreign Relations , 111th Cong. 5-6 (2009) (statement of Richard
Phillips, Captain of the MV Maersk Alabama ).
165
Piracy: Issues Arising from the Use of Armed Guards , I NCE L AW .
COM (Sept. 2009), http://www.incelaw.com/documents/pdf/Strands/Shipping/Article/Piracy-issues-arising-fromthe-use-of-armed-guards.
166
Id.
167
Id .
168
Id.

2010] UNCHARTED WATERS 361
The owner, the charterer, the company operating the ship as defined in Regulation 1X/1, or any other person shall not prevent or restrict the master of the ship from taking or executing any decision which, in the master’s professional judgment, is necessary for the safety of life at sea and protection of the marine environment.
169
Testifying before the Senate Foreign Relations Committee,
Richard Phillips, captain of the hijacked MV Maersk Alabama expressed concern with this conflict. He observed,
[V]ery clear protocols would have to be established and followed. For example, as a captain, I am responsible for the vessel, cargo and crew at all times, but I am not comfortable giving up command authority to others, including the commander of a protection force.
In the heat of an attack, there can be only one final decisionmaker.
170
Indeed, issues of command and control are crucial and without
Congressional regulations, shipping companies must be careful in contractually ceding control from their captains to security contractors. c. Limiting Liability for Defending the Ship
Related to command and control, shipping companies and individual private contractors’ liability can stem from defending a ship. The U.S. House of Representatives is currently considering a bill that would limit liability for owners, captains, and mariners for their actions during a pirate attack. Introduced by Representative Lobiondo in July
2009, the bill currently states,
An owner, operator, time charterer, master, or mariner who uses force, or authorizes the use of force, to defend a vessel of the United States against an act of piracy shall not be liable for any injury or death caused by such force to any person participating in the act of piracy.
171
While it is perhaps unlikely for pirates to sue ships for the injuries, this bill is clear evidence that Congress recognizes that it can be good policy for ships to employ private security.
Indeed, the deterrent provided by private contractors not only lessens the burden on the U.S. Navy, but it also keeps insurance costs down, protects mariners, and decreases the
169
M.S.C. Res. 153(78), Annex 3, Rep. of the Int’l Mar. Org., May 20, 2004, available at http://www.unhcr.org/refworld/pdfid/432aca724.pdf.
170
Confronting Piracy off the Coast of Somalia: Hearing Before S. Comm. on
Foreign Relations , 111th Cong. 5-6 (2009).
171
United States Mariner and Vessel Protection Act of 2009, H.R. Res. 3376,
111th Cong. § 2 (2009).

362 BROOKLYN LAW REVIEW [Vol. 76:1 likelihood of paying ransoms. Of course, this bill does not relate to injuries sustained by shipping company employees as a result of pirate attacks.
172
C. Potential Civil Liability for Shipping Companies
Traveling through pirate-infested waters can also mean substantial civil liability for a corporation. Following the hijacking of the MV Maersk Alabama , the ship’s cook, Richard
E. Hicks, brought suit against the ship’s owner, Maersk Line
Ltd., and his employer, Waterman Steamship Corporation.
173
Claiming that the defendants failed to take adequate precautions when sending the ship through the Gulf of Aden,
Hicks sought $75,000 for his injuries and his apprehension about returning to work.
174 Hicks sued for negligence under the
Maritime Transportation Security Act of 2002, 175 the Jones
Act, 176 as well as general maritime and common law.
177 Hicks’ broad spectrum of claims is clear evidence that shipping companies must be aware that potential liability—and limits in liability—for a pirate attack can come from several sources of law. Three notable statutes of which shipping companies should be aware are (1) the Maritime Transportation Security Act of
2002 and (2) the Jones Act—both of which were pleaded in the
Hicks case—and (3) the Shipowner’s Limited Liability Act.
1. Maritime Transportation Security Act of 2002
The Maritime Transportation Security Act (MTSA) is a comprehensive piece of legislation that sets forth a host of responsibilities not only for ship owners and mariners, but also for the Coast Guard and U.S. Department of Homeland
172
Id.
173
Sailor Sues Owner of Pirated U.S. Ship , MSNBC.
COM (Apr. 27, 2009), http://www.msnbc.msn.com/id/30438990/wid/17621070. Waterman is a contracting company which provides crewmembers for shipping companies. Id.
174
Id.
175
46 U.S.C. §§ 70101-70121 (2006).
176
46 U.S.C. §§ 12101-12152 (2006) (formerly cited as 46 U.S.C. § 688; also referred to as The Merchant Marine Act of 1920).
177
Plaintiff’s Original Petition and Jury Demand at 1-2, Hicks v. Waterman
Steamship Corp. (Dist. Harris Cnty. Tex., Apr. 27, 2009), No. 2009-26129. Hicks originally brought suit in this court, but the case was removed to the United States
District Court for the Southern District of Texas by defense motion. Hicks moved for remand back to Harris County, which was granted on September 16, 2009. Notice of
Removal, Hicks v. Waterman Steamship Corp. (S.D. Tex. Sept. 16, 2009), No. H-09-
1601.

2010] UNCHARTED WATERS 363
Security.
178 Ship owners are required to take certain measures, including: designating security officers for the vessel and company; overseeing proper personnel training; and ensuring vessel records are kept.
179 They must also conduct a Vessel
Security Assessment (VSA) and make a Vessel Security Plan
(VSP) that must be approved by the Coast Guard.
180 Approved vessels are certified with an International Ship Security
Certificate.
181 Finally, the MTSA holds owners responsible for compliance with Coast Guard directives relating to incident reporting as well as safety and security checks.
182
Noncompliance with these regulations can carry a
$25,000 per day civil penalty and can also leave a corporation vulnerable to negligence claims, as seen in Hicks .
183 Maritime negligence claims are similar to those on land. A plaintiff has the burden of showing four elements: (1) “[t]he existence of a duty” that imposes a legal obligation on a person “to protect others from unreasonable risks”; (2) a “breach of that duty by engaging in conduct that falls below the applicable standard or norm”; (3) a “reasonably close causal connection between the offending conduct and the resulting injury,” i.e., proximate causation; and (4) injury to the plaintiff.
184
Antonio J. Rodriguez, a former U.S. Naval captain and a current maritime law practitioner, observed that violations of the MTSA could be considered a breach of the standard to
“protect others from unreasonable risks” and lead to liability.
185
Judge Learned Hand’s opinion in The TJ Hooper is a seminal case in maritime negligence law and is the leading authority on the widely accepted negligence rules relating to industry safety practices.
186 In The TJ Hooper , two tug boats were deemed
178
Antonio
Transportation Security Act and Potential Vessel Owner Liability to Third Parties
Resulting from a Terrorist Attack , 17 U.S.F.
M AR .
L.J.
241, 251-52 (2005).
From the corporate perspective, the act incorporates a number of principles already set forth by the International Maritime Organization in its International Ship and Port Facility
Security Code. Id.
179
Id. (citing 33 C.F.R. § 104 (2003) (implementing regulations for the
Maritime Transportation and Safety Act of 2002, 46 U.S.C. §§ 70101-70121)).
180
Id.
at 252.
181
Id.
182
Id.
183
Hicks v. Waterman Steamship Corp. (Dist. Harris Cnty. Tex., Apr. 27,
2009), No. 2009-26129; 46 U.S.C. § 70103(a).
184
See Rodriguez, supra note 178, at 256.
185
Id.
186
J OHN C.P.
G OLDBERG ET AL ., T ORT L AW : R ESPONSIBILITIES AND R EDRESS
184 (2d ed. 2008).

364 BROOKLYN LAW REVIEW [Vol. 76:1 negligent and responsible for the loss of two barges when the tugs traveled into a storm without radios, which would have warned them of the storm.
187 While having radios on board was not an accepted industry custom at the time, Judge Hand held that “proper diligence” would have led the tugs to equip their ships with the proper safety precautions (i.e., radios).
188 He noted further that regardless of how persuasive an industry usage, an industry may not establish its own tests for proper diligence.
189 Instead, courts are required to make an objective determination of reasonable diligence.
190
In addition to negligence claims, Rodriguez also notes that violations of MTSA regulations could create grounds for negligence per se claims.
191 As explained by the Third
Restatement of Torts, a defendant is negligent per se when he
“violates a statute that is designed to protect against the type of accident [his] conduct causes, and if the accident victim is within the class of persons the statute is designed to protect.” 192
As such, a seaman’s injury that stems from a shipping company’s violation of the MTSA would likely meet this definition, and the company could be deemed negligent even if it was acting reasonably.
193 Conversely, full compliance with
MTSA regulations and possession of a valid International Ship
Security Certificate could be considered prima facie evidence that the vessel fulfilled its duty of care.
194
In the context of claims arising from pirate attacks, as seen in the Hicks case, the MTSA regulations in question will focus on shipping companies’ adequate safety precautions.
195 As the MTSA includes several provisions for ship security, a plaintiff—likely a shipping company employee—could make a substantial case for per se negligence.
196 Even if the ship has a valid International Ship Certificate, a plaintiff can look for a
187
60 F.2d 737, 740 (2d Cir. 1932).
188
Id.
189
Id.
190
Id.
191
Id.
; see also R ESTATEMENT (T HIRD ) OF T ORTS § 14 (Proposed Final Draft No.
1, 2005) (defining per se negligence, “An actor is negligent if, without excuse, the actor violates a statute that is designed to protect against the type of accident the actor’s conduct causes, and if the accident victim is within the class of persons the statute is designed to protect.”).
192
R ESTATEMENT (T HIRD ) OF T ORTS § 14.
193
See Rodriguez, supra note 178, at 261.
194
Id.
at 256.
195
Id.
at 261.
196
Id.

2010] UNCHARTED WATERS 365 shipping company’s noncompliance with Coast Guard directives relating specifically to ships traveling in high-risk waters.
197 As mentioned above, violations of Coast Guard directives are deemed violations of the MTSA.
198 Among these directives is MARSEC 199 Directive 104-6 (Rev. 2), which was issued following the capture of the MV Maersk Alabama . This directive requires ship owners that travel in high-risk waters to undertake specific planning to deter and repel pirate attacks.
200 A shipowner’s plan must include: a. Hardening the vessel against intrusions. b. Non-lethal methods of repulsing intruders. c. Ship operations & maneuvers to evade attack. d. Communications procedures: Internal protocol for internal shipboard communications & external communications before, during and after the incident. e. Protection of the crew. f. Procedures to take if the ship’s security is compromised. g. Procedures for crew in hostage situations. h. Company policy/procedures for confronting intruders.
201
Ships must also travel within certain protected corridors of the
Gulf of Aden and provide voyage plans to regional Coast Guard liaisons.
202 While not required, ships are also advised to establish “safe havens” in which the crew can take refuge during an attack.
203 Also, a ship may rig its hull with nets, soap, or barbed wire to make it difficult to scale.
204
In the case of the MV Maersk Alabama , a Vessel Safety
Plan was submitted by Maersk to the Coast Guard that included many antipiracy procedures and was ultimately approved.
205 While Hicks has yet to be decided, this certainly
197
Id.
198
See supra note 179.
199
“MARSEC” refers to the Coast Guard’s Maritime Security Levels and relate to pre-planning based on increased threat levels. U.S. Coast Guard Maritime
Security (MARSEC) Levels , U.S.
C OAST G UARD , http://www.uscg.mil/safetylevels/ whatismarsec.asp (last visited Oct. 3, 2010).
200
Port Security Advisory (2-09), United States Coast Guard (May 22, 2009)
[hereinafter May 22, 2009 Port Security Advisory]. The text of MARSEC Directive 104-
6 (Rev. 2) is not readily available to the public. Port Security Advisory (2-09) was released to the public to supplement the directive and gives an overview of the more detailed document.
201
Id.
202
Id .
203
Id .
204
Id .
205
Memorandum and Order, Hicks v. Waterman Steamship Corp. (S.D. Tex.
Sept. 16, 2009), No. H-09-1601.

366 BROOKLYN LAW REVIEW [Vol. 76:1 would make a showing of per se negligence based on a violation of the MTSA less likely. Still, Hicks can prevail under a
“standard” negligence formulation, as Judge Hand applied in
The TJ Hooper .
206 This requires the plaintiff to convince a jury that the ship owner knew or should have known that the security measures, approved by the Coast Guard, were insufficient to prevent his injury.
207
2. The Jones Act
While the MTSA provides a host of rules and regulations intended to protect the ship, crew, and cargo, the
Jones Act was intended specifically to ensure shipping companies provide safe working conditions for seamen.
208 Under the Act, “a seaman injured in the course of employment” can bring a civil claim against his employer. Specifically,
A seaman injured in the course of employment or, if the seaman dies from the injury, the personal representative of the seaman may elect to bring a civil action at law, with the right of trial by jury, against the employer. Laws of the United States regulating recovery for personal injury to, or death of, a railway employee apply to an action under this section.
209
The Fifth Circuit in Myles v. Quinn Menhaden Fisheries, Inc. held that an action under the Jones Act requires “a finding both of negligent breach of duty and proximate cause.” 210 While this ruling might sound like a standard common law formulation of negligence, the Supreme Court has made clear that, in passing the Jones Act, “Congress did not mean that the standards of legal duty must be the same by land and sea.” 211 In fact, the employer’s duty will be construed liberally under the
Jones Act.
212
In the context of piracy, the Jones Act puts a heavy burden on the seaman’s employer to provide a safe working environment.
213 The adequacy of the safety precautions in place
206
See The TJ Hooper, 60 F.2d 737, 739 (2d Cir. 1932).
207
Id.
at 740.
208
Bertrand v. Int’l Mooring & Marine, 700 F.2d 240, 245 (5th Cir. 1983), cert. denied , 464 U.S. 1069 (1984).
209
46 U.S.C. § 30104 (2006).
210
302 F.2d 146, 150 (5th Cir. 1962).
211
Cortes v. Baltimore Insular Line, 287 U.S. 367, 377-78 (1932).
212
Koehler v. Presque-Isle Transp. Co., 141 F.2d 490, 491 (2d Cir. 1944).
213
It is important to point out that the Jones Act provides a cause of action against the seaman’s employer and not necessarily the ship owner. In the Hicks case,

2010] UNCHARTED WATERS 367 will likely determine whether the burden is met. It is likely that the satisfaction of MTSA standards will provide at least a framework for the reasonableness of the precautions. Beyond protecting the physical well-being of the crew, the Jones Act also opens the door for lawsuits relating to emotional distress.
As the complaint in Hicks stated, “[p]laintiff sustained and suffered physical pain, mental anguish .” 214
Emotional distress stemming from raids on the high seas is a fairly unexplored area of the law.
215 In 1975, when the
SS Mayaguez was hijacked by the Khmer Rouge off the coast of
Cambodia, members of the crew sued their employer, the ship’s owner, for negligent infliction of emotional distress.
216 The crew claimed that the ship was negligently piloted too close to the
Cambodian coast.
217 The ship’s insurance carrier agreed to pay the crew without litigating.
218 While the case of the SS
Mayaguez was never litigated, recent developments in negligence law would likely have given the crew a cause of action. In Consolidated Rail Corp. v. Gottshall , the Supreme
Court determined the standard for evaluating claims for negligent infliction of emotional distress under the Federal
Employer’s Liability Act (FELA).
219 The court rejected the
“physical impact” test, which only allowed collection of emotional damages for negligence when it was accompanied by bodily injury.
220 Instead, the court adopted the “zone of danger” test, which imposes liability not only if there is bodily injury, but also when the defendant’s conduct puts the plaintiff in
“immediate risk of physical harm.” 221
The Ninth Circuit, in Chan v. Society Expeditions, Inc.
, addressed claims of negligent infliction of emotional distress in the Jones Act claim was only against employer Watermen Steamship Corp. and not against ship owner Maersk Lines Ltd. See Memorandum and Order, supra note 205, at
5 (“The Jones Act provides for negligence remedies in cases where an employeremployee relationship exists, while other maritime causes of action, such as seaworthiness, create alternative and additional theories of liability.”).
214
Plaintiff’s Original Petition and Jury Demand, supra note 177, at 3-4
(emphasis added).
215
Eric
Political Violence , 16 U.S.F.
M AR .
L.J. 61, 73 (2004).
216
Id.
at 73, 80.
217
Id.
at 80.
218
Id.
219
45 U.S.C. §§ 51-60 (2006). “FELA” imposes liability to railroads when their workers are injured on the job. Consolidated Rail Corp. v. Gottshall, 512 U.S. 532, 541-
42 (1994).
220
Gottshall , 512 U.S. at 547.
221
Id.

368 BROOKLYN LAW REVIEW [Vol. 76:1 general maritime law.
222 In Chan , a young girl, the daughter of an employee of the defendant, was on an inflatable raft that capsized after leaving a cruise ship. She was swept off the raft but watched two employees perish.
223 The court first observed that, since the Jones Act incorporates FELA, the same common-law principles that endorse the “zone of danger” test should apply.
224 The court then used the principles of the Jones
Act to determine that the general maritime law also supports actions for negligent infliction of emotional distress.
225 While the court declined to identify the precise test it used, 226 two important principles were established in Chan . First, the girl’s witnessing of the two crewmembers dying after being swept off the raft was sufficient to put her in a zone of danger.
227 Second, the court made particularly clear that the “zone of danger” test established in Gottshall should also apply to Jones Act cases.
228
While the law of emotional damages for hijackings on the high seas is unclear, emotional damages have been litigated in the context of airline hijackings.
229 These cases followed a different liability scheme that departed from the
Gottshall standards and might be considered an alternate framework for ship hijackings by pirates.
230 Following the hijacking of Transworld Airlines Flight 741 in 1970, passengers brought suit for emotional damages against the airline.
231 The court allowed plaintiffs whose emotional damages stemmed from bodily injury to collect damages.
232 The court’s holding was not solely based on common law torts; it was also based on the
Warsaw Convention, which regulates liability for the international carriage of passengers and cargo by commercial airlines.
233 The court observed that the Warsaw Convention provides a presumption of liability for commercial carriers while also imposing a cap on damages.
234 In a case related to the
222
39 F.3d 1398 (9th Cir. 1994).
223
Id.
at 1402.
224
Id.
at 1408.
225
Id .
226
Id.
at 1409.
227
Id.
at 1410.
228
Id.
at 1408.
229
See Burnett v. Transworld Airlines Corp .
, 368 F. Supp. 1152 (D.N.M. 1973).
230
See L AWRENCE B.
G OLDHIRSCH , T HE W ARSAW C ONVENTION : A L EGAL
H ANDBOOK (2000).
231
See Burnett , 368 F. Supp. at 1153.
232
Id.
at 1158.
233
G OLDHIRSCH , supra note 230.
234
Burnett , 368 F. Supp. at 1158.

2010] UNCHARTED WATERS 369 same 1970 hijackings, the court pointed out that the liability regulations set forth by the Convention, originally in 1920, were to “nurture” the newly developing airline industry by capping damages to prevent devastating liability.
235 To avoid prejudicing the travelers, who were also taking a risk, the airline companies were given the presumption of liability.
236 The court noted that, while this scheme may be obsolete, it is still considered good law.
237
There are three key differences between the Jones Act and the Warsaw Convention’s imposition of liability for negligent infliction of emotional distress. First, the Jones Act requires a more liberal “zone of danger” test, while the Warsaw
Convention, as interpreted by American courts, requires bodily injury.
238 Second, the Warsaw Convention imposes a presumption of liability on the carrier, while the Jones Act still requires a showing of negligence.
239 Finally, the Warsaw
Convention, and not the Jones Act, greatly caps damages.
240
These differences expose shipping companies to greater potential liability for emotional damages following a hijacking.
Unlike the airlines, shipping companies do not have the benefit of a liability regime designed to foster growth and decrease risk to fledgling companies.
241 Instead, shipping companies must rely on careful compliance with federal safety regulations to avoid negligence and therefore minimize their exposure to emotional damages.
242 Compliance can translate into a presumption against liability. Still, like the airlines, there were legal principles established in shipping’s infancy that shipping companies can use to further limit liability.
3. The Shipowner’s Limited Liability Act
Limiting a ship owner’s liability for acts of the crew beyond the owner’s contemplation is a longstanding tradition of
235
Husserl v. Swiss Air Transp. Co., 388 F. Supp. 1238, 1244 (S.D.N.Y. 1975).
236
Id.
237
Id.
238
Israeli, German, and Argentinean courts have allowed for liability under the Convention for non-bodily injuries. However, Germany requires a showing of willful misconduct. G OLDHIRSCH , supra note 230, at 79 (citations omitted).
239
Burnett , 368 F. Supp. at 1158.
240
Id.
241
Burnett , 368 F. Supp. at 1154; Andreas F. Lowenfeld & Allan I.
Mendelsohn, The United States and the Warsaw Convention , 80 H ARV .
L.
R EV . 497,
499-500 (1967).
242
See supra notes 222-28 and accompanying text.

370 BROOKLYN LAW REVIEW [Vol. 76:1 common law.
243 Following a decision holding a shipping company liable for smuggling by the ship’s master, several
London merchants petitioned the House of Commons.
244 In response, the House of Commons, in 1734, passed legislation that aimed “to promote the increase of the number of ships and vessels” and to prevent “the prejudice of the trade and navigation of [Great Britain].” The statute required the
“knowledge or privity of the owner” to bring a claim.
245
These very same principles were accepted by the U.S.
Congress in the Shipowner’s Limited Liability Act of 1851.
246
The Act limits ship owners’ liability for losses arising from
“embezzlement, loss, or destruction of any property, goods, or merchandise shipped or put on board the vessel, any loss, damage, or injury by collision, or any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred” without the knowledge or privity of the owner.
247 As the House of
Commons and the American judiciary have observed, this statute is crucial to maintaining and encouraging investment in the shipping industry by limiting an owner’s risk.
248
Most notably, the provisions of the Shipowner’s Limited
Liability Act prevent the owner from assuming liability for the negligent actions of the crew.
249 In Northern Fishing & Trading
Co., Inc. v. Grabowski , the captain of a vessel, which was seaworthy at the commencement of its voyage, unreasonably
243
Limited , N.Y.
T IMES , Oct. 13, 1912, at XXII. This article examined
English common law as well as The Shipowner’s Limited Liability Act of 1851 for potential liability for owners of the Titanic, which had sunk six months earlier.
244
Id.
245
The act stated in relevant part:
Whereas it is of the greatest consequence and importance to this kingdom to promote the increase of the number of ships and vessels and to prevent any discouragement to merchants and others from being interested and concerned therein: and it has been held that in many cases owners of ships or vessels are answerable for goods and merchandise shipped or put on board the same, although the said goods and merchandise, after the same have been on board, should be made away with by the maters or mariners of the said ships or vessels without the knowledge or privity of the owner or owners, by means whereof merchants and others are greatly discouraged from adventuring their fortunes as owners of ships or vessels, which will necessarily tend to the prejudice of the trade and navigation of this kingdom.
Id.
(quoting Responsibility of Shipowners Act, 7 Geo. 2, c. 15 (1734)).
246
46 U.S.C. § 30505 (2006).
247
Id.
248
Limited , supra note 243; Petition of Tracy, 92 F. Supp. 706, 711
(S.D.N.Y. 1950).
249
See N. Fishing & Trading Co. v. Grabowski, 477 F.2d 1267, 1272 (9th Cir. 1973).

2010] UNCHARTED WATERS 371 decided not to take shelter from extreme weather conditions.
250
The Ninth Circuit held that a ship owner could limit its liability because the injury resulted from unreasonable conduct by the captain, and the injury was not proximately caused by the vessel’s unseaworthiness.
251 Relying on the Second Circuit’s opinion in The 84-H , 252 the court reasoned that if no liability is traceable to the owner and the ship seemed seaworthy at embarkment, 253 then the owner should be completely exonerated.
254 If liability is found but the damage was incurred without the “privity or knowledge” of the owner, liability should at least be limited. While it is the plaintiff’s burden to show the owner’s negligence, if the defendant can show
“seaworthiness at commencement of the voyage,” he is prima facie entitled to limited liability.
255
Similarly, in United States v. MV Big Sam , the pilot of the tanker MV Big Sam negligently collided with another tanker.
256 Noting that the negligent conduct was beyond the knowledge and privity of the ship owner, the court released the owners of the MV Big Sam of any liability.
257 Inherent in these cases is the important limitation that an owner’s failure to inspect the safety of the vessel and ensure its seaworthiness will prevent him from limiting liability. In the case of The
Republic , the Second Circuit, drawing on English common law, held that a ship owner could not invoke the Shipowner’s
Limited Liability Act when he had failed to discover a safety defect that later caused the accident.
258
In addition to the Shipowner’s Limited Liability Act, ship owners can use martime security regulations and Coast
Guard antipiracy directives as guidance of how to limit their liability. Even if a shipping company cannot completely immunize itself against legal accountability, it can use the certifications and safety plans required by the MTSA to at least
250
Id.
251
Id.
252
296 F. 427, 431 (2d Cir. 1923), cert. denied sub nom.
, Randolph v. Bouker
Contracting Co., 264 U.S. 596 (1924). The Grabowski court referred to The 84-H as the
“leading” case for this proposition. 477 F.2d at 1272.
253
“Seaworthy” is defined as a vessel that is “properly equipped and sufficiently strong and tight to resist the perils reasonably incident to the voyage for which the vessel is insured.” B LACK ’ S L AW D ICTIONARY 1380 (8th ed. 2004).
254
Grabowski , 477 F.2d at 1272.
255
The Suduffco, 33 F.2d 775, 776 (S.D.N.Y. 1929).
256
681 F.2d 432, 434 (5th Cir. 1982).
257
Id.
at 443-44.
258
61 F. 109, 113 (2d Cir. 1894).

372 BROOKLYN LAW REVIEW [Vol. 76:1 limit its liability. A shipping company that properly files a VSA and VSP 259 and is granted an International Shipping Security
Certificate likely has a strong argument that the ship was safe and seaworthy at the commencement of its voyage. Similarly, a shipping company that follows Coast Guard directives and has implemented safety precautions in the event of pirate attack would be able to argue that an employee’s deviation from these plans would be beyond its “privity and knowledge.” 260 For example, if a pilot negligently veers from the protected passageways and encounters a pirate attack, ship owners would likely be able to limit liability. Also, if a crewmember departs from the ship’s procedure of meeting in its established safe haven, a shipping company might also be able to limit liability.
Generally, the current liability regime for shipping companies sets forth an effective “carrot-and-stick” approach. If shipping companies follow the provisions of the MTSA and the directives of the Coast Guard, they are given substantial presumptions against liability that would exonerate them under the MTSA, the Jones Act, and maritime negligence—or at least limit their liability. If shipping companies do not follow these provisions, however, they are subject not only to substantial presumptions of liability, but also to civil penalties.
As a matter of policy, this approach will have three important benefits in combating Somali piracy. First, the refusal to pay ransoms combined with increased security on ships could help deter acts of piracy without any further support from states. Second, it promotes stability in shipping markets. While implementing defensive measures on ships can be costly up front, shipping companies will be less likely to have to sporadically pay large ransom payments. Furthermore, the successful deterrence of pirate attacks could lead to a longterm decrease in costs for shipping companies due to lower insurance premiums and decreased need to reroute ships.
Third, the current approach emphasizes the safety of the captain and the crew. Without a strict regime that regulates the payment and ransoms and ship security measures, the safety of those aboard would be left to the business judgment of the ship owner. By imposing substantial penalties and a
259
“VSA” stands for Vessel Security Assessment, and “VSP” stands for Vessel
Security Plan. See supra text accompanying note 180 for further discussion of those terms.
260
See supra notes 252-54 and accompanying text.

2010] UNCHARTED WATERS 373 considerable liability regime, ship owners effectively must chose safety.
While this is perhaps an economically inefficient rationale, the risk of death, injury, and psychological suffering that comes from a ship’s hijacking is too substantial to justify this approach. While shipping companies are increasingly doing their share to combat piracy, another industry stands ready to profit in eradicating pirates from the Gulf of Aden.
III. P IRATE H UNTERS
Shipping companies are not the only players in the fight against piracy. The reemergence of piracy in the Gulf of Aden has sparked an industry of private contractors who stand ready to not only protect ships from pirate raids, but also to hunt down pirates.
261 As the United States is caught fighting wars against terrorism and drugs, the military does not have the assets to adequately protect commercial shipping from pirates.
Commentators suggest the U.S. government should turn to the private security industry.
262 In doing so, however, these private companies face a host of legal challenges.
263 Among the most notable are the legal authorization to hunt pirates and the potential criminal and civil liability that these companies could face.
Reliance on the private sector to hunt down pirates is not a new concept. Prior to the development of large-scale navies, countries would commission merchant vessels using instruments known as “letters of marque and reprisal” to attack enemy ships.
264 These private sailors would come to be known as “privateers” and the practice of “privateering” became increasingly commonplace.
265 At that time, Algiers alone had over one hundred ships and thousands of sailors engaged in privateering.
266 Of course, as privateering became more
261 supra note 113.
262
See id .
263
See, e.g.
, id. at 612.
264
Boot, supra note 25, at 98. “Privateering” is “[t]he practice of arming privately owned merchant ships for the purpose of attacking enemy trading ships.”
B LACK ’ S L AW D ICTIONARY 1233 (8th ed. 2004).
265 supra note 25, at 96.
266
Id.

374 BROOKLYN LAW REVIEW [Vol. 76:1 commonplace, government attitudes changed toward the practice, and rather than attack enemy ships, privateers were hired by countries including Great Britain and the United
States to hunt down pirates.
267 Among these privateers was
Captain William Kidd, who, in 1696, received a royal commission to apprehend specific pirates wanted by King
William III, as well as “all other Pirates, Free-booters, and Sea
Rovers of what Nature soever.” 268
B. Legal Basis for the Letter of Marque
The practice of privateering continued until it was outlawed by many nations through the 1856 Treaty of Paris and the 1907 Hague Convention.
269 The United States was not among the signatories of either, and thus has not foreclosed the possibility of using privateers.
270 Still, over the last century, the letter of marque has fallen out of use, largely due to the modernization and centralization of war efforts in the industrialized world.
271 This, of course, does not mean that
Congress has lost its power to grant them. As former naval officer David Douglas Winters observed, “Much like our
Revolutionary War forefathers, we do not have the assets we need to protect ourselves. They found an answer, and fortunately they preserved it for us: privateers.” 272
Indeed, letters of marque were an important part of
American life at the founding.
273 During the Constitutional
Convention, the inclusion of a Congressional power to grant letters of marque was among the few powers on which the federalists and antifederalists could agree.
274 Article I, Section 8 states in relevant part that “[t]he Congress shall have power . . .
[t]o declare War, grant Letters of Marque and Reprisal , and make Rules concerning Captures on Land and Water.” 275
Exercising this power, Congress passed 33 U.S.C. § 386:
267
Id.
at 98.
268
Philip , in T HE P IRATES ’ W HO ’ S W HO 153-54,
(2007); see also Boot, supra note 25, at 99.
269
David Douglas Winters, Bring Back the Privateer , 128 U.S.
N AVAL I NST .
P ROC . 112, 112 (2002).
270
Id.
271
Theodore M. Cooperstein, Letters of Marque and Reprisal: The
Constitutional Law and Practice of Privateering , 40 J. M AR .
L.
& C OM .
221, 251 (2009).
272 supra note 269, at 112.
273
Id.
274 supra note 271, at 231.
275
U.S.
C ONST .
art. I, § 8 (emphasis added).

2010] UNCHARTED WATERS 375
The President is authorized to instruct the commanders of the public-armed vessels of the United States, and to authorize the commanders of any other armed vessels sailing under the authority of any letters of marque and reprisal granted by Congress, or the commanders of any other suitable vessels, to subdue, seize, take, and, if on the high seas, to send into any port of the United States, any vessel or boat built, purchased, fitted out, or held as mentioned in section 385 of this title (pirate vessels).
276
As such, the President is authorized to enlist private citizens granted letters of marque to seize pirate vessels on the high seas.
277 Individuals granted letters of marque are given significant authority to engage in hostilities against pirates.
278
The letter of marque would allow the ship to bear arms, and upon the capture of pirates, the ship’s master would be permitted to arrest the pirates and seize the pirates’ vessel.
279 To preserve this authority, the ship must have received a completed letter of marque that identifies the vessel and its master.
280 In addition, the master would be liable for the actions of his crew and responsible both for keeping detailed records and for complying with American and international humanitarian law.
281
Ships that exceed the bounds of their commission would lose these privileges and be punished as pirates.
282
Commentators suggest that the modern privateer would be able to work within these limitations while taking advantage of cutting-edge technology, a faster procurement process, and a more flexible organizational structure, as compared to the government.
283 In 2005, the Department of
Defense spent one third of its total budget on private contractors, and therefore it has the infrastructure and expertise to properly manage privateers.
284 Much like military contractors in Iraq, privateers would be connected by a command/intelligence fusion center that could be operated by
276
33 U.S.C. § 386 (2006).
277 supra note 77, at 268-69.
278
Id .
279
Id. at 269. Article 105 of UNCLOS authorizes states to seize and arrest pirates. Id.
at 269 n.57 (citing United Nations Convention on the Law of the Sea art.
105, Dec. 10, 1982, 1833 U.N.T.S. 397). Commissioned privateers would be exercising this power on behalf of the commissioning state.
280
Id.
at 268-69.
281
Id.
282
The Palmyra, 25 U.S. (12 Wheat.) 1, 4 (1827).
283 supra note 113; Winters, supra note 269, at 112.
284 supra note 113.

376 BROOKLYN LAW REVIEW [Vol. 76:1 the Coast Guard.
285 Drawing further parallels to Iraq, Professor
Berube suggests that letters of marque may not even be necessary to employ private contractors.
286 Instead, he suggests, private contractors could be used to fill gaps in the United
States’ overly stretched naval deployment, in tandem with an embedded Coast Guard Officer aboard to ensure compliance with international law.
287
The employment of modern day privateers in the Gulf of
Aden could lead to substantial improvement in the security of the region and represents a lucrative new niche for the private security establishment. Companies have already invested heavily in this prospect; for example, Blackwater Worldwide recently developed its antipiracy ship, the MacArthur .
288 Still, the risks to these companies are great.
289 The law of privateering has been consistent, and privateers who exceed the bounds of their commissions risk being arrested and subjected to severe penalties for piracy.
290 This risk would likely be even greater for contractors that are not commissioned.
Unlike private contractors on land, private contractors on the high seas can be deemed pirates by any nation, and arrested and prosecuted.
291 As such, it would be in the best interests of both private contractors and the U.S. government to grant letters of marque to private contractors before partnering with them in fighting piracy.
C. Limitations on the Letter of Marque and Criminal
Sanctions
Letters of marque can and have placed strict limitations on the actions of privateers, and the American legal system has several mechanisms to deal with those that go beyond the bounds of a letter of marque.
292 Many of these limitations were noted by Justice Story in The Amiable Isabella , one of the most
285 supra note 269, at 112.
286 supra note 113, at 609-10.
287
Id.
at 613.
288
See supra note 113 and accompanying text.
289
See The Palmyra, 25 U.S. (12 Wheat.) 1, 3-4 (1827); see also The Bello
Corrunes, 19 U.S. (6 Wheat.) 152 (1821); United States v. Klintock, 18 U.S. (5 Wheat.)
144 (1820).
290
The Palmyra , 25 U.S. at 4; see also The Bello Corrunes , 19 U.S. at 152;
Klintock , 18 U.S. at 144.
291
United Nations Convention on the Law of the Sea, art. 105, Dec. 10, 1982,
1833 U.N.T.S. 397.
292
See The Amiable Isabella, 19 U.S. (6 Wheat.) 1, 2 (1821).

2010] UNCHARTED WATERS 377 well-known cases in the realm of letters of marque.
293 Story laid out several statutory restrictions that come with an issuance of a letter of marque. Notably, the Prize Act of 1812, as cited by
Justice Story, states, “[A ship’s master is] to give bond, and is made responsible for his own misconduct and that of the crew; is to receive and execute the President’s instructions; [and] is to keep a journal of the ship’s transactions.” 294 Failure to abide by these instructions would result in forfeiture of the commission and the rights to any prize.
295 The Prize Act of 1812 further required ships to abide by the laws and treaties of the United
States and to be responsible for any injuries beyond the purposes of the vessel.
296 As mentioned above, violation of these
293
In his opinion, Justice Story reproduces the entire letter of marque:
James Madison, President of the United States of America, to all who shall see these presents, greeting : Be it known, that in pursuance of an act of
Congress, passed on the 26th day of June, one thousand eight hundred and twelve, I have commissioned, and by these presents do commission, the private armed schooner called the Roger, of the burthen of 184 tons, or thereabouts, owned by Thomas E. Gary, Hy. Gary, James B. Cogbill & Co.,
Brogg & Jones, Hannon & High, Robert Ritchie, Robert Birchett, John
Wright, Wm. C. Boswell, Samuel Turner, John G. Heslop, Wm. & Charles
Carling, Thomas Shoe, Richard B. Butte, Richard Drummond, Littlebury
Estambuck, John Davis, Spencer Drummond, Peter Nestell, and Roger
Quarles, mounting fourteen carriage guns, and navigated by ninety men, hereby authorizing Captain—, and John Davis, Lieutenant of the said
Schooner Roger, and the other officers and crew thereof, to subdue, seize, and take any armed or unarmed British vessel, public or private, which shall be found in the jurisdictional limits of the United States, or elsewhere, on the high seas, or within the waters of the British dominions, and such captured vessel, with her apparel, guns and appurtenances, and the goods or effects which shall be found on board the same, together with all the British persons and others, who shall be found acting on board, to bring within some port of the United States; and also to retake any vessels, goods, and effects, of the people of the United States, which may have been captured by any British armed vessels, in order that proceedings may be had concerning such capture or recapture, in due form of law, and as to right and justice shall appertain.
The said _____ is further authorized to detain, seize, and take all vessels and effects, to whomsoever belonging, which shall be liable thereto, according to the law of nations, and the rights of the United States, as a power at war, and to bring the same within some port of the United States, in order that due proceedings may be had thereon-this commission to continue in force during the pleasure of the President of the United States, for the time being.
Given under my hand, and the seal of the United States of America, at the
City of Washington, the 24th day of April, in the year of our Lord one thousand eight hundred and thirteen, and of the Independence of the said
States the thirty-seventh. (Signed) JAMES MADISON. By the President,
(Signed) J AMES M ONROE , Secretary of State.
Id.
at 2-3.
294
Id.
at 13.
295
Id.
296
An Act Concerning Letters of Marque, Prizes, and Prize Goods, ch. 107
(1812) (“The Prize Act of 1812”).

378 BROOKLYN LAW REVIEW [Vol. 76:1 requirements would leave the privateer vulnerable to arrest and prosecution for piracy.
297
1. Military Extraterritorial Jurisdiction Act of 2000
In addition to these longstanding consequences, Congress has passed legislation relating to the conduct of private contractors in response to the use of private contractors during the war in Iraq. The key piece of legislation relating to criminal liability for private contractors is the Military Extraterritorial
Jurisdiction Act of 2000.
298 In relevant part, the Act states that anyone who “engages in conduct outside the United States that would constitute an offense punishable by imprisonment for more than one year if the conduct had been engaged in within the . . . jurisdiction of the United States” while employed or accompanying the Armed Forces or as a member of the armed forces “shall be punished for the offense.” 299
Recently, the actions of private contractors in Iraq have greatly broadened the scope of the Military Extraterritorial
Jurisdiction Act of 2000. The most notable cases relate to the shootings in Nissour Square, Baghdad, Iraq, in September
2007.
300 While providing security for U.S. Embassy personnel,
Blackwater contractors improperly opened fire in the open square, leaving fourteen Iraqis dead.
301 One of the contractors,
Jeremy Ridgeway, has pled guilty to voluntary manslaughter in a federal district court in the District of Columbia 302 based on allegations that he “was employed by the Armed Forces outside the United States, as defined in 18 U.S.C. § 3267(1) (Military
Extraterritorial Jurisdiction Act).” 303 This determination made
Ridgeway subject to the laws of the United States.
304 Five of
Ridgeway’s colleagues were also indicted for voluntary manslaughter and charged under 18 U.S.C. § 3267(1).
305
297
The Palmyra, 25 U.S. (12 Wheat.) 1, 4 (1827).
298
18 U.S.C. §§ 3261-3267 (2006).
299
18 U.S.C. § 3261.
300
See Guard’s Plea Led to Blackwater Indictments , CBS N EWS (Dec.
9, 2008), http://www.cbsnews.com/stories/2008/12/09/national/main4657323.shtml.
301
Id.
302
Id.
303
Information at 1, United States v. Ridgeway (D.D.C. Dec. 4, 2008), Criminal
No. 08-341-01, available at http://www.justice.gov/opa/documents/us-v-ridgeway2.pdf.
304
18 U.S.C. §§ 3261-3267.
305
Guard’s Plea Led to Blackwater Indictments , supra note 300. Charges were dropped against the five guards on December 31, 2009. See Charlie Savage, Judge
Drops Charges from Blackwater Deaths in Iraq , N.Y. T IMES (Dec. 31, 2009),

2010] UNCHARTED WATERS 379
The precedent established in the Ridgeway case could have strong ramifications for potential criminal liability for individual private contractors in the Gulf of Aden. In addition to risking potential prosecution for piracy, these contractors can be convicted for violating American law under the Military
Extraterritorial Jurisdiction Act of 2000.
306 As seen in the case of the Blackwater guards, there is an additional risk of severe penalties if the guards are armed with automatic weapons—a circumstance that could expose them to aggravating sentencing factors.
307 As such, it is crucial for private security companies to properly stay within the bounds of their commissions and have clear mechanisms for command and control, both of which ensure compliance with American law. Failure to do so could lead to not only criminal penalties for their employees, but also civil liability for their organizations.
2. Civil Liability
Like the imposition of criminal liability using the
Military Extraterritorial Jurisdiction Act, the United States’ use of private contractors in Iraq has also led to new developments in civil liability for private contractors.
308 The current framework for civil liability was born out of the Abu
Ghraib prison scandal.
309 Following the scandal, a class of Iraqi prisoners brought private actions against two contractors who provided translation and interrogation support—Titan Corp. and CACI International, Inc. (“CACI”)—for their roles in the scandal.
310 The Iraqis brought suit in the U.S. District Court for the District of Columbia under the Alien Tort Statute, the
Racketeer Influenced and Corrupt Organizations Act (RICO), http://www.nytimes.com/2010/01/01/us/01blackwater.html. Not addressing the merits of the charges, District Judge Urbina held that statements taken from the defendants by the government violated their rights against self-incrimination. Id.
306
18 U.S.C. §§ 3261-3267.
307
Guard’s Plea Led to Blackwater Indictments , supra note 300. Since the guards committed their crimes using machine guns, they were subject to thirty year mandatory minimums. Id.
308
See Saleh v. Titan Corp., 580 F.3d 1, 2 (D.C. Cir. 2009).
309
See id. at 1. The Abu Ghraib prison scandal refers to allegations of torture and mistreatment of prisoners perpetrated by United States Army interrogators in an
Iraqi prison beginning in 2004. The United States Military investigated the private contracting firms Titan Corp. and CACI International, Inc. Julian Borger, U.S.
Military in Torture Scandal , G UARDIAN (Apr. 30, 2004), http://www.guardian.co.uk/ media/2004/apr/30/television.internationalnews.
310
Saleh , 580 F.3d at 2.

380 BROOKLYN LAW REVIEW [Vol. 76:1 and state tort law claims under the Federal Tort Claims Act.
311
The district court dismissed the federal claims, and the Court of Appeals for the District of Columbia affirmed.
312 Dismissing the liability claim under the Alien Tort Statute, the court held that the actions of the defendants, while under the color of state authority, were still done by private actors (not official actors) and therefore were not actionable.
313 Dismissing the
RICO claim, the court held that the plaintiffs lacked standing to seek civil remedies under the Act because they could not allege damage to business or property.
314
Turning to the merits of the state tort law claims, the district court had to determine whether the defendants were exempt from liability under the Federal Tort Claims Act.
315 The district court granted summary judgment for Titan Corp., holding that, since its command structure was fully integrated with that of the military, its employees were “soldiers in all but name,” and therefore it fell under the “combatant activities” exception of the Federal Tort Claims Act.
316 This exception provides tort immunity for defendants “under the direct command and exclusive operational control of the military chain of command” who are “engaged in ‘activities both necessary to and in direct connection with actual hostiles.’” 317
By contrast, the district court held that CACI was not entitled to summary judgment, since it granted its managers additional discretion and supervision over their employees, thus creating dual chains of command.
318
On appeal, the D.C. Circuit, reversed the District
Court’s denial of summary judgment as to CACI and affirmed
311
Id.
at 3; see also D.C. Circuit Rules that Preemption Requires Dismissal of
Tort Claims Against Battlefield Contractors , 51 G OV ’ T C ONTRACTOR 35, Sept. 23, 2009, at ¶ 324. The Federal Tort Claims Act is codified at 28 U.S.C. §§ 2671-2680 (2006). The
Act regulates tort liability and immunity for employees of the federal government. See
G OLDBERG ET AL ., supra note 186, at 440-41.
312
Saleh , 580 F.3d at 2.
313
Saleh v. Titan Corp., 436 F. Supp. 2d 55, 57 (D.D.C. 2006) (citing Ibrahim v. Titan Corp., 391 F. Supp. 2d 10 (D.D.C. 2005)). Saleh and Ibrahim were both prisoners and both brought suit against Titan and CACI. Since their cases followed the same facts, the cases were consolidated for discovery purposes. As such, various case citations will refer to Saleh or Ibrahim as the named plaintiff. Both citations refer to the same litigation. See Ibrahim v. Titan Corp, 556 F. Supp. 2d 1, 1 (D.D.C. 2007).
314
18 U.S.C. § 1964(c) (2006); Saleh , 436 F. Supp. 2d at 57 (citing Ibrahim ,
391 F. Supp. 2d at 10).
315
Ibrahim , 556 F. Supp. 2d at 3-4.
316
Id.
317
Id.
at 4 (citing Johnson v. United States, 170 F.2d 767, 770 (9th Cir. 1948)).
318
Id . at 10-11.

2010] UNCHARTED WATERS 381 summary judgment as to Titan Corp.
319 The court rejected the
District Court’s use of a narrow “direct command and exclusive operational control” test as inconsistent with Supreme Court precedent and bad policy.
320 The D.C. panel noted that the court’s decision in Boyle v. United Technologies Corp.
stood for broader protection of the federal interests inherent in the exceptions to the Federal Torts Claims Act.
321 In Boyle , the
Court struck down the Eleventh Circuit’s decision that a contractor who was minimally involved in the design of a military helicopter did not fall within the “discretionary function” exemption of the Federal Tort Claims Act.
322 The
Boyle court made clear that government officials were still involved in making judgments about the design and therefore the tort claims were barred.
323
The D.C. Circuit in Saleh made similar findings. The court noted that freeing military commanders from worrying about potential tort claims when planning operations is a significant federal interest inherent in the “combatant activities” exception.
324 Drawing on Boyle , the court agreed that even
“limited influence on an operation” supports the interest in baring claims.
325 The court further noted, as a matter of policy, that contractors would be less inclined to report abuses to their superiors and the government.
326 The panel referred to the
District Court’s recognition that contractors had to report abuses up both the corporate and military chains as evidence of a dual chain of command.
327 Instead, the court set forth a broader test for preemption under “combatant activities” exception:
During wartime, where a private service contractor is integrated into combatant activities over which the military retains command authority, a tort claim arising out of the contractor’s engagement in such activities shall be preempted. We recognize that a service contractor might be supplying services in such a discrete manner—perhaps even in a battlefield context—that those services could be judged separate and apart from combat activities of the U.S. military.
328
319
Saleh v. Titan Corp., 580 F.3d 1, 17 (D.C. Cir. 2009).
320
Id.
at 8-9.
321
Id.
(citing Boyle v. United Techs. Corp., 487 U.S. 500, 513 (1988)).
322
Id. (citing Boyle , 487 U.S. at 513).
323
Id. (citing Boyle , 487 U.S. at 513).
324
Id.
at 7.
325
Id.
at 8-9.
326
Id.
at 9.
327
Id.
at 4-5.
328
Id.
at 9.

382 BROOKLYN LAW REVIEW [Vol. 76:1
Applying this test, the panel reversed and held that both Titan and CACI were exempt from the state tort claims.
329
Working under the color of American authority enables both criminal and civil sanctions to be brought against private contractors in the Gulf of Aden. To avoid civil liability, private contractors must heed the test established in Saleh . Beyond a commission, private security companies must insist on being integrated into the military’s antipiracy operations. Integration into the command structure not only helps to limit civil liability, but as Professor Berube points out, it allows private contractors to share intelligence and the military to effectively coordinate operations.
330 Even with full integration, there is no guarantee that courts will consider combating piracy a “wartime” activity, and therefore leave private security firms open to liability.
331 As such, just as Congress is attempting to pass legislation that limits the liability of ship owners when defending their ships, 332
Congress should also pass legislation that limits liability of private contractors who actively hunt for pirates.
C ONCLUSION
The reemergence of pirates as a significant threat to commercial shipping is forcing the legal systems of the world to adapt. Since the United States cannot devote naval resources to protecting the merchant fleet the way it once could, it should craft policy and legislation that enables the private sector to fight piracy. The United States should continue to provide incentives for shipping companies to adequately protect their ships through increased exposure to civil liability, while attempting to regulate the paying of ransoms. This approach would deter pirate attacks, promote stability in shipping markets, and protect mariners from being looted, kidnapped, and ransomed. The United States should also look to private contractors to supplement its naval presence in the Gulf of
Aden. These contractors can be regulated by an evolving legal regime that includes centuries-old, common-law principles as well as recent developments, both of which ensure criminal and civil sanctions for contractors who go beyond the bounds of
329
Id.
at 10-11.
330
See supra note 261 and accompanying text.
331
The test set forth in Saleh is prefaced with the clause “[i]n wartime.”
Saleh , 580 F.3d at 9.
332
See supra note 166 and accompanying text.

2010] UNCHARTED WATERS 383 their commissions. Following these two approaches, the United
States can ensure the safety of its shipping industry while preserving its military commitments around the globe.
Michael G. Scavelli †
†
B.A., Political Science, Johns Hopkins University; Candidate for Juris
Doctor, 2011, Brooklyn Law School. I am grateful to Professor Richard Allan for his thoughtful comments on my note as well as the Brooklyn Law Review editorial staff for their tireless assistance. Dedicated in memory of great men, Nicholas D. Scavelli and
Thomas J. Laviano. Their spirits of passion and patriotism were a constant inspiration in the writing of this note.

“When lines are drawn sharply, they often cut. And sometimes people bleed.”
1
“People don’t fail to meet the definition of normal gender, but the confines of the definitions fail to meet the people.” 2
I
NTRODUCTION
Great athletes are both born and made.
3 Perhaps it is unsurprising, then, that organized sports have historically aspired to regulate both the nature and nurture of its participants. The underlying principle of athletic competition is fair play—consistent with the sporting world’s widespread condemnation of performance-enhancing drugs.
4 But fair play is not synonymous with egalitarianism; nor could it be, given that inborn physical advantages are simply not doled out impartially.
After eighteen-year-old runner Caster Semenya broke a
South African record at the African Junior Championships in
July 2009, a firestorm erupted over the fairness of her innate athletic talent.
5 At that event, the South African teen also clocked
1
Emily Q. Shults, Sharply Drawn Lines: An Examination of Title IX,
Intersex, and Transgender , 12 C ARDOZO J.L.
& G ENDER 337, 337 (2005) (quoting Elise
Mattheson, Keynote Speech at the International Conference Celebrating Bisexuality:
What’s So Funny About Bisexual Separatism? (June 25, 1994), available at http://www. lioness.net/speech.html (last visited Aug. 7, 2010)).
2
The Missing Vagina Monologue , O UR B ODIES O URSELVES , http://www.ourbodiesourselves.org/book/companion.asp?id=13&compID=98&page=2 (last visited Nov. 14, 2010).
3
Cf. Barbarba S. Andrew, Beauvoir’s Place in Philosophical Thought , in T HE
C AMBRIDGE C OMPANION TO S IMONE DE B EAUVOIR 24, 31 (Claudia Card ed., 2003) (“One is not born, but rather becomes, a woman.” (quoting Simone de Beauvoir)).
4
See, e.g.
, Laura Fitzpatrick, A Brief History of Steroids , T IME (Jan. 13,
2010), http://www.time.com/time/health/article/0,8599,1953229,00.html.
5
See Ariel Levy, Either/or: Sports, Sex, and the Case of Caster Semenya ,
N EW Y ORKER (Nov. 30, 2009), http://www.newyorker.com/reporting/2009/11/30/091130 fa_fact_levy?currentPage=all.
385

386 BROOKLYN LAW REVIEW [Vol. 76:1 the fastest female time of the year for the 800-meter race, 6 improving her personal record by seven and a half seconds.
7 This impressive victory, which qualified Semenya for the Berlin World
Championships, coupled with her “masculine” appearance, fueled speculation that she was actually a man.
8 In essence, her natural body was unnatural.
As the Berlin World Championships drew closer, the whispers only got louder.
9 On the day of the 800-meter final, just hours before the race, news broke in Berlin that the
International Association of Athletics Federation (IAAF)—the world governing body for athletics 10 —had asked Semenya to undergo a sex test 11 to prove that she did not have an unfair advantage.
12 Despite this humiliating prelude, Semenya won the gold medal, capturing the 800-meter world title.
13
6
African Junior Champs, Day 2 , I NT ’ L A SS ’ N OF A THLETICS F ED ’ NS (July 31,
2009), http://www.iaaf.org/news/kind=100/newsid=52412.html.
7
See Levy, supra note 5.
8
See id.
9
Owen Slot, Caster Semenya Faces Sex Test Before She Can Claim Victory ,
T IMES (U.K.) (Aug. 20, 2009), http://www.timesonline.co.uk/tol/sport/more_sport/ athletics/article6802314.ece.
10
I NT ’ L A SS ’ N OF A THLETICS F ED ’ NS , I NTERNATIONAL A SSOCIATION OF
A THLETICS F EDERATIONS C ONSTITUTION 7 (2009), available at http://www.iaaf.org/mm/
Document/AboutIAAF/Publications/05/47/96/20100113075829_httppostedfile_IAAFConsti tution-01.11.09-Eng-Website_17812.pdf.
11
While the procedure has been referred to as a gender verification test , the term sex test is a more accurate description because its objective is to ascertain whether sex-linked anatomical attributes provide an unfair advantage. See Alice Dreger,
Olympic Problems with Sex Testing , B IOETHICS F. (July 31, 2008), http://www. thehastingscenter.org/Bioethicsforum/Post.aspx?id=2008. This note, therefore, will use the terms sex test or sex verification .
12
Tom , BBC S PORT (Aug. 19, 2009), http://www.bbc.co.uk/blogs/tomfordyce/2009/08/semenya_left_stranded_by_storm.html.
In an e-mail to journalist Ariel Levy, Nick Davies—the IAAF’s director of communications—stated that Semenya’s seven-and-a-half-second improvement at the
Junior Championships roused suspicion that Semenya was either doping or had a gender condition that gave her an athletic edge. Levy, supra note 5 (citation omitted).
The IAAF subsequently asked Athletics South Africa (ASA) to initiate the sexverification procedure. Id.
(The ASA is the national IAAF-affiliated federation in charge of track and field. See A THLETICS S.
A FRICA , T HE C ONSTITUTION OF A THLETICS
S OUTH A FRICA 7 (2008), available at http://www.athletics.org.za/pdf/
Constitution/ASA%20Constitution%202008%20version.pdf.) Semenya subsequently underwent testing, overseen by ASA officials, in both South Africa and Berlin. Levy, supra note 5. The procedure involved a panel of specialists: a gynecologist, an endocrinologist, a psychologist, an internist, and an “expert on gender/transgender issues.” See I NT ’ L A SS ’ N OF A THLETICS F ED ’ NS , IAAF P OLICY ON G ENDER V ERIFICATION
2 (2006), available at www.iaaf.org/mm/document/imported/36983.pdf.
13
See Fordyce, supra note 12; see also Bob Ramsak, Event Report—Women’s
800m Final , 12 TH IAAF W ORLD C HAMPIONSHIPS B ERLIN (Aug. 19, 2009), http://berlin. iaaf.org/news/kind=108/newsid=53494.html.

2010] POLICING THE POLICING OF INTERSEX BODIES 387
The gender controversy reached a fever pitch after
Semenya’s Berlin victory. Semenya was never formally suspended, but she agreed to wait for the IAAF’s decision on her eligibility before returning to competition.
14 In the meantime, the public divided over her right to compete as a female and her entitlement to the world title.
15 In early
September 2009, Australia’s Daily Telegraph , citing an unnamed source, reported that Semenya was a
“hermaphrodite.” 16 According to the report, Semenya had “male sexual organs” and “no womb or ovaries.” 17
The IAAF never confirmed this report. In fact, the governing body has been adamant about keeping Semenya’s test results confidential.
18 In July 2010, after eleven months of deliberation, the IAAF finally cleared Semenya to compete.
19
14
Gerald Imray, Caster Semenya Should Not Run Until Gender Tests
Complete, IAAF Says , H UFFINGTON P OST (Mar. 30, 2010), http://www.huffingtonpost. com/2010/03/30/caster-semenya-should-not_n_518413.html.
15
See William Biebuyck, The Case of Caster Semenya , M AISONNEUVE (Sept.
18, 2009), http://maisonneuve.org/pressroom/article/2009/sep/18/case-caster-semenya/#.
Months before Semenya was officially cleared, the South African Department of Sport and Recreation (SRSA) announced that the IAAF would allow Semenya to retain her gold medal and prize money.
See Caster Semenya Will Keep Her 800m Gold Medal,
Says IAAF , T ELEGRAPH (U.K.) (Nov. 19, 2009), http://www.telegraph.co.uk/sport/others ports/athletics/6605163/Caster-Semenya-will-keep-her-800m-gold-medal-says-IAAF.html.
(The SRSA is the public bureau responsible for developing and promoting sport in South
Africa. S PORT & R ECREATION S.
A FR ., http://www.srsa.gov.za (last visited Aug. 21, 2010)).
But the IAAF declined to confirm the SRSA’s announcement. Levy, supra note 5.
16
Mike Hurst, Caster Semenya Has Male Sex Organs and No Womb or
Ovaries , D AILY T ELEGRAPH (Austl.) (Sept. 11, 2009), http://www.dailytelegraph.com.au/ sport/semenya-has-no-womb-or-ovaries/story-e6frexni-1225771672245.
The preferred term for indeterminate sex is intersex , encompassing “a variety of conditions in which a person is born with a reproductive or sexual anatomy that doesn’t seem to fit the typical definitions of female or male.” What Is Intersex?
,
I NTERSEX S OC ’ Y N.
A M ., http://www.isna.org/faq/what_is_intersex (last visited July 11,
2010). The word hermaphrodite is pejorative and archaic. Is a Person Who Is Intersex a
Hermaphrodite?
, I NTERSEX S OC ’ Y N.
A M ., http://www.isna.org/faq/hermaphrodite (last visited July 11, 2010). It has been widely rejected by both intersex advocates and the medical community. See Joseph Huff-Hannon, Don’t Call Them Hermaphrodites , D AILY
B EAST (Sept. 16, 2009), http://www.thedailybeast.com/blogs-and-stories/2009-09-16/ dont-call-them-hermaphrodites/full (citation omitted). Some clinicians and intersex advocates have adopted the term disorders of sex development (or DSDs ). See Alice D.
Dreger & April M. Herndon, Progress and Politics in the Intersex Rights Movement , 15
GLQ: J.
G AY & L ESBIAN S TUD .
199, 206 (2009). Other advocacy groups, however, have repudiated this label. See, e.g.
, Curtis E. Hinkle, Why Is OII Not Using the Term DSD or “Disorders of Sex Development”?
, O RG .
I NTERSEX I NT ’ L , http://www.intersexualite. org/Response_to_Intersex_Initiative.html (last visited Nov. 1, 2010) (listing its objections to use of the term DSDs ). For these reasons, this note uses the term intersex unless historical context calls for the term hermaphrodite .
17 supra note 16.
18
See Caster Semenya May Compete , I NT ’ L A SS ’ N A THLETICS F ED ’ NS (July 6,
2010), http://www.iaaf.org/aboutiaaf/news/newsid=57301.html [hereinafter Semenya May
Compete ]; Caster Semenya—Statement , I NT ’ L A SS ’ N A THLETICS F ED ’ NS (Nov. 18, 2009),

388 BROOKLYN LAW REVIEW [Vol. 76:1
The maelstrom over Caster Semenya reveals our oversimplified understanding of sex 20 but leaves complex questions unanswered. On one hand, Semenya’s story debunks the notion that sex is clear-cut; it is culture—not nature—that insists that human beings fit into one of two discrete sex categories.
21 Still unresolved, however, is how and where to place intersex bodies within this male-female binary—and, more narrowly, in sports. Like other social institutions, sports are constructed on a dimorphic understanding of sex. But athletes like Caster Semenya force us to acknowledge that physical bodies can—and do—defy such neat classification.
Indeed, approximately 1.7% of the world population is born intersex, 22 neither fully male nor female.
In the wake of Semenya’s ordeal, it is unclear how the
American legal system will grapple with intersex 23 in school http://www.iaaf.org/aboutiaaf/news/newsid=54923.html [hereinafter Caster Semenya—
Statement ]; see also Jeré Longman, South African Runner’s Sex-Verification Result Won’t
Be Public , N.Y.
T IMES (Nov. 19, 2009), http://www.nytimes.com/2009/11/20/sports/20 runner.html?_r=2; Imray, supra note 14.
19
Semenya May Compete , supra note 18. The IAAF “accept[ed] the conclusion of a panel of medical experts that [Semenya] can compete with immediate effect” and stated that it “will make no further comment on the matter.” Id. Holding to the announcement it made in November 2009, see Caster Semenya—Statement , supra note
18, the athletics body added that the details of Semenya’s medical tests will remain confidential, see Semenya May Compete , supra note 18.
20
As discussed later in this note, the line between sex and gender is not clearcut; there is a cultural dimension to the sex categories often viewed as purely biological. See infra Part II.A. Due to linguistic constraints, however, this note uses the term sex to refer to biological classifications. It uses the term gender to describe the social constructs of maleness and femaleness.
21
Alice Dreger, Sex Typing for Sport , H ASTINGS C ENTER R EP ., Mar.-Apr.
2010, at 22, 23 [hereinafter Dreger, Sex Typing for Sport ].
22
Melanie Blackless et al., How Sexually Dimorphic Are We? Review and
Synthesis , 12 A M .
J.
H UM .
B IOLOGY 151, 159 (2000); see also A NNE F AUSTO -S TERLING ,
S EXING THE B ODY : G ENDER P OLITICS AND THE C ONSTRUCTION OF S EXUALITY 51, 53 (2000)
[hereinafter F AUSTO -S TERLING , S EXING THE B ODY ] (“At the rate of 1.7 percent, . . . a city of 300,000 would have 5,100 people with varying degrees of intersexual development.
Compare this with albinism, another relatively uncommon human trait but one that most readers can probably recall having seen. Albino births occur much less frequently than intersexual births—in only about 1 in 20,000 babies.”). This estimate, calculated by biologist Anne Fausto-Sterling, includes all chromosomal, anatomical, and hormonal variations from the male-female binary. Anne Fausto-Sterling, The Five Sexes, Revisited ,
S CIENCES , July-Aug. 2000, at 19, 20 [hereinafter Fausto-Sterling, The Five Sexes ].
Moreover, the intersex birthrate is not identical throughout the world; intersex-linked genes occur more frequently in some populations than in others. Id.
Leonard Sax challenges Fausto-Sterling’s estimate on the grounds that she
“includes conditions [that] most clinicians do not recognize as intersex.” See Leonard Sax,
How Common Is Intersex? A Response to Anne Fausto-Sterling , 39 J.
S EX R ESEARCH 174,
174 (2002). Sax’s contention, however, misses the point. Fausto-Sterling’s very goal is to question mainstream medicine’s approach to intersex conditions.
23
Intersex may be used as a noun or an adjective. Dreger & Herndon, supra note 16, at 222 n.48.

2010] POLICING THE POLICING OF INTERSEX BODIES 389 athletic programs covered by Title IX, the landmark legislation that prohibits sex discrimination in school sports.
24 Should an intersex student athlete be allowed to compete as a male or a female? What criteria should be used to decide where an intersex athlete falls in the binary scheme?
This note explores these difficult issues. Its goals are modest. It does not attempt to resolve the inherent shortcomings of binary sex. Nor does it offer a method to ensure that student athletes are accurately grouped into discrete sex categories. To the contrary, this note challenges the legitimacy and fairness of binary categorization in the first place. It illustrates the cultural overlay to both the sex-based differences often regarded as biologically predetermined and the social understanding of sex as dyadic. Against this backdrop, this note argues that Title IX should be interpreted to cover discrimination based on binary-sex nonconformity. It advocates a self-identification policy on eligibility to compete as a male or female in Title IX athletics.
Following its introduction, this note begins in Part I with a discussion of Title IX’s history and application to school athletics.
Part II probes the relationship between sex and gender, and the interplay of biological and cultural circumstances in the sports context. This part reveals the extent to which social factors not only influence our understanding of sex as a category but also shape physical bodies themselves. Part III examines the nature of organized sports and the politics of sex testing, questioning the notion that intersex-based athletic advantages compromise the integrity of competition any more than other inborn advantages.
Finally, Part IV addresses intersex conditions in Title IX athletic programs. It argues that self-identification should govern an athlete’s eligibility to participate as a male or female in school sports. To that end, it encourages the administrative agency charged with enforcing Title IX to issue regulations requiring schools to adopt a self-identification policy.
I. T
ITLE
IX
AND
G
ENDER
E
QUITY IN
S
CHOOL
A
THLETICS
A.
Overview of Title IX
Title IX of the Education Amendments of 1972 prohibits federally funded educational institutions from engaging in sex
24
Title IX of the Education Amendments of 1972, 20 U.S.C. §§ 1681-1688 (2006).

390 BROOKLYN LAW REVIEW [Vol. 76:1 discrimination.
25 The statute’s basic antidiscrimination provision states that “[n]o person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.” 26 Title IX is best known for its impact on athletics, but it applies to all activities in the educational context 27 unless specifically exempted in the statutory text.
28
The law conditions federal financial assistance on the recipient’s promise not to discriminate based on sex.
29 The receipt of either direct or indirect “[f]ederal financial assistance” 30 subjects an educational institution to Title IX coverage.
31 Since the majority of educational institutions receive some form of federal funding, Title IX covers most schools in the United States—from elementary schools to institutions of higher learning.
32 Nearly all private colleges and universities,
25
Id.
26
Id.
§ 1681(a).
27
See K ATHRYN M.
R EITH , W OMEN ’ S S PORTS F OUND ., P LAYING F AIR : A
W OMEN ’ S S PORTS F OUNDATION G UIDE TO T ITLE IX IN H IGH S CHOOL & C OLLEGE S PORTS
5 (5th ed. 2006), available at http://www.womenssportsfoundation.org/binary-data/ wsf_article/pdf_file/195.pdf (“Title IX is not just a ‘sports’ law. It also covers sexual harassment and workplace discrimination against students, employees and faculty at educational institutions.”); Suzanne E. Eckes, Title IX and High School Opportunities:
Issues of Equity on and in the Court , 21 W IS .
W OMEN ’ S L.J. 175, 177 (2006) (“Although often the focus is on athletics, Title IX prevents discrimination in all aspects of education including admissions, housing, course offerings, recruitment, financial assistance, counseling, student health, marital and parental status of students, insurance benefits, and harassment.”).
28
See 20 U.S.C. § 1681(a)(1)-(9) (providing exemptions for (1) religious schools, if compliance with the statute would run counter to religious tenets; (2) military schools; (3) public higher-education institutions with a continuous tradition of single-sex admissions; (4) fraternities and sororities; (5) voluntary youth organizations;
(6) Boy and Girl Scout programs; (7) mother-daughter and father-son activities at educational institutions; (8) beauty pageants; and (9) schools transitioning from singlesex to mixed-sex admissions, which are given a seven-year transition period).
29
C IVIL R IGHTS D IV ., U.S.
D EP ’ T OF J USTICE , T ITLE IX L EGAL M ANUAL 8
(2001) [hereinafter T ITLE IX L EGAL M ANUAL ], available at http://www.justice.gov/ crt/cor/coord/ixlegal.pdf.
30
20 U.S.C. § 1681(a).
31
T ITLE IX L EGAL M ANUAL , supra note 29, at 39; see also 34 C.F.R.
§ 106.2(h)(4)(i) (2009) (“Recipient means any State or political subdivision thereof, or any instrumentality of a State or political subdivision thereof, any public or private agency, institution, or organization, or other entity, or any person, to whom Federal financial assistance is extended directly or through another recipient and [that] operates an education program or activity [that] receives such assistance, including any subunit, successor, assignee, or transferee thereof.”).
32
See R EITH , supra note 27, at 5. Athletic associations may also be covered by
Title IX if they receive federal aid.
Id. (citing Horner v. Ky. High Sch. Athletic Ass’n, 43
F.3d 265 (6th Cir. 1994)).

2010] POLICING THE POLICING OF INTERSEX BODIES 391 for example, fall within the ambit of Title IX because they receive federal funding through the financial aid programs used by their students.
33
Title IX’s antidiscrimination mandate is stated in broad strokes, 34 leaving its contours to the regulatory agencies 35 charged with administering the statute.
36 To that end, each federal agency distributing educational funds is “authorized and directed” to establish policies ensuring compliance with the statute’s mandate and to enforce those policies by any lawful means, 37 including the termination of funding.
38 In addition to administrative enforcement, individual plaintiffs may bring suit under Title IX for monetary damages.
39
33
See Grove City Coll. v. Bell, 465 U.S. 555, 569-70 (1984) (“Title IX coverage is not foreclosed because federal funds are granted to Grove City’s students rather than directly to one of the College’s educational programs.”), superseded by statute on other grounds , Civil Rights Restoration Act of 1987, Pub. L. No. 100-259, § 3(a), 102 Stat. 28, 28-
29 (codified as amended at 20 U.S.C. § 1687 (2006)); see also 117 C ONG .
R EC . 30,408 (1971)
(statement of Senator Birch Bayh) (“I doubt very much whether even one institution of higher education today, private or public, is not receiving some Federal assistance.”). All references in this note to Senator Bayh are to Birch Evans Bayh II.
In addition to monetary awards and grants, federal assistance may also take the form of “use or rent of federal land or property at below market value, federal training, a loan of federal personnel, subsidies, and other arrangements with the intention of providing assistance.” T ITLE IX L EGAL M ANUAL , supra note 29, at 25; see also 34 C.F.R. § 106.2(g) (2009) (defining federal financial assistance in detail).
34
20 U.S.C. §§ 1681-1688.
35
Under doctrine, an agency’s interpretation of a statute that it administers is accorded a certain degree of judicial deference. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44 (1984) (“If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.”).
36
The statute expressly authorizes any federal department or agency that is
“empowered to extend Federal financial assistance to any education program or activity . . . to effectuate [Title IX’s antidiscrimination mandate] . . . by issuing rules, regulations, or orders of general applicability.” 20 U.S.C. § 1682.
37
Id.
38
Id.
; see also 28 C.F.R. § 42.108(b) (2009) (“If an applicant or recipient fails or refuses to furnish an assurance [of nondiscrimination] required under § 42.105, or fails or refuses to comply with the provisions of the assurance it has furnished, or otherwise fails or refuses to comply with any requirement imposed by or pursuant to title VI or this subpart, Federal financial assistance may be suspended, terminated, or refused . . . .”). Title IX regulations incorporate the administrative enforcement procedures of Title VI of the Civil Rights Act of 1964. See 34 C.F.R § 106.71 (2009)
(cross-referencing 34 C.F.R § 100.6-100.11).
39
Franklin v. Gwinnett Cnty. Pub. Sch., 503 U.S. 60, 76 (1992) (holding that a private party can recover damages in a Title IX suit); Cannon v. Univ. of Chi., 441
U.S. 677, 689 (1979) (holding that an individual plaintiff has an implied private right of action under Title IX).

392 BROOKLYN LAW REVIEW [Vol. 76:1
B.
Background and Scope of Title IX
Title IX was enacted in 1972 as one of many congressional measures 40 designed to combat gender inequality.
41 As the civil rights movement gained currency in the 1960s, gender discrimination in education became a prominent political issue.
42 In 1970, hearings before a Special
House Subcommittee documented pervasive gender discrimination in educational institutions.
43 Two years later, during the Senate debate on the Education Amendments of
1972, Senator Birch Bayh 44 introduced the amendment that was ultimately passed as Title IX.
45
As originally enacted, Title IX said nothing about athletics.
46 In fact, sports are virtually absent in the statute’s
40
See, e.g.
, Equal Credit Opportunity Act, Pub. L. No. 93-495, § 502, 88 Stat.
1500, 1521 (1974) (codified as amended at 15 U.S.C. § 1691 (2006)) (prohibiting discrimination in consumer credit practices on the basis of sex or marital status);
Women’s Educational Equity Act of 1974, Pub. L. No. 93-380, § 408, 88 Stat. 554, 554-55
(codified as amended at 20 U.S.C. § 1866 (2006)) (authorizing federal funding to programs designed to promote gender equity in education); Equal Rights Amendment, H.R.J. Res.
208, 92d Cong., 2d Sess., 86 Stat. 1523, 1523-24 (1972) (proposed constitutional amendment guaranteeing equal rights to both sexes under state and federal law).
41
As former Senator Birch Bayh—the principal sponsor of the original legislation—stated, “What we were really looking for was equal opportunity . . . for young women and for girls in the educational system of the United States of
America. . . . [T]hat’s what Title IX was intended to do.” Senator Birch Bayh, Address at the Secretary’s Commission on Opportunity in Athletics 24 (Aug. 27, 2002), available at http://www.ed.gov/about/bdscomm/list/athletics/transcript-082702.pdf.
42
T ITLE IX L EGAL M ANUAL , supra note 29, at 16; W ELCH S UGGS , A P LACE ON
THE T EAM : T HE T RIUMPH AND T RAGEDY OF T ITLE IX 32 (2005).
Sex discrimination in employment was prohibited by Title VII of the Civil
Rights Act of 1964, but Title VII specifically exempted academic institutions. Nancy
Hogshead-Makar & Andrew Zimbalist, Staking a Claim: The First Decade , in E QUAL
P LAY : T ITLE IX AND S OCIAL C HANGE 49, 49 (Nancy Hogshead-Makar & Andrew Zimbalist eds., 2007). And while Title VI of the Civil Rights Act of 1964 proscribed racial discrimination in the educational context, it did not apply to women as a class. Id.
43
See Discrimination Against Women: Hearings Before the Spec. Subcomm. on
Educ. of the H. Comm. on Educ. & Labor on § 805 of H.R. 16098 , 91st Cong., 2d Sess. (1970).
44
All references in this note to Senator Bayh are to Birch Evans Bayh II.
45
See Education Amendments of 1972, Pub. L. No. 92-318, §§ 901-03, 86
Stat. 235, 373-75 (codified as amended at 20 U.S.C. §§ 1681-1688 (2006)); see also
Hogshead-Makar & Zimbalist, supra note 42, at 50. Senator Bayh first introduced his proposal as an amendment to the Education Amendments of 1971, S. 659, 92d Cong.,
1st Sess. (1971). See 117 C ONG .
R EC . 30,403 (1971) (statement of Senator Bayh)
(introducing an amendment to S. 659, 92d Cong., 1st Sess. (1971)). But Senator Bayh’s
1971 proposal never came to a vote on the Senate floor because it was deemed not germane to the bill. See 117 C ONG .
R EC . 30,415 (1971).
46
See E ILEEN M C D ONAGH & L AURA P APPANO , P LAYING WITH THE B OYS : W HY
S EPARATE I S N OT E QUAL IN S PORTS 103 (2008).

2010] POLICING THE POLICING OF INTERSEX BODIES 393 pre-enactment history.
47 Soon after the law’s passage, however, it became clear that athletic programs could fall within Title
IX’s broad antidiscrimination provision.
48 The National
Collegiate Athletic Association (NCAA)—male-only at the time—mounted a fierce lobbying campaign to limit the legislation’s coverage of athletics.
49 These attempts were ultimately unsuccessful, 50 and in 1974, Congress made it clear that Title IX reached school athletic programs when it directed the Department of Health, Education, and Welfare (HEW)— the predecessor of the Department of Education (DOE) 51 —to issue regulations for intercollegiate athletics.
52
The athletic regulations were signed into law in 1975, 53 but it would take nearly thirteen more years to resolve which
47
118 C ONG .
R EC . 5807 (1972) (statement of Senator Bayh) (noting that differential treatment based solely on sex would be permitted only in exceptional cases
“such as . . . in sports facilities or other instances where personal privacy must be preserved”); 117 C ONG .
R EC . 30,407 (1971) (statement of Senator Bayh) (explaining that Title IX, as proposed, would not mandate sex-integrated intercollegiate football or locker rooms); see also Courtney W. Howland, Note, Sex Discrimination and
Intercollegiate Athletics: Putting Some Muscle on Title IX , 88 Y ALE L.J. 1254, 1255 n.11
(1979) (“[S]ports were only mentioned twice in the congressional debate.”).
Moreover, because Title IX was passed as a floor amendment—without formal hearings or a committee report—there is little pre-enactment legislative history surrounding the statute’s scope. See N. Haven Bd. of Educ. v. Bell, 456 U.S. 512, 527
(1982) (noting that, due to Title IX’s genesis as a floor amendment, there is little legislative history surrounding its scope); Diane Heckman, Women & Athletics: A
Twenty Year Retrospective on Title IX , 9 U.
M IAMI E NT .
& S PORTS L.
R EV . 1, 9 (1992)
(same); Brian L. Porto, Completing the Revolution: Title IX as Catalyst for an
Alternative Model of College Sport s, 8 S ETON H ALL J.
S PORT L. 351, 359 (1998) (same).
48
See Cohen v. Brown Univ., 991 F.2d 888, 893 (1st Cir. 1993).
49
See M C D ONAGH & P APPANO , supra note 46, at 103-04. The NCAA initially pushed for an amendment that would have excluded intercollegiate athletics altogether from Title IX. Id.
at 138-39. When these efforts failed, the association instead sought an exemption for revenue-producing sports. See Porto, supra note 47, at 361.
50
In 1974, Senator John Tower offered an NCAA-supported bill that would have exempted from Title IX any sport that produced revenue or donations for a school.
Hogshead-Makar & Zimbalist, supra note 42, at 50; Porto, supra note 47, at 361.
Although the Tower Amendment passed in the Senate, it was rejected during a House-
Senate conference committee. Porto, supra note 47, at 361.
51
Title IX enforcement responsibility was transferred from HEW to the DOE when Congress split HEW into two separate administrative agencies, (1) the
Department of Health and Human Services and (2) the DOE. See Department of
Education Organization Act, Pub. L. No. 96-88, § 102, 93 Stat. 668, 670 (1979) (codified at 20 U.S.C. § 3441 (2006)). The DOE adopted the Title IX regulations promulgated by
HEW virtually unchanged. Cohen , 991 F.2d at 895.
52
Education Amendments of 1974, Pub. L. No. 93-380, § 844, 88 Stat. 484,
612 (directing the Secretary of HEW to “prepare and publish . . . regulations implementing the provisions of title IX,” including rules for intercollegiate athletics,
“considering the nature of particular sports”); see also 20 U.S.C. § 1681 (referencing the
Education Amendments of 1974); Hogshead-Makar & Zimbalist, supra note 42, at 50.
53
See 40 Fed. Reg. 24,128 (1975) (codified at 34 C.F.R. § 106). The regulations also provided a grace period for schools to come into compliance with Title

394 BROOKLYN LAW REVIEW [Vol. 76:1 athletic programs and activities came within Title IX’s jurisdictional scope.
54 In the interim, courts struggled to determine whether the federal assistance necessary to trigger
Title IX coverage was institution-wide or program-specific.
55
Under the institution-wide approach, if any part of an educational institution received federal assistance, the entire institution fell within the purview of Title IX.
56 Proponents of the program-specific approach, by contrast, maintained that
Title IX reached only the educational programs and departments that received federal funds directly.
57 The implications of this debate were far-reaching. Because school athletic departments rarely received direct federal aid, the program-specific interpretation effectively insulated school athletics from Title IX’s grasp.
58
In 1984, the Supreme Court resolved this judicial split.
In Grove City College v. Bell , the Court held that Title IX was program-specific.
59 This ruling effectively “cabined Title IX” 60 until 1988 when Congress enacted the Civil Rights Restoration
Act 61 (Restoration Act), which ratified the institution-wide approach.
62 Adopting a broad definition of program or activity , 63
IX. Elementary schools were given until July 1976; high schools and colleges had until
July 1978. Id.
at 24,143.
54
See Civil Rights Restoration Act of 1987, Pub. L. No. 100-259, § 2, 102 Stat.
28, 28-29 (1988) (codified as amended at 20 U.S.C. § 1687 (2006)) (defining program or activity broadly, effectively bringing all federally funded educational institutions and their component programs within the purview of Title IX).
55
Title IX and Intercollegiate Athletics: Current Judicial
Interpretation of the Standards for Compliance , 74 B.U.
L.
R EV . 553, 560 (1994).
56 supra note 47, at 360.
57
See Johnson, supra note 55, at 560-61; Porto, supra note 47, at 360. For a compilation of early-1980s decisions reaching opposite conclusions on the meaning of program or activity , see Johnson, supra note 55, at 560 nn.48-49 (1994) and the cases cited there.
58
See Porto, supra note 47, at 360.
59
Grove City Coll. v. Bell, 465 U.S. 555, 571-74 (1984).
60
See Cohen v. Brown Univ., 991 F.2d 888, 894 (1st Cir. 1993).
61
Civil Rights Restoration Act of 1987, Pub. L. No. 100-259, § 2, 102 Stat. 28,
28-29 (1988) (codified as amended at 20 U.S.C. § 1687 (2006)). Although this legislation was not passed until several years after Grove City , Congress responded to the decision rather quickly. Just weeks after the Grove City decision, Senator Edward Kennedy introduced a bill that would have replaced Title IX’s phrase program or activity with the word recipient . See S. 2598, 98th Cong. (1984). Representative Paul Simon introduced an identical bill in the House. See H.R. 5490, 98th Cong. (1984).
62
The Act specifically stated,
Congress finds that (1) certain aspects of recent decisions and opinions of the
Supreme Court have unduly narrowed or cast doubt upon the broad application of title IX of the Education Amendments of 1972 . . . and; (2) legislative action is necessary to restore the prior consistent and longstanding executive branch interpretation and broad, institution-wide application of those laws as previously administered.

2010] POLICING THE POLICING OF INTERSEX BODIES 395 the Restoration Act effectively brought all federally funded educational institutions—and their component athletic programs—within the ambit of Title IX.
64
C. Title IX’s Regulatory Enforcement Scheme
The mechanics of Title IX compliance are predominantly a matter of regulatory law. The Office for Civil Rights (OCR), a division within the DOE, has primary enforcement responsibility for Title IX.
65 OCR enforces the statute by investigating complaints alleging Title IX violations and by conducting periodic compliance reviews on its own initiative.
66
If OCR determines that an institution has violated the law, it will attempt to resolve the discrimination by informal means.
67
If these efforts fail, however, OCR will initiate formal procedures, culminating in termination of federal assistance.
68
Title IX compliance is assessed in accordance with the
DOE’s 69 administrative regulations, originally issued in 1975.
70
Tracking the statute’s language, the regulations broadly prohibit sex discrimination in school athletics.
71 Under the regulations, qualifying institutions must provide equal athletic opportunities for both sexes.
72 The athletic opportunities available to male and female students, however, need not be exactly the same.
73 For example, in competitive sports, sex-segregated teams are permissible as long as comparable teams are offered to both
Civil Rights Restoration Act of 1987 § 2, 102 Stat. at 28.
63
See id. at 28-29.
64
See Porto, supra note 47, at 364.
65
Office for Civil Rights, OCR Complaint Processing Procedures , U.S. D EP ’ T
OF E DUC ., http://www2.ed.gov/about/offices/list/ocr/complaints-how.html (last modified
Jan. 8, 2010).
66
Title IX: A Policy Interpretation, 44 Fed. Reg. 71,413, 71,418 (1979)
[hereinafter Policy Interpretation].
67
Id.
at 71,418-71,419.
68
Id.
at 71,419.
69
Title IX’s implementing regulations were originally promulgated by HEW, see supra notes 51-52 and accompanying text, as was a subsequent policy interpretation of the regulations, see Policy Interpretation, supra note 66, at 71,413.
For the sake of clarity, however, this note will treat HEW’s successor, the DOE, as the promulgating agency.
70
See 40 Fed. Reg. 24,128 (1975) (codified at 34 C.F.R. § 106).
71
34 C.F.R. § 106.41(a) (2009).
72
Id.
§ 106.41(c).
73
See Policy Interpretation, supra note 66, at 71,417-71,418 (“In the selection of sports, the regulation[s] do[] not require institutions to . . . provide exactly the same choice of sports to men and women.”).

396 BROOKLYN LAW REVIEW [Vol. 76:1 sexes or the activity involved is a contact sport.
74 Moreover, a school may sponsor contact-sport teams exclusively for males; all-female equivalent teams are required only if there is sufficient interest and ability within the female student body.
75
Compliance with the equal-opportunity mandate is evaluated based on a nonexclusive list of factors delineated in the regulations.
76 These factors include the provision of facilities and equipment, access to coaching and academic tutoring, travel allowances, compensation of coaches, and publicity.
77 Also listed is the broader consideration of whether a school “effectively accommodate[s] the interests and abilities . . . of both sexes.” 78
The effective-accommodation standard is clarified in
OCR’s 1979 Policy Interpretation, which also addresses athletic scholarships and other benefits (such as equipment and facilities).
79 Compliance with the effective-accommodation mandate is assessed by a disjunctive three-part test: (1) whether athletic opportunities “are provided in numbers substantially proportionate to their respective enrollment[],”
(2) “whether the institution can show a history and continuing practice of program expansion” for the underrepresented sex, or (3) whether “the interests and abilities of the
[underrepresented sex] have been fully and effectively accommodated.” 80 An institution may demonstrate compliance with the law in any of these three ways.
81
74
34 C.F.R. § 106.41(b) .
Contact sports are defined as “boxing, wrestling, rugby, ice hockey, football, basketball and other sports[,] the purpose or major activity of which involves bodily contact.” Id. Integrated competitive teams are required only when (1) an institution sponsors a team for members of one sex but not the other, and
(2) the excluded sex’s athletic opportunities have previously been limited. Id.
75
See id.
; Policy Interpretation, supra note 66, at 71,418.
76
34 C.F.R. § 106.41(c).
77
Id.
78
Id.
79 supra note 66, at 71,415-71,418. The purpose of the
Policy Interpretation was to “provide further guidance on what constitutes compliance with the law” in response to “nearly 100 complaints alleging discrimination in athletics against more than 50 institutions of higher education” and “to answer questions from the university community.” Id.
at 71,413. Although the Policy Interpretation was “designed specifically for intercollegiate athletics,” it specified that “its general principles will often apply to club, intramural, and interscholastic athletic programs.” Id.
80
Id. at 71,418.
81
Letter from the U.S. Dep’t of Educ., Office for Civil Rights, Clarification of
Intercollegiate Athletics Policy Guidance: The Three-Part Test (Jan. 16, 1996), available at http://www2.ed.gov/print/about/offices/list/ocr/docs/clarific.html (“[T]he three-part test furnishes an institution with three individual avenues to choose from when determining how it will provide individuals of each sex with nondiscriminatory opportunities to participate in intercollegiate athletics. If an institution has met any part of the three-part test, OCR will determine that the institution is meeting this requirement.”).

2010] POLICING THE POLICING OF INTERSEX BODIES 397
II. S EX ( OR I S I T G ENDER ?): C REATING C ATEGORIES ,
S HAPING B ODIES , AND A SCRIBING M EANING
Before examining Title IX’s implications for intersex student athletes, it is important to define the statute’s key term: sex. Sex is often distinguished from gender—the former, a biological identity and the latter, a social one.
82 But sex and gender—biology and culture—are not wholly distinct. Scientific knowledge is not produced in a cultural vacuum. Cultural perceptions inform biological classification.
83 On a fundamental level, what counts as one sex or the other is driven by social decision.
84 Intersex bodies—neither fully male nor fully female— demonstrate that the male-female binary is not preordained.
The characteristics used to “sex” bodies 85 may derive from biology, but it is society, not nature, that ascribes meaning to them.
86 Moreover, sociocultural factors have physical consequences on human bodies themselves.
87 Athletic prowess, for example, is not simply a matter of genetics; nor is it solely a matter of biological sex. Social norms and opportunities are important variables.
88 Like sex categories, the bodily traits viewed as sex-specific contain a cultural dimension.
A.
Sex and Gender: Terminology
In popular discourse, the term sex stands for a
“biological categorization based primarily on reproductive potential” while gender refers to the social condition of being a man or woman.
89 In recent years, this distinction between sex
82
See infra notes 89-94 and accompanying text.
83
See infra Part II.B.2.
84
See infra Part II.B.2.
85
This phrase comes from Anne Fausto-Sterling’s book, Sexing the Body .
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22.
86
Just as sex is not purely biological, gender is not purely social. There is substantial evidence, for example, that human beings are not gender-neutral at birth.
To a certain degree, humans are “predisposed and biased to interact with environmental, familial, and social forces in either a male or female mode.” Alice
Domurat Dreger, Ambiguous Sex or Ambivalent Medicine? Ethical Issues in the
Treatment of Intersexuality , H ASTINGS C ENTER R EP ., May-June 1998, at 24, 25
[hereinafter Dreger, Ambiguous Sex ] (quoting Milton Diamond & H. Keith
Sigmundson, Sex Reassignment at Birth: Long-Term Review and Clinical Implications ,
15 A RCHIVES P EDIATRICS & A DOLESCENT M ED . 298, 303 (1997)).
87
See infra Part II.C.2.
88
See infra notes 99-103, 242-64 and accompanying text.
89
See P ENELOPE E CKERT & S ALLY M C C ONNELL -G INET , L ANGUAGE AND
G ENDER 10 (2003).

398 BROOKLYN LAW REVIEW [Vol. 76:1 and gender—body and culture—has been widely debated in scientific and feminist forums.
90 Sex-linked biological differences have historically been invoked to justify social inequalities between males and females.
91 During the 1970s, in an effort to counter the view of biology as destiny, feminists called for a categorical distinction between sex and gender.
92
Sex was “the supposed biological essence that underlay gender”; gender referred to “the social overlay that produced two different categories of being—men and women, through an ill-defined process of socialization.” 93 While certain anatomical distinctions were obvious, they argued, most differences between men and women were the product of social institutions, not biological determinism.
94
Initially, this theory was seen as a triumph for feminism.
95
It “showed why biology could not be used to justify women’s subordination” and provided conceptual backing to challenge gender stereotypes.
96 Ultimately, however, “[l]eaving ‘sex’ in the realm of scientifically verifiable fact left feminism vulnerable to a new tide of biological difference” used to justify the differential treatment of men and women.
97
The sex/gender dichotomy has steadily eroded over the past few decades as scholars have demonstrated that culture and body converge significantly.
98 In actuality, bodies are
90
Essay Review: The Sex/Gender Perplex , 31 S TUD .
H IST .
P HIL .
B IOLOGY & B IOMEDICAL S CI . 637, 637 (2000) [hereinafter Fausto-Sterling,
Sex/Gender Perplex ].
91
Anne , in D EBATING B IOLOGY : S OCIOLOGICAL R EFLECTIONS ON H EALTH , M EDICINE AND
S OCIETY 123, 123 (Simon J. Williams, Lynda Birke & Gillian A. Bendelow eds., 2003)
[hereinafter Fausto-Sterling, The Problem with Sex/Gender ].
92
Making Gendered People: Bodies, Identities, Sexualities , in
R EVISIONING G ENDER 449, 451 (Myra Marx Ferree, Judith Lorber & Beth B. Hess eds.,
2000); Fausto-Sterling, The Problem with Sex/Gender , supra note 91, at 123. For a concise summary of the argument used to advance the sex/gender distinction, see John
Hood-Williams, Sexing the Athletes , 12 S OC .
S PORT J.
290, 295-96 (1995).
93
The Problem with Sex/Gender , supra note 91, at 123.
94
Sex/Gender Perplex , supra note 90, at 638.
95 supra note 92, at 451-52.
96
Id.
97
The Problem with Sex/Gender , supra note 91, at 123-24.
98
See E CKERT & M C C ONNELL -G INET , supra note 89, at 10. Still, the bifurcated perception of sex and gender has not been wholly eradicated from contemporary discourse. See, e.g.
, J.E.B. v. Alabama ex rel.
T.B., 511 U.S. 127, 157 n.1
(1994) (Scalia, J., dissenting) (“The word ‘gender’ has acquired the new and useful connotation of cultural or attitudinal characteristics (as opposed to physical characteristics) distinctive to the sexes. That is to say, gender is to sex as feminine is to female and masculine to male.”); Jill Pilgrim, David Martin & Will Binder, Far from the Finish Line: Transsexualism and Athletic Competition , 13 F ORDHAM I NTELL .
P ROP .

2010] POLICING THE POLICING OF INTERSEX BODIES 399 neither static nor immutable; rather, they change over time, and are shaped by social norms, cultural practices, and economic conditions. Life expectancies, for example, are higher in more developed countries than in less developed ones.
99
Similarly, bone development is not “a passive unfolding of biology” but can be shaped by culture.
100 Urban ultra-Orthodox
Jewish adolescents—who perform less physical activity, consume fewer dairy products overall, and are exposed to less sunlight than more secular adolescents—have reduced spinal bone mineral density.
101 By contrast, Chinese women that perform daily agricultural labor have increased bone mineral density.
102 Moreover, social norms can influence deliberate bodily processes and changes, such as plastic surgery, diet, and the use of enhancement drugs (i.e., diet pills or steroids).
103 As these examples elucidate, “there is no obvious point at which sex leaves off and gender begins.” 104 The conceptual bifurcation of sex (as biological) and gender (as culturally constructed), then, is deeply problematic, if not untenable altogether. To analyze sex-linked differences and gendered behaviors, both body and culture must be considered.
105
B.
Intersex Conditions and the Binary Myth
In the context of intersex conditions, the sex/gender distinction is more than an argument over semantics.
M EDIA & E NT .
L.J. 495, 498 (2003) (“[W]hereas ‘sex’ considers what is male and what is female, ‘gender’ considers what is masculine and what is feminine. The two terms are often (incorrectly) used interchangeably.”).
99
See, e.g.
, D EP ’ T OF E CON .
& S OC .
A FFAIRS , R ETHINKING P OVERTY : R EPORT
ON THE W ORLD S OCIAL S ITUATION 69 (2010), available at http://www.un.org/esa/socdev/ rwss/docs/2010/fullreport.pdf (reporting that the average life expectancy for babies born in 2005 was seventy-five years in more developed regions, sixty-four years in less developed regions, and fifty-four years in the least developed regions (citation omitted)); cf.
Nancy Krieger & George Davey Smith, “Bodies Count,” and Body Counts:
Social Epidemiology and Embodying Inequality , 26 E PIDEMIOLOGIC R EV . 92, 96 (2004)
(“For decades it was suggested that the lower height of the Japanese as compared with
Europeans was genetic; however, second- and third-generation Japanese migrants to the United States, and now Japanese people living in Japan, have come to attain heights akin to those of their European counterparts.” (citations omitted)).
100
Anne , 30
S IGNS : J.
W OMEN C ULTURE & S OC ’ Y 1491, 1491, 1498 (2005) [hereinafter Fausto-
Sterling, Bare Bones ].
101
Id.
at 1491.
102
Id.
103 supra note 92, at 454.
104
See E CKERT & M C C ONNELL -G INET , supra note 89, at 10.
105
See Anne Fausto-Sterling, Is Gender Essential?
, in S ISSIES AND T OMBOYS :
G ENDER N ONCONFORMITY AND H OMOSEXUAL C HILDHOOD 56 (Matthew Rottnek ed., 1999).

400 BROOKLYN LAW REVIEW [Vol. 76:1
Conventional wisdom posits that binary sex is a biological given, but intersex bodies “mix together anatomical components conventionally attributed to both males and females.” 106 From a purely biological standpoint, then, the twosex model does not account for the diversity of human beings.
The male-female binary is as much the product of social decision as it is a “scientifically verifiable fact.” 107
1.
Intersex Conditions
Intersex encompasses a wide range of conditions that cause physical sex traits to develop atypically.
108 Intersex conditions may arise from genital, chromosomal, or gonadal
“anomalies.” 109 Hypospadias is a condition affecting the male genitalia where the urethra does not open at the tip of the penis.
110 In minor hypospadias, the opening may be located on the underside of the penis; in moderate cases, the urethra may open along the shaft; and in severe forms, it may be as far down as the scrotum.
111 Chromosomal conditions include Kinefelter syndrome and Turner syndrome. Kinefelter syndrome results in an XXY chromosomal combination in males and, in most cases,
106
A NNE F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 31.
107
The Problem with Sex/Gender , supra note 91, at 123; Lisa
Pearlman, Transsexualism as Metaphor: The Collision of Sex and Gender , 43 B UFF .
L.
R EV . 835, 842-43 (1995).
108
The intersex conditions discussed here are the most common. For further discussion of intersex conditions, see Intersex Conditions , I NTERSEX S OC ’ Y N.
A M ., http://www.isna.org/faq/conditions (last visited July 11, 2010). Contrary to popular belief, it is physically impossible to possess both male and female genitals. Alice
Domurat Dreger, “Both Sets of Genitals”…Not.
, A LICE D REGER .
COM , http://alicedreger. com/both_sets_of_genitals.html (Mar. 31, 2009).
109
See generally F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 51-
54; Julie A. Greenberg, Defining Male and Female: Intersexuality and the Collision
Between Law and Biology , 41 A RIZ .
L.
R EV .
265, 281-89 (1999). What constitutes an anomaly is, of course, relative. Intersex bodies are anomalous only if binary sex is the benchmark for normality. But there is good reason to question this understanding of sex. As pathologist and immunologist Gerald Callahan notes,
Even if we wished to explain all [intersex conditions] away as some simple sort of genetic mutation, we have to ask ourselves, why does that mutation keep popping up? Why does it appear in so many societies? Generally, these people aren’t reproductive. Biologically, that should be a death knell for their genes. But the people and their genes don’t go away. Perhaps all of us are essential in ways we have not yet imagined.
G ERALD N.
C ALLAHAN , B ETWEEN XX AND XY: I NTERSEXUALITY AND THE M YTH OF T WO
S EXES 149 (2009).
110
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 52.
111
Id.

2010] POLICING THE POLICING OF INTERSEX BODIES 401 infertility.
112 In Turner syndrome, the absence of one of the sex chromosomes 113 (either X or Y) causes an XO chromosome pattern and unformed, nonfunctioning gonads.
114
Swyer syndrome, or pure gonadal dysgenesis, is a gonadal condition occurring in XY individuals.
115 Despite having an XY chromosomal makeup, people with Sywer syndrome are phenotypically 116 female due to a genetic mutation that prevents testes from forming in utero.
117 Some cases of Swyer syndrome are caused by a mutation to the SRY (the sex-determining region Y) gene—the gene on the Y chromosome that induces testes development in an XY fetus.
118 Without a functional SRY gene, female genitalia develop by default, 119 and an affected child will appear female at birth.
120 Swyer syndrome is usually undetected until puberty when female secondary sex characteristics, such as breast development, fail to appear and menstruation does not begin.
121
Androgen insensitivity syndrome (AIS) is a hormonal condition affecting XY individuals.
122 Children with AIS are born with functioning testes but are unable—either completely or partially—to process androgens.
123 Because people with complete
AIS lack the receptors necessary to metabolize androgens, they
112 id.
; Greenberg, supra note 109, at 283.
113
Human cells have twenty-three pairs of chromosomes (forty-six in total).
L AURALEE S HERWOOD , H UMAN P HYSIOLOGY : F ROM C ELLS TO S YSTEMS 745 (7th ed.
2010). Twenty-two of these pairs are autosomal chromosomes, which code for most general human characteristics; sex chromosomes are the twenty-third pair. Id.
Genetic females have two X chromosomes (XX), while genetic males have one X chromosome and one Y chromosome (XY). Id.
114 supra note 109, at 284.
115
Id.
116
The refers to the observable characteristics of an organism.
Genotype describes the set of genes an organism carries. Richard Lewontin, The
Genotype/Phenotype Distinction , S TANFORD E NCYLOPEDIA P HIL . (Jan. 23, 2004), http:// plato.stanford.edu/entries/genotype-phenotype/.
117
N AT ’ L O RG .
FOR R ARE D ISORDERS , S WYER S YNDROME 2-3 (2008), available at http://orphancommunications.com/Documents/Swyer%20syndrome%20WS.pdf.
118
Id. at 3; Surg Cdr R Panicker et al., Swyer’s Syndrome: An Uncommon
Cause of Primary Amenorrhoea , 65 M ED .
J.
A RMED F ORCES I NDIA 186, 186 (2009).
119
Ovaries, on the other hand, will not develop in individuals with Swyer syndrome. Greenberg, supra note 109, at 284. Affected individuals will have only streak gonads (i.e., unformed and nonfunctional gonads). Id.
120
Id.
During gestation, primordial gonad cells develop as female in the absence of a virilizing factor. C OMM .
ON U NDERSTANDING THE B IOLOGY OF S EX & G ENDER
D IFFERENCES , I NST .
OF M ED ., E XPLORING THE B IOLOGICAL C ONTRIBUTIONS TO H UMAN
H EALTH : D OES S EX M ATTER ?
41 (Theresa M. Wizemann & Mary-Lou Pardue eds., 2001).
121 supra note 109, at 284.
122
See id. at 286.
123
See id.

402 BROOKLYN LAW REVIEW [Vol. 76:1 develop as phenotypic females.
124 Individuals with partial AIS develop phenotypic male features in varying degrees, depending on the extent that their bodies can process androgens.
125 Similar to AIS, 5-alpha reductase deficiency (5-ARD) is characterized by
XY chromosomes, male gonads, and a female appearance at birth.
126 Unlike AIS, however, the testes of an individual with 5-
ARD descend at puberty.
127 Still another hormonal condition is congenital adrenal hyperplasia (CAH). In CAH, an enzyme deficiency prevents the synthesis of cortisol, in turn, causing an increased production of androgen.
128 While this abundance of androgen has no gonadal or chromosomal effect, it causes the genitals to appear masculine, either at birth or later.
129
2.
Constructing Categories and Containing Bodies
With intersex conditions occurring so frequently and in such varied form, 130 one might wonder how binary sex became so culturally ingrained in the first place. As Brown University biologist Anne Fausto-Sterling explains, prevailing gender norms frame scientists’ approach, study, and interpretation of science itself—shaping “what kinds of knowledge scientists produce about sex.” 131 For example, the labeling of estrogens
124
See id.
Complete AIS results in undescended (or internal) testes. See id.
125
See
126
C ALLAHAN , supra note 109, at 109. Individuals with 5-ARD have a deficiency of
5-alpha reductase type 2, the enzyme needed to convert testosterone to dihydrotestosterone.
Id.
Without the dihydrotestosterone conversion, testes develop but do not descend, causing the genitals to appear female. Id.
In the best-selling novel Middlesex , the narrator and protagonist has 5-ARD. See J EFFREY E UGENIDES , M IDDLESEX (2002).
127
C ALLAHAN , supra note 109, at 108-09.
128 supra note 109, at 288; Perrin C. White & Phyllis W. Speiser,
Congenital Adrenal Hyperplasia due to 21-Hydroxylase Deficiency , 21 E NDOCRINE R EV .
245, 245-46 (2000).
129
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 52; Greenberg, supra note 109, at 288.
A very rare gonadal condition is ovotesticular disorder of sexual development (ovotesticular DSD), formerly called true hermaphroditism . Affected individuals have both ovarian and testicular tissue either in the same or different gonads. C ALLAHAN , supra note 109, at 76-77; Greenberg, supra note 109, at 285.
130
Intersex conditions also exist among animals. For example, hamlet fish have both male and female reproductive organs, and while mating, they take turns in the roles of male and female. C ALLAHAN , supra note 109, at 110. Similarly, all female spotted hyenas have genitals that closely resemble those of their male counterparts.
Id.
at 100-01. Female spotted hyenas have had this anatomical trait for as long as the species has existed—about seven million years; “[a]nd all that time [they] have had an anatomical ‘problem’ that, if they were humans, we would insist on fixing.” Id.
at 103.
131
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 3; see also A NNE
F AUSTO -S TERLING , M YTHS OF G ENDER : B IOLOGICAL T HEORIES A BOUT M EN AND W OMEN
220 (2d ed. 1992) [hereinafter F AUSTO -S TERLING , M YTHS OF G ENDER ] (“[O]ur cultural

2010] POLICING THE POLICING OF INTERSEX BODIES 403 and androgens as sex hormones —estrogen as female and androgen as male—was largely a consequence of preconceived notions among early-twentieth-century researchers that hormones were “chemical messengers of masculinity and femininity.” 132 As research progressed, scientists discovered that sex hormones have many functions unrelated to sex and that neither “male” nor “female” hormones are unique to the bodies of either sex.
133 By that point, however, “the assumption[] that hormones were gendered [was] already deeply ingrained” 134 —an idea that was preserved when the terms androgens (i.e., to build a man) and estrogens (i.e., to cause estrus, the reproductive cycle) were adopted in lieu of male hormones and female hormones , respectively.
135
Similarly, as feminist and gay rights activists vigorously challenged prevailing gender roles during the late nineteenth century, scientists and physicians contained intersex by conceptually narrowing the number of people whose bodies did not conform to the binary paradigm.
136 Alice Dreger, Northwestern
University professor of clinical medical humanities and bioethics, dubs this period the “Age of Gonads.” 137 During this time, biomedical experts designated gonads as the sole signifiers of true sex.
138 Thus, under this approach, the conditions identified as intersex were limited to the rare case of true hermaphroditism, 139 a condition characterized by the presence of both ovarian and testicular tissue in the gonads.
140 And given the unsophisticated conceptions will change the way our bodies grow, and how our bodies grow will change the way our culture views them.”); T HOMAS L AQUEUR , M AKING S EX : B ODY AND G ENDER
FROM THE G REEKS TO F REUD 10 (1992); Anne Fausto-Sterling, Society Writes
Biology/Biology Constructs Gender , 116 D AEDALUS 61, 69 (1987) [hereinafter Fausto-
Sterling, Society Writes Biology ] (“The language used [in biological literature] to describe
‘the facts’ has channeled experimental thought along certain lanes, leaving others not only unexplored but unnoticed.”); Emily Martin, The Egg and the Sperm: How Science
Has Constructed a Romance Based on Stereotypical Male-Female Roles , 16 S IGNS 485,
486 (1991) (“[G]ender stereotypes [lie] hidden within the scientific language of biology.”).
132
N ELLY O UDSHOORN , B EYOND THE N ATURAL B ODY : A N A RCHEOLOGY OF S EX
H ORMONES 16-17 (1994); see F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 170-94.
133
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 177.
134
Id.
135
Id.
at 188.
136
A LICE D REGER , H ERMAPHRODITES AND THE M EDICAL I NVENTION OF S EX
146 (1998) [hereinafter D REGER , H ERMAPHRODITES ].
137
Id. at 139-66.
138
Id.
139
The contemporary term for true hermaphroditism is ovotesticular DSD . See
C ALLAHAN , supra note 109, at 76-77.
140
Under the gonadal definition of sex, individuals with mixed anatomies were forced into the binary mold: “People with testicular tissue but with some

404 BROOKLYN LAW REVIEW [Vol. 76:1 nature of nineteenth-century surgical procedures, “the only ‘true hermaphrodites’ tended to be dead and autopsied hermaphrodites.” 141
The gonad-driven approach ultimately became untenable in the early twentieth century after new diagnostic procedures—namely, laparotomies and biopsies 142 —allowed physicians to classify people as true hermaphrodites .
143 Faced with this conundrum, biomedicine retreated from a “strict notion of gonadal ‘true sex’ toward a pragmatic concept of gender,” advocating “gender reconstruction” in intersex cases.
144
Under this approach, physicians “increasingly decided to assign a gender identity to each patient—strictly boy/man or girl/woman—according to what a person’s social role already was or was likely to be given that person’s appearance.” 145
In the 1950s, surgical intervention became the norm based on the optimum gender of rearing (OGR) theory, developed by Johns Hopkins University psychologist John
Money and his colleagues.
146 The Johns Hopkins team believed that gender identity was completely malleable at birth and that
“children could be steered one way or the other so long as the steering began [approximately] before the age of two.” 147 Based on this assumption, all children born with ambiguous genitals underwent surgery so that they could be characterized as conventional males or females.
148
Under the OGR model, physicians played a dominant role in deciding whether an intersex infant should be raised as a boy or a girl.
149 Because the OGR theory assumed that gender otherwise ‘ambiguous’ anatomy were now labeled ‘male pseudo-hermaphrodites’—that is, ‘true’ males[; p]eople with ovarian tissue but with some otherwise ambiguous anatomy were labeled ‘female pseudo-hermaphrodites’—‘true’ females.” Dreger,
Ambiguous Sex , supra note 86, at 26.
141
Id.
142
A laparotomy is an exploratory procedure, while a biopsy is a sampling of cells or tissue for examination. See Alice Dreger, Doctors Containing Hermaphrodites: The Victorian
Legacy , C HRYSALIS , Fall 1997-Winter 1998, at 15, 20 [hereinafter Dreger, Victorian Legacy ].
143
Ambiguous Sex , supra note 86, at 26.
144
Id.
at 27 (second internal quotation marks omitted).
145
Dreger, Victorian Legacy , supra note 142, at 21; see also Dreger,
Ambiguous Sex , supra note 86, at 27.
146
Dreger & Herndon, supra note 16, at 202; What’s Wrong with the Way
Intersex Has Traditionally Been Treated?
, I NTERSEX S OC ’ Y N.
A M ., http://www.isna.org/ faq/concealment (last visited Jan. 3, 2010) [hereinafter ISNA, What’s Wrong?
].
147
Dreger & Herndon, supra note 16, at 202; see also ISNA, What’s Wrong?
, supra note 146.
148
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 56.
149
C ALLAHAN , supra note 109, at 7.

2010] POLICING THE POLICING OF INTERSEX BODIES 405 identity was malleable at birth, 150 surgical—and cultural— practicality dictated gender assignment.
151 To determine whether an infant born with an “undersized” phallus should be assigned male or female, the standard considerations were the potential for vaginal penetration and urination while standing up.
152 This phallocentric approach was based on a cultural measurement of male adequacy—and an elusive one at that, since reasonable minds can (and do) disagree on where to set the threshold of normality.
153 Indeed, some researchers have concluded that “a small penis does not preclude [a] normal male role.” 154 And at any rate, a penis deemed inadequate at birth may grow significantly at puberty.
155
Few criteria, on the other hand, were required for a surgically constructed vagina to be deemed functional; suitability for sexual intercourse sufficed.
156 Thus, intersex infants born with undersized penises were assigned female largely because it was surgically expedient.
157 Similarly, infants that had “enlarged” clitorises—an attribute regarded as cosmetically offensive—were subjected to clitoral reduction surgeries.
158
While surgical intervention became the standard of care after the 1950s, 159 rarely were these procedures medically
150
Dreger & Herndon, supra note 16, at 202; see also ISNA, What’s Wrong?
, supra note 146. Though Money’s writings advised clinicians to inform intersex children of their medical histories at an appropriate age, it became standard practice by the early 1990s to withhold information and engage in outright deception. Dreger &
Herndon, supra note 16, at 203.
151
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 77; Dreger,
Ambiguous Sex , supra note 86, at 28-29; Fausto-Sterling, Sex/Gender Perplex , supra note
90, at 641-44; Suzanne Kessler, The Medical Construction of Gender , 16 S IGNS 3, 25
(1990). For a brief history on the social understanding of sexual anatomy and how it has changed over time, see C ALLAHAN , supra note 109, at 9-25. Our understanding of sexual anatomy continues to evolve even today. See, e.g.
, The G-Spot “Doesn’t Appear to Exist,”
Say Researchers , BBC N EWS (U.K.) (Jan. 4, 2010), http://news.bbc.co.uk/2/hi/health/
8439000.stm (discussing a recent study that challenges the existence of a G-spot in women).
152
Sex/Gender Perplex , supra note 90, at 641.
153
Ambiguous Sex , supra note 86, at 29.
154
Id.
155
See id.
; see also Fausto-Sterling, Sex/Gender Perplex , supra note 90, at
642-43. In Saudi Arabia, for example, XX children with late-diagnosed congenital adrenal hyperplasia (CAH)—typically raised as girls in the United States and in
Europe—are often brought up as boys due to the cultural preference for male children.
Fausto-Sterling, Sex/Gender Perplex , supra note 90, at 643. For a discussion of CAH, see supra discussion accompanying notes 128-29.
156
Ambiguous Sex , supra note 86, at 29.
157
Id.
at 28.
158
Id.
159
Dreger Herndon, note 16, at 202.

406 BROOKLYN LAW REVIEW [Vol. 76:1 necessary.
160 An infant’s “genital ambiguity [would be]
‘corrected’ not because it [wa]s threatening to the infant’s life but because it [wa]s threatening to the infant’s culture.” 161
Today, however, the OGR approach has declined significantly.
162
Contemporary physicians are much more receptive to a patient-centered approach to intersex births—a model based on psychosocial support, full disclosure, informed consent, and caution in surgical intervention.
163
Despite this progress, genital surgery remains a common practice.
164 The decision to surgically assign an intersex infant one gender or the other is influenced by normative views about how bodies ought to look and what bodies ought to do.
165 Even when surgery is delayed, parents of intersex infants still must choose to raise their children as one gender or the other. While physicians are no longer the primary decision-makers, the decision is made nonetheless because “[t]o participate in society, we must be sexed.” 166 And sex/gender identification outside the
160
See Fausto-Sterling, Sex/Gender Perplex , supra note 90, at 642 (“The decision to assign an intersex infant to the male gender is more social than medical
. . . . It is not what the sex organ does for the body to which is it is attached . . . . It is what the organ does vis-à-vis other bodies.”).
161
Kessler, supra note 151, at 25; see also Fausto-Sterling, Sex/Gender
Perplex , supra note 90, at 642.
162
Dreger & Herndon, supra note 16, at 205-07. Money’s OGR model was severely undermined when Milton Diamond and H. Keith Sigmundson revealed that
David Reimer, who Money had reassigned as female after a botched circumcision, had never actually identified as female and underwent a phalloplasty as a teenager after learning of his medical history. See Milton Diamond & H. Keith Sigmundson, Sex
Reassignment at Birth: Long-Term Review and Clinical Implications , 15 A RCHIVES
P EDIATRICS & A DOLESCENT M ED . 298, 300 (1997).
163
Dreger & Herndon, supra note 16, at 205-07.
164
See id.
165
See F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 77; Fausto-
Sterling, Sex/Gender Perplex , supra note 90, at 642. Similarly, the increasing prevalence of cosmetic genital surgery demonstrates the pursuit of an aesthetically ideal genital appearance. See, e.g.
, Virginia Braun, In Search of (Better) Sexual
Pleasure: Female Genital ‘Cosmetic’ Surgery , 8 S EXUALITIES 407, 418-20 (2005).
Although physicians today approach gender assignment surgery with more caution, the view of intersex as a medical emergency remains prevalent. Earlier this year, for example, controversy emerged over of the use of prenatal dexamethasone
(popularly known as dex ) to prevent children from being born with atypical genitalia.
See Catherine Elton, A Prenatal Treatment Raises Questions of Medical Ethics , T IME
(June 18, 2010), http://www.time.com/time/health/article/0,8599,1996453,00.html. This prenatal treatment was prescribed not to prevent the underlying intersex condition; instead, it targeted the condition’s physical manifestations, id.
, reflecting the social judgment that sex ambiguity itself is pathological.
166
R IKI A NNE W ILCHINS , R EAD M Y L IPS : S EXUAL S UBVERSION AND THE E ND OF
G ENDER 56 (1997).

2010] POLICING THE POLICING OF INTERSEX BODIES 407 binary model is simply not a socially viable option.
167 As sports historian Kevin Wamsley writes,
Our inability to deal with, at times even to conceive, that gender variance is not abnormal but, instead, unique and more prevalent than commonly acknowledged, is based upon deep cultural assumptions that sex and gender are and should be binary constructs and that congruency is the order of the day.
168
The existence of alternative sex/gender systems illustrates this point. For example, Indian culture recognizes a third sex, the hijras , who are neither male nor female.
169
Similarly, some Native American cultures acknowledge a third sex/gender category, which broadly encompasses individuals whose behavior is traditionally associated with the opposite sex/gender.
170 In Brazil, the sex/gender system is grounded in a dichotomy between “men and not-men.” 171 Travesti , characterized as the latter group, is the term for a homosexual male who dresses as a woman and takes hormones to achieve feminine features, but does not seek genital-altering surgery.
172 Intersex bodies appear in mythology as well. According to Greek myth,
Hermaphroditus acquired both male and female characteristics after the gods fused his body with the female body of the nymph
167
Alice Dreger emphasizes that most intersex groups do not advocate the eradication of gender categories. Rather, intersex activists are primarily concerned with the medical mismanagement of intersex conditions—namely, genital surgeries performed on children too young to consent. See Dreger & Herndon, supra note 16, at
216-17. Dreger shares the view of most intersex groups that gender assignment is possible without corresponding genital surgery and that an intersex child should be raised as a boy or a girl because doing otherwise would be socially traumatic for a child.
See id. at 217. Some physicians, however, are hesitant to endorse an approach that postpones genital surgery. See, e.g.
, Garry L Warne & Jacqueline K Hewitt, Disorders of Sex Development: Current Understanding and Continuing Controversy , 190 M ED .
J.
A USTL . 612, 612 (2009) (cautioning that delaying genital surgery increases the risk of gonadal malignancy).
168
K EVIN B.
W AMSLEY , S OCIAL S CIENCE L ITERATURE ON S PORT AND
T RANSITIONING /T RANSITIONED A THLETES 6 (2008), available at http://www.athletescan. com/Content/Publications.asp (follow the “Promising Practices: Working with
Transitioning/Transitioned Athletes in Sport” hyperlink; then follow the “Social
Science Literature on Sport and Transitioning/Transitioned Athletes— LITERATURE
REVIEW ” hyperlink).
169
Serena Nanda, Cross-Cultural Issues , in H ANDBOOK OF S EXUAL AND
G ENDER I DENTITY D ISORDERS 457, 461-66 (David L. Rowland & Luca Incrocci eds., 2008).
170
See Carolyn Epple, Coming to Terms with Navajo “Nádleehí”: A Critique of
“Berdache,” “Gay,” “Alternate Gender,” and “Two-Spirit , ” 25 A M .
E THNOLOGIST 267, 267
(1998); see also F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 108-09.
171 supra note 169, at 464.
172
Id.

408 BROOKLYN LAW REVIEW [Vol. 76:1
Salmacis.
173 Moreover, Thai Buddhist myths describe three sexes—male, female, and kathoey or hermaphrodite.
174
Photographer Dayanita Singh’s account of her friendship with a hijra , Mona Ahmed, is particularly illuminating:
When I once asked her if she would like to go to Singapore for a sex change operation, she told me, “You really do not understand. I am the third sex, not a man trying to be a woman. It is your society’s problem that you only recognize two sexes.”
175
To be sure, the mere recognition of a third sex/gender category provides no safeguards against social inequality.
176 But the existence of cross-cultural alternatives to a two-sex system
“suggests that ours is not inevitable.” 177
Fashioned as a biological truth, the male-female binary has been integrated into sociocultural perceptions. For years, for example, American physicians prescribed hormone treatment to stunt the growth of girls who were likely to grow
“too tall for a woman.” 178 The notion that a certain height was inappropriate for a woman was a social judgment based, in turn, on “prior biological observation[s]” of female height.
179
Overlooked was the overall height increase in healthy Western
European and North American women.
180
In essence, the disconnect between intersex bodies and the two-sex system is the product of social decisions and cultural attitudes. Intersex conditions expose the sex/gender
173
George Androutsos, Hermaphroditism in Greek and Roman Antiquity ,
5 H ORMONES 214, 215 (2006).
174 supra note 169, at 466-67. This three-sex system began to decline in the mid-twentieth century when exposure to Western culture brought a shift in sex/gender ideologies. Id.
at 467. In contemporary Thailand, the term kathoey generally refers to “a ‘deficient male,’ or a male transgender category, that is, a male who breaches biological and/or cultural norms of masculinity.” Id.
175
D AYANITA S INGH , M YSELF M ONA A HMED 15 (2001).
176
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 109. Mona
Ahmed’s conversation with Dayanita Singh, supra text accompanying note 175, suggests that Ahmed actually identified with the hijra category. Other intersex people, however, might find third-sex categorization more oppressive than liberating. See, e.g.
,
Nanda, supra note 169, at 463 (“ Hijras are viewed with ambivalence in Indian society and are treated with a combination of mockery, fear, and respect.”).
177
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 109.
178
Fausto-Sterling, Society Writes Biology , supra note 131, at 71; see also
Christine Cosgrove, A ‘Too Tall’ Tale: Girls and the Drug DES , L.A.
T IMES (Apr. 5, 2009), http://www.latimes.com/news/opinion/la-oe-cosgrove5-2009apr05,0,4024242.story.
179
Society Writes Biology , supra note 131, at 71.
180
Id.
(“The biological norm that . . . influenced the social norm . . . chang[ed], while the social norm—at least for women—play[ed] a role in an attempt to prevent further biological change.”).

2010] POLICING THE POLICING OF INTERSEX BODIES 409 order—and, indeed, the social institutions structured upon that sex/gender order—as a fallacy.
C.
Shaping Athletic Performance: The Interplay of
Biological and Sociocultural Factors
Just as culture constructs bodily categories, it also influences bodily attributes. Although certain sex-linked biological differences exist, the matter is far more complicated than conventional wisdom suggests. For one thing, the impact of biological distinctions on athleticism depends on the particular sport at issue.
181 Moreover, there is a vast range of anatomical variation within each sex category, and the biological differences within those categories are greater than the differences between them.
182 Most importantly, sex-based differences—even biological ones—are influenced by sociocultural factors. Biological distinctions are difficult to measure because “[m]ind, body, and culture interact in ways that scientific research cannot wholly disentangle.” 183 Whatever criteria are used to differentiate males and females in the sports context, the dividing line will be guided, to a certain extent, by social judgments.
1.
The Role of Biology
On average, men are taller and heavier than women, and have longer limbs and wider upper bodies.
184 Men also
181
For example, spectator sports (basketball, football, and baseball), which emphasize upper-body strength, tend to offer men some advantage. Syda Kosofsky,
Toward Gender Equality in Professional Sports , 4 H ASTINGS W OMEN ’ S L.J. 209, 215
(1993). On the other hand, in endurance sports, such as marathon swimming, women’s body fat distribution increases buoyancy, see infra text accompanying notes 235-41, and their evenly distributed sweat glands provide them with more endurance than men, see infra text accompanying notes 220-21.
182
F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 218; Mary Jo
Kane, Resistance/Transformation of the Oppositional Binary: Exposing Sport as a
Continuum , 19 J.
S PORT & S OC .
I SSUES 191, 201 (1995); Carol M. Worthman,
Hormones, Sex, and Gender , 24 A NN .
R EV .
A NTHROPOLOGY 593, 607 (1995).
183
D EBORAH L.
R HODE , S PEAKING OF S EX : T HE D ENIAL OF G ENDER E QUALITY
35 (1997).
184
F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 214-17;
M C D ONAGH & P APPANO , supra note 46, at 52 (“American males as a group are 5.4 inches taller and 28 pounds heavier than American females as a group.”); Kosofsky, supra note 181, at 214-15; M ICHAELA C.
D EVRIES , D O T RANSITIONED A THLETES
C OMPETE AT AN A DVANTAGE OR D ISADVANTAGE AS C OMPARED WITH P HYSICALLY B ORN
M EN AND W OMEN ?: A R EVIEW OF THE S CIENTIFIC L ITERATURE 4 (2008), available at http://www.athletescan.com/Content/Publications.asp (follow the “Promising Practices:
Working with Transitioning/Transitioned Athletes in Sport” hyperlink; then follow the

410 BROOKLYN LAW REVIEW [Vol. 76:1 generally have larger hearts, greater lung capacity, and higher hemoglobin 185 levels, all of which tend to give males greater
VO
2 max 186 or aerobic capacity.
187 Still, there is no sex-based difference in cardiac output 188 (i.e., the amount of blood that the heart can pump in a one-minute interval).
189 And because women typically weigh less than men, they require less oxygen to exercise, a result that may offset the advantages of men’s greater lung function.
190
While male and female muscles do not vary qualitatively, men generally have greater muscle mass.
191 The average man has forty to sixty percent more upper-body strength and twentyfive to thirty percent more lower-body strength than the average woman.
192 These differences, however, vary widely between trained and untrained individuals.
193
“Do Transitioned Athletes Compete at an Advantage or Disadvantage— LITERATURE
REVIEW ” hyperlink) (noting that men are taller than women by approximately twelve to fifteen centimeters—or 4.7 to 5.9 inches).
185
Hemoglobin, also spelled “haemoglobin,” is the protein that carries oxygen in red blood cells, allowing oxygen delivery from the lungs to active muscles and other tissue. D EVRIES , supra note 184, at 6. Because hemoglobin delivers oxygen to exercising muscles, higher hemoglobin content means higher aerobic capacity. Id.
186
VO
2 max refers to the maximum amount of oxygen an individual can consume during exercise. Alan Ivkovic et al., Overuse Injuries in Female Athletes , 48
C ROAT .
M ED .
J. 767, 769 (2007). Muscle cells use oxygen to convert food energy to adenosine triphosphate (ATP), the fuel for the body’s activities. Elizabeth Quinn,
Endurance Training for Sports—What Is Cardiovascular and Aerobic Fitness?
,
A BOUT .
COM (July 29, 2009), http://sportsmedicine.about.com/od/anatomyandphysiology/ a/Endurance.htm. Contracting muscle cells require larger amounts of ATP and consume more oxygen during exercise than at rest. Id.
VO
2 max depends on (1) the heart’s blood-pumping capacity, (2) the ability of the lungs to get oxygen from the air into the blood returning from contracting muscles, (3) the blood’s oxygen-carrying capability, and (4) the ability of the muscle cells to extract oxygen from the blood and use it to produce energy or ATP. M C D ONAGH & P APPANO , supra note 46, at 55; Tony
Leyland, VO2 Max: Not the Gold Standard?
, C ROSS F IT J., Dec. 2006, at 2, available at http://library.crossfit.com/free/pdf/52_06_VO2_Not_Gold_Standard.pdf.
187
M C D ONAGH & P APPANO , supra note 46, at 55.
188
D EVRIES , supra note 184, at 6.
189
Cardiac output is calculated by multiplying heart rate by stroke volume.
Craig Coghlin, Gender Differences and Exercise , E MPOWERMENT H EALTH & F ITNESS , http://www.empowerment-health.com/Empowerment/Gender_Differences.html (last visited
Aug. 16, 2010). Women generally have reduced blood volume due to their smaller hearts, but their higher heart rates allow them to match the cardiac output of men. Id.
190
D EVRIES , supra note 184, at 6.
191 supra note 186, at 769; see also M C D ONAGH & P APPANO , supra note 46, at 54. Thus, based on a ratio of lean body mass to strength, the strength differential is virtually absent. M C D ONAGH & P APPANO , supra note 46, at 54.
192
M C D ONAGH & P APPANO , supra note 46, at 54.
193
Id.
Strength and muscle mass are also influenced by extrinsic factors, such as coaching, access to training facilities, and the social stigma attached to female muscularity. See id. (citing a study that found a zero to eight percent sex-based performance differential among trained power lifters); Shari L. Dworkin, “ Holding

2010] POLICING THE POLICING OF INTERSEX BODIES 411
Generally, lean body mass—the weight of all body tissue other than body fat 194 —also tends to be greater in males.
195 Lean body weight is correlated with athletic speed, strength, 196 and higher anaerobic 197 capacity.
198 In trained men and women, however, research shows no sex-based disparity in anaerobic capability relative to lean body mass.
199 Moreover, body fat varies significantly among members of each sex and among athletes in different sports.
200
Body fat distribution also differs between males and females. Men typically accumulate fat in the middle section and abdomen, while women tend to store fat in the lower body.
201 This distinction means that men generally have a higher center of gravity, an attribute that may impact balance and stability.
202 Still, center of gravity is more accurately tied to height and body type than to sex.
203
Additionally, men and women have different hormone systems. The average woman has higher levels of estrogen 204 while the average man produces more testosterone, 205 although there is more variation in testosterone levels among women than among men.
206 Greater estrogen concentration is
Back”: Negotiating a Glass Ceiling on Women’s Muscular Strength , 44 S OC .
P ERSP . 333,
346 (2001) (“[I]deals of emphasized femininity lead many women in the weight room to
‘just hold back.’”); see also infra Part II.C.2.
194
M C D ONAGH & P APPANO , supra note 46, at 53.
195
Id.
at 53-54; D EVRIES , supra note 184, at 5.
196
See sources cited supra note 195.
197
While aerobic exercise is characterized by “low levels of exertion over a long period of time” (e.g., marathon running), anaerobic activity “involves short bursts of higher intensity contractions at a much greater percentage of their maximum contraction strength” (e.g., sprinting or weightlifting). Marathon Versus Sprinting , S CI .
L EARNING H UB (July 23, 2007), http://www.sciencelearn.org.nz/Contexts/Sporting-
Edge/NZ-Research/Marathon-versus-sprint.
198
D EVRIES , supra note 184, at 5.
199
Id .
200
M C D ONAGH & P APPANO , supra note 46, at 53-54 (“A trained male athlete’s body fat may range from 7 percent of body mass for decathlon athletes to 20 percent among shot put throwers. Elite female runners may have body fat as low as 9 percent.”).
201
D EVRIES , supra note 184, at 5.
202
Id.
203
Heidi Prather & Deyvani Hunt, Issues Unique to the Female Runner , 16
P HYSICAL M ED .
& R EHABILITATION C LINICS N.
A M . 691, 692 (2005).
204
M C D ONAGH & P APPANO , supra note 46, at 52; D EVRIES , supra note 184, at 10.
205
M C D ONAGH & P APPANO , supra note 46, at 52; Alice Dreger, Where’s the
Rulebook for Sex Verification?
, N.Y.
T IMES (Aug. 22, 2009), http://www.nytimes.com/
2009/08/22/sports/22runner.html?_r=1 [hereinafter Dreger, Where’s the Rulebook?
].
206
M C D ONAGH & P APPANO , supra note 46, at 52. Moreover, “[g]iven cultural bias against women developing muscles, we may not yet know the physiological limits of female strength.” Id.
at 52-53.

412 BROOKLYN LAW REVIEW [Vol. 76:1 associated with female lower-body fat distribution.
207
Testosterone, on the other hand, regulates muscle development, generally allowing men to achieve greater muscle mass 208 than women.
209 But the relationship between testosterone and athletic performance is complex, 210 and some aspects are poorly understood. For instance, the androgenic response to competition—and its impact on performance—is unclear, particularly in women.
211 Testosterone appears to boost competitive performance in animals, but human studies have yielded contradictory results.
212 Some research shows a positive correlation between pre-event testosterone and performance; other studies demonstrate no relationship; and in some, elevated testosterone is associated with diminished performance.
213 Little can be extrapolated from these results,
207
See, e.g.
, Jardena J. Puder et al., Estrogen and Exercise May Be Related to
Body Fat Distribution and Leptin in Young Women , 86 F ERTILITY & S TERILITY 694, 698
(2006) (finding—independent of total body fat—a positive correlation between estrogen levels and peripheral fat, and an inverse relationship between estrogen concentrations and midsection body fat).
208
Importantly, this correlation presupposes that the testosterone is functional (i.e., that the body is capable of processing it). For example, elevated testosterone levels would be of no benefit to a woman with complete androgen insensitivity syndrome (AIS) because her body lacks the androgen receptors needed to respond to the hormone. See Dreger, Sex Typing for Sport , supra note 21, at 23; E A E
Ferris, Gender Verification Testing in Sport , 48 B RIT .
M ED .
B ULL .
683, 690 (1992); supra text accompanying notes 123-24 (discussing complete AIS).
209
Alice Dreger, The Sex of Athletes: One Issue, Many Variables , N.Y.
T IMES , Oct. 25, 2009, at SP8, available at http://www.nytimes.com/2009/10/25/sports/
25intersex.html?_r=1 [hereinafter Dreger, The Sex of Athletes ] (citation omitted).
210
Cf.
F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 130-31 (“[I]t is easy to forget that our bodies have a number of different hormone systems, all of which interact with one another . . . . Under stress, during a fight, when angry, when engaging in behavior some might label aggressive, many different hormone levels change in the body. Thus, to attribute a change in behavior to a change in a single hormone, when many different hormones rise and fall simultaneously, misrepresents the actual physiological events.”).
211
Linda Dawn Hamilton et al., The Effect of Competition on Salivary Testosterone in Elite Female Athletes , 4 I NT ’ L J.
S PORTS P HYSIOLOGY & P ERFORMANCE 538, 538 (2009).
212
Pranjal H. Mehta et al., When Are Low Testosterone Levels Advantageous?
The Moderating Role of Individual Versus Intergroup Competition , 56 H ORMONES &
B EHAV .
158, 158 (2009).
213
Id.
(summarizing the findings of prior studies); see, e.g.
, id. at 160 (finding, irrespective of sex, a positive correlation between testosterone and performance in individual competition, and a negative correlation in intergroup competition); Justin
Carré et al., Pre-Competition Hormonal and Psychological Levels of Elite Hockey
Players: Relationship to the ‘Home Advantage’ , 89 P HYSIOLOGY & B EHAV . 392, 394, 396
(2006) (reporting worse athletic performance in elite male hockey players despite higher pre-event testosterone); Hamilton et al., supra note 211, at 541 (reporting that testosterone in elite female wrestlers did not vary significantly between wins and losses); Katie T. Kivlighan et al., Gender Differences in Testosterone and Cortisol
Response to Competition , 30 P SYCHONEUROENDOCRINOLOGY 58, 66-67 (2001) (mixed-

2010] POLICING THE POLICING OF INTERSEX BODIES 413 but they do indicate that testosterone is not necessarily directly proportional to athletic prowess.
Likewise, testosterone is not the only hormone that influences muscle strength. Estrogen, too, appears to offer benefits.
214 Recent studies report a link between estrogen and muscle function in postmenopausal women.
215 In one study, researchers found that postmenopausal women who received estrogen-based hormone therapy had approximately five percent greater muscle strength than untreated postmenopausal women.
216 The study concluded that estrogen benefits the quality and function—rather than the quantity—of muscle tissue.
217 There is also evidence that estrogen minimizes exercise-induced muscle damage and inflammation, and stimulates muscle repair.
218
In addition to muscle function, there are other biological mechanisms that privilege female athletes. Relative to men, women are more resistant to fatigue and can sustain muscle contractions for longer periods of time.
219 Women also have more efficient sweat glands.
220 As a result, in hot weather, they sweat less—and conserve more body water—than men, making sex study of varsity and novice rowers finding an association between heightened preevent testosterone and poor performance in all participants except varsity women).
214
See Dawn A. Lowe et al., Mechanisms Behind Estrogen’s Effect on Muscle
Strength in Females , 38 E XERCISE & S PORT S CI .
R EV . 61, 62, 66 (2010); Paula H.A.
Ronkainen et al., Postmenopausal Hormone Replacement Therapy Modifies Skeletal
Muscle Composition and Function: A Study with Monozygotic Twin Pairs , 107 J.
A PPLIED P HYSIOLOGY 25, 29 (2009).
215
Lowe al., note 214, at 61-62. Studies on estrogen-deficient rodents have yielded similar results. See id.
at 62-63.
216
Id. at 62.
217
Id.
Additionally, some research shows a correlation between increased muscle mass and estrogen-replacement therapy in older women. See Ronkainen et al., supra note 214, at 28 (in a study of identical female twins, the sisters who received estrogen therapy had larger thigh muscles than the sisters who had no history of estrogen therapy); see also id.
at 25 (citing two studies finding a link between estrogen therapy and muscle mass). These findings, however, remain inconclusive. See id.
at 31 (discussing a study that found no relationship between estrogen therapy and muscle size).
218
Deborah L. Enns & Peter M. Tiidus, The Influence of Estrogen on Skeletal
Muscle: Sex Matters , 40 S PORTS M ED . 41, 45-53 (2010).
219
Brenda Critchfield & Len Kravitz, Fatigue Resistance: An Intriguing
Difference in Gender , IDEA F ITNESS J., June 2008, at 19.
Estrogen may be responsible for this result. Some studies show that “estrogen may delay the onset of fatigue in part by spurring serotonin production, which increases energy and elevates mood.”
M C D ONAGH & P APPANO , supra note 46, at 56.
220
M C D ONAGH & P APPANO , supra note 46, at 53; Kosofsky, supra note 181, at
214, 215.

414 BROOKLYN LAW REVIEW [Vol. 76:1 them less prone to heat exhaustion and dehydration.
221
Additionally, women may have a metabolic advantage. Several studies demonstrate that females rely more on fat oxidation and less on carbohydrate oxidation during exercise than men.
222
Consequently, women exhaust their carbohydrate reserves at a slower rate than men.
223 Since carbohydrates are the primary fuel source during moderate- to high-intensity exercise, 224 this metabolic difference may give females an endurance edge.
225
In fact, there is evidence that women may be better suited to endurance sports than men.
226 One study, for instance, found a female performance advantage in running distances greater than sixty-six kilometers.
227 Similarly, in a 1996 study of equally trained men and women, female performance times matched those of males over forty-two kilometers and surpassed them over ninety kilometers.
228
This research is supported by results from several ultraendurance events where women have outperformed men. For example, in the 2002 and 2003 Badwater Ultramarathon—a
135-mile race in temperatures up to 130 degrees Fahrenheit 229 —
Pam Reed took first place, outpacing the fastest man by 4.5 hours in 2002 and by a half hour in 2003.
230 In the Self-
Transcendence Six-Day Run, Dipali Cunningham logged the fastest time for the event—male or female—twice.
231 Last year,
221
M C D ONAGH & P APPANO , supra note 46, at 53; Aimee Phan & Steve
Sternberg, Sweating Is One Way to Keep Your Cool , USA T ODAY (May 20, 2005), http://www.usatoday.com/weather/resources/basics/sweating-cools.htm.
222
Critchfield Kravitz, note 219, at 21; D EVRIES , supra note 184, at 7.
223
See sources cited supra note 222.
224
Fat can also serve as an energy source during exercise, but “[a]s exercise intensity increases, the proportion of energy that is derived from fat decreases and the proportion from carbohydrate increases.” M ARIE D UNFORD & J.
A NDREW D OYLE ,
N UTRITION FOR S PORT AND E XERCISE 103 (2008).
225
D EVRIES , supra note 184, at 7.
226
M C D ONAGH & P APPANO , supra note 46, at 56; Mark A. Tarnopolsky & Wim
H.B. Saris, Evaluation of Gender Differences in Physiology: An Introduction , 4
C URRENT O PINION C LINICAL N UTRITION & M ETABOLIC C ARE 489, 489 (2001).
227
M C D ONAGH & P APPANO , supra note 46, at 56; Tarnopolsky & Saris, supra note 226, at 489.
228
See sources cited supra note 227.
229
B ADWATER .
COM , http://www.badwater.com (last visited Aug. 17, 2010). One hundred and thirty-five miles is approximately 217 kilometers (217,000 meters). Id.
230
R. Beneke et al., Women Will Do It in the Long Run , 39 B R .
J.
S PORTS M ED .
410, 410 (2005); see also Badwater Ultramarathon Race Results, 2000-2010 ,
B ADWATER .
COM , http://www.badwater.com/results/index.html (last visited Aug. 17, 2010).
231
Dipali Cunningham Wins Self-Transcendence Six-Day Race ,
U LTRA R UNNING (May 6, 2008), http://www.ultrarunning.com/ultra/features/news/ dipali-cunningham-wins-se.shtml.

2010] POLICING THE POLICING OF INTERSEX BODIES 415 runner Laura McDonough won Alaska’s Resurrection Pass 100
Miler, finishing over forty-five minutes before male competitor
Eliseo Marquez who took second place.
232 In the 2003 Boston
Marathon, while men turned in the top fifteen finish times, of the 207 runners who finished the 26.2-mile 233 course in under two hours and fifty minutes, women’s overall performance time was nearly five minutes faster than men’s—a mean time of 2:36:55 compared to the male mean time of 2:41:33.
234
Additionally, women have repeatedly upstaged men in distance swimming, where women’s greater body fat appears to be a boon, providing buoyancy and insulation against the cold.
235 A female holds the world record for the 28.5-mile
Manhattan Island Marathon swim, and women have frequently surpassed men in the event, 236 taking first place in fourteen of the twenty-six annual solo events from 1985 through 2010.
237
Women also hold three out of four records for solo swims across the twenty-two mile Catalina Channel between Catalina Island and the California coast.
238 Greater body fat also yields an advantage in cold-weather sports.
239 For example, the Iditarod— an 1150-mile dogsled race across Alaska 240 —has been won by a woman several times.
241
232
100 Miles Is a Day’s Work for McDonough , A NCHORAGE D AILY N EWS (Aug. 6,
2009), http://www.adn.com/2009/08/06/890576/100-miles-is-a-days-work-for-mcdonough.html.
233
Boston Athletic Association, Patriots’ Day , B OSTON M ARATHON .
ORG , http:// www.bostonmarathon.org/BostonMarathon/PatriotsDay.asp (last visited Aug. 17, 2010).
234
M C D ONAGH & P APPANO , supra note 46, at 14-15.
235
F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 218.
236
Manhattan Island Match Race and Record Attempt , NYCS WIM .
ORG , http:// www.nycswim.org/Event/Event.aspx?event_id=2055&from=overview (last visited Aug.
17, 2010).
237
See Manhattan Island Marathon Swim , NYCS WIM .
ORG , http://www. nycswim.org/Event/Event.aspx?event_id=2102&from=results (use the “Select a year” and
“Select a date” drop-down lists to view event results from prior years) (last visited Aug.
17, 2010).
238
Catalina Channel Swimming Federation Individual Records , C ATALINA .
ORG , http://www.swimcatalina.org/Records.htm (last visited Aug. 17, 2010) (reporting records for fastest solo swim from Catalina Island to mainland California, fastest solo swim from mainland to Catalina Island, fastest solo round trip swam from Catalina Island, and fastest solo round trip swam from mainland—the former three records held by women);
P ENNY L EE D EAN , A H ISTORY OF THE C ATALINA C HANNEL S INCE 1927, at 6 (1980), available at http://www.swimcatalina.org/History/Chapter%201-2.pdf (describing the
Catalina Channel).
239
M C D ONAGH & P APPANO , supra note 46, at 58.
240
Learn About the Iditarod , I DITAROD .
COM , http://www.iditarod.com/learn (last visited Aug. 17, 2010).
241
Champions & Record Holders , I DITAROD .
COM , http://www.iditarod.com/ learn/awards.html (last visited Aug. 17, 2010). In 1985, Libby Riddles became the first woman to win the Iditarod. Susan Butcher took first place the following year and went on to win another three times. Id.

416 BROOKLYN LAW REVIEW [Vol. 76:1
2.
Sociocultural Factors
But biology alone cannot account for sex-based differences in athletic performance. The gender gap in athletics is due, in part, to sociocultural constraints. Historically, boys and men have been expected and encouraged to participate in sports.
242 Girls and women, however, were largely excluded 243 until the late 1970s.
244 Only then did “educators even consider[] the idea that boys and girls should or could receive the same athletic training.” 245 Since then, women have bridged the gender gap substantially as they “gained greater access to coaching and training facilities.” 246 And at the elite level, the performance gap is “remarkably slight.” 247 In fact, in 2004, researchers at Oxford
University calculated that if the gender gap continues to narrow at the current rate, by 2156, female sprinters will outpace their male counterparts in the 100-meter Olympic race.
248 While the upper limit of female athletic ability remains to be seen, 249 female
242
Yael Lee Aura Shy, Note, “Like Any Other Girl”: Male-to-Female
Transsexuals and Professional Sports , 14 S PORTS L AW .
J.
95, 101-02 (2007).
243
Id.
244
Although Title IX was enacted in 1972, its implementing regulations were not issued until July 1975, and even then, the regulations gave elementary schools until July 1976—and high schools and colleges until July 1978—to comply with the law. See 40 Fed. Reg. 24,128 (1975) (codified at 34 C.F.R. § 106).
245
F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 214-15.
246
Michael A. Messner, Sports and Male Domination: The Female Athlete as
Contested Ideological Terrain , 5 S OC .
S PORT J. 197, 197 (1988); see, e.g.
, C OLETTE
D OWLING , T HE F RAILTY M YTH : W OMEN A PPROACHING P HYSICAL E QUALITY 204 (2000)
(noting that, between 1964 and 1995, the female marathon world record improved by sixty-five minutes and twenty-one seconds while the male world record improved by only five minutes); Brian J. Whipp & Susan A. Ward, Will Women Soon Outrun Men?
,
355 N ATURE 25, 25 (1992) (Based on the Olympic track world records from the 1920s through 1990, women’s rate of improvement was approximately double the male rate in the 200, 400, 800, and 1500 meters. In the Olympic marathon, the gender gap narrowed even more rapidly between 1955—the first year that women’s marathon times were recorded—and 1990.).
247
Laura Wackwitz, Verifying the Myth: Olympic Sex Testing and the
Category “Woman , ” 26 W OMEN ’ S S TUD .
I NT ’ L F. 553, 555 (2003); M C D ONAGH &
P APPANO , supra note 46, at 71-73.
248
Andrew J. Tatem et al., Momentous Sprint at the 2156 Olympics?
, 431
N ATURE 525, 525 (2004); David Adam, Why Women Could Be Faster than Men Within
150 Years , G UARDIAN (U.K.) (Sept. 30, 2004), http://www.guardian.co.uk/uk/2004/sep/
30/science.science.
249
M C D ONAGH & P APPANO , supra note 46, at 73. The gender performance gap has been a source of debate. Compare Beneke, supra note 230, at 410 (suggesting that women could eventually outpace men in long-distance races); and Tatem et al., supra note 248, at 525 (calculating that women may outsprint men by the middle of the twenty-second century); with Constance Holden, An Everlasting Gender Gap?
, 305
S CIENCE 639 (2004) (predicting a permanent gender gap in running); and Valerie
Thibault et al., Women and Men in Sport Performance: The Gender Gap Has Not

2010] POLICING THE POLICING OF INTERSEX BODIES 417 athletic progress over the last few decades—in tandem with the broadening of women’s athletic opportunities—suggests that sociocultural restrictions have stifled women’s athletic potential more so than biological limitations.
250
Moreover, these sociocultural barriers have not been wholly eliminated. Although Title IX has spurred a dramatic increase in women’s sports participation, 251 the legacy of historical exclusion endures. Sports programs continue to be male-dominated, 252 and lingering social attitudes and practices still inhibit female athletic development. For example, social pressures to adhere to the thin-but-not-too-muscular feminine bodily ideal may discourage women from heavy lifting, contributing to the “glass ceiling” on their muscle strength.
253
Evolved Since 1983 , 9 J.
S PORTS & S CI .
M ED . 214, 219-21 (2010) (concluding that women’s records may never match those of men in elite-level events).
250 supra note 247, at 555 (“It may be . . . that cultural restrictions, not genetic differences, have prevented women from exceeding the athletic achievements of men.”); see also F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 218 (“[I]t remains possible . . . that at least some of the height and strength dimorphism between males and females would diminish in a culture in which girls from infancy on engaged in the same amount and kind of physical activity as boys.”);
D EBORAH L.
R HODE , J USTICE AND G ENDER : S EX D ISCRIMINATION AND THE L AW 302-03
(1989) (“How much of males’ advantages in most sports results from nature and how much from nurture remains unclear. It is, however, obvious that the differences in men’s and women’s capabilities are relatively small in comparison to the differences in opportunities now open to them.”); Kane, supra note 182, at 201 (“What about centuries of neglect, stigmatization, and hostility that have prevented women from reaching their full potential in all sports but particularly in those sports that have been most appropriated by men?”).
251
See N AT ’ L W OMEN ’ S L AW C TR ., T HE B ATTLE FOR G ENDER E QUITY IN
A THLETICS IN E LEMENTARY AND S ECONDARY S CHOOLS 1 (2010), http://www.nwlc.org/ pdf/Battle%20final.pdf [hereinafter NWLC, T HE B ATTLE FOR G ENDER E QUITY ] (citing a
2009 study) (reporting that athletic participation among high school girls increased from 295,000 girls in 1972 to 3.1 million for the 2008-09 academic year); N AT ’ L
W OMEN ’ S L AW C TR ., T ITLE IX AND W OMEN ’ S A THLETIC O PPORTUNITY : A N ATION ’ S
P ROMISE Y ET TO B E F ULFILLED 1 (2008), http://www.nwlc.org/pdf/Nation%27s%20
Promise%20July%202008.pdf [hereinafter NWLC, A N ATION ’ S P ROMISE ] (citing a 2007 study) (reporting that the number of female athletes participating in college sports is nearly five times the pre-Title IX rate).
252
The number of girls competing in high school sports is still lower than the pre-Title IX number of male high school student athletes. In 1972, 3.67 million high school boys played school sports, compared to 3.1 million high school girls that did so during the 2008-09 academic year.
See NWLC, T HE B ATTLE FOR G ENDER E QUITY , supra note 251, at 1 (citing a 2009 study). Moreover, at the college level, it was not until the
2005-06 academic year that the rate of female participation in college sports equaled the 1971-72 rate of male participation.
NWLC, A N ATION ’ S P ROMISE , supra note 251, at
1 (citing a 2007 study).
253
See M C D ONAGH & P APPANO , supra note 46, at 70-71; Dworkin, supra note
193, at 346 (ethnographic study concluding that “ideals of emphasized femininity lead many women in the weight room to ‘just hold back’”); cf. Vikki Krane et al., Living the
Paradox: Female Athletes Negotiate Femininity and Muscularity , 50 S EX R OLES 315,
326 (2004) (study of female college athletes, the participants “considered their

418 BROOKLYN LAW REVIEW [Vol. 76:1
These types of gender expectations are normalized in children from an early age. Sex-linked “differences in size, strength, and ability are . . . reinforced through the socialization of boys and girls.” 254 Parental nurturing of athletic talent in their children still reflects gendered stereotypes. Boys tend to receive more encouragement to participate in sports than girls.
255 Fathers, in particular, tend to engage in more active play with their sons than daughters, 256 and they spend more time actively mentoring male children.
257
This gender bias is also apparent in organized sports for children. For instance, researchers observing coed children’s tee ball 258 found a notable gender disparity in the coaches’ treatment of the players.
259 While the boys received the most attention and training, coaches showed little regard for the girls’ athletic development.
260 Girls were also admonished “more frequently and more harshly than boys, often for the same behavior that was acceptable for boys.” 261 Childhood experiences like these engender a false sense of athletic incompetence in girls, resulting in their “learned weakness.” 262 Since athletic training and socialization during childhood impacts athletic muscular bodies . . . the primary hindrance to being perceived as heterosexually feminine in social settings”).
254
Un-doing Gendered Power Relations Through Martial
Arts?
, 2 I NT ’ L J.
S OC .
I NQUIRY 17, 22 (2009).
255
Id.
256
Campbell Leaper & Carly Kay Friedman, The Socialization of Gender , in
H ANDBOOK OF S OCIALIZATION : T HEORY AND R ESEARCH 561, 571 (Joan E. Grusec & Paul
D. Hastings eds., 2007).
257
W OMEN ’ S S PORTS F OUND ., G O O UT AND P LAY : Y OUTH S PORTS IN A MERICA
58-61 (2008), available at http://www.womenssportsfoundation.org/~/media/Files/
Research%20Reports/Go%20Out%20and%20Play%20report%209%2018%2008.pdf.
258
Tee ball, generally played by children aged four to eight, is modeled on adult baseball. What Is Tee Ball?
, T-B ALL USA A SS ’ N , http://www.teeballusa.org/
What_is_TBall.asp (last visited Aug. 10, 2010). Unlike baseball, however, tee ball eliminates pitching; instead, children take turns hitting the ball off of a batting tee placed on home plate. Id.
259
Melissa A. Landers & Gary Alan Fine, Learning Life’s Lessons in Tee Ball:
The Reinforcement of Gender and Status in Kindergarten Sport , 13 S OC .
S PORT J. 87,
90-92 (1996); see also M C D ONAGH & P APPANO , supra note 46, at 21-22.
260
Landers & Fine, supra note 259, at 90-92; see also M C D ONAGH & P APPANO , supra note 46, at 21.
261
Landers & Fine, supra note 259, at 90. Of the two coaches interviewed, both expressed the view that the girls lacked interest in tee ball—an expectation that fueled the coaches’ gendered treatment of the children. Id.
262
See D OWLING , supra note 246, at 77.

2010] POLICING THE POLICING OF INTERSEX BODIES 419 interest and self-confidence later in life, 263 these childhood experiences may ultimately lead girls to withdraw from sports.
264
The interplay between social and biological circumstances, as these examples indicate, undercuts the view of the body as the site of natural difference. Thus, even if one accepts the two-sex system as valid, the harder question is how and where to draw the binary line. So far, no one has come up with an answer.
265 As Alice Dreger has said,
This is not a solvable problem . . . . People always press me: “Isn’t there one marker we can use [to decide who is one sex or the other]?”
No. We couldn’t then and we can’t now, and science is making it more difficult and not less, because it ends up showing us how much blending there is and how many nuances, and it becomes impossible to point to one thing, or even a set of things, and say that’s what it means to be male.
266
As an imperfect compromise, some scientists have suggested measuring functional testosterone, which is correlated with muscle mass.
267 The trouble with using testosterone—or any hormone—as the signifier of sex is that “girls’ and women’s bodies do not uniformly produce a single, identifiable sort of
‘feminine’ cocktail of hormones, nor do all boys and men produce a single identifiable sort of ‘masculine’ cocktail.” 268 In
263
For example, one study reported that girls who experienced higher levels of parental encouragement had greater perceived athletic competence and were more interested in physical activity than girls who received less parental encouragement.
Robert J. Brustad, Attraction to Physical Activity in Urban Schoolchildren: Parental
Socialization and Gender Influences , 67 R ES .
Q.
FOR E XERCISE & S PORT 316, 321-22
(1996); see also Sandra E Short & Martin W Short, Role of the Coach in the Coach-
Athlete Relationship , 366 L ANCET S29, S29 (2005) (“[C]oach[es] [have] tremendous influence on the physical and psychological development of their athletes.”).
264
Cf.
M C D ONAGH & P APPANO , supra note 46, at 22 (“The athletic socialization that unfolds at beginning levels lays the foundation for future athletic interests.”).
265
Ross Tucker & Malcolm Collins, The Science and Management of Sex
Verification in Sport , 21 S.
A FR .
J.
S PORTS M ED . 147, 150 (2009) (“[W]hile a range of
[intersex] conditions and disorders have been identified, authorities are seemingly no closer to establishing precisely how these conditions affect performance, and many athletes appear to have been unfairly excluded from competition.”); see also C ALLAHAN , supra note 109, at 32 (“[N]o one has yet figured out the list of ingredients needed to make a boy or girl—neither chromosomes, nor hormones, nor genes, nor family or society or chance, alone or in combination, seems sufficient to explain how one’s sex comes to be.”); Dreger, Sex Typing for Sport , supra note 21, at 23 (“Humans like their sex categories neat, but nature doesn’t care. Nature doesn’t actually have a line between the sexes. If we want a line, we have to draw it on nature.”); supra Part II.B.1.
266 supra note 5 (citation omitted).
267
The Sex of Athletes , supra note 209 (citation omitted).
268
D REGER , H ERMAPHRODITES , supra note 136, at 7.

420 BROOKLYN LAW REVIEW [Vol. 76:1 addition, hormonal levels are in constant flux.
269 To some degree, then, using testosterone as the benchmark would be unavoidably arbitrary. But as long as sports—and society overall—are organized around the fiction of binary difference, the dividing line between males and females must be drawn somewhere. Wherever the binary line is placed, it will be more of a social judgment than a scientific truth.
III. S EX T ESTING AND THE P OLITICS OF S PORTS
The binary divide is perceived as essentially self-evident in the sports context, where sex-segregated competition is the default model. Organized sports and binary sex are mutually reinforcing.
Because sports are grounded in the performance of the physical body, they convey a biological basis for the male-female binary.
270
And just as sports naturalize binary sex categories, the binary— and the normative views founded upon it—underlies sports.
Intersex athletes thus disrupt the logic of binary classification not only as a social practice but, more narrowly, as a sporting practice.
The proffered goal of sex testing is a level playing field.
271 But a woman’s 272 inborn athletic advantage is troubling only when it originates from an intersex condition; 273 other natural advantages are not only tolerated but exalted.
274 At base, the justification for sex testing operates as a metaphor for the sports world’s commitment to the binary sex model.
A.
Sports and Masculinity
At the institutional level, sports have historically been male-dominated. In fact, organized athletics were developed by and for men.
275 The transformation from an agrarian to industrial economy in the late nineteenth century “changed the
269
See Helene Keane & Marsha Rosengarten, On the Biology of Sexed
Subjects , 17 A USTL .
F EMINIST S TUD .
261, 269 (2002) (“[T]he hormonal body is always in process rather than fixed . . . .”).
270 supra note 182, at 192; see also Susan Birrell & Cheryl L. Cole,
Double Fault: Renee Richards and the Construction and Naturalization of Difference , 7
S OC .
S PORT J. 1, 18 (1990) (“[S]port is a central site for the naturalization of sex and gender difference . . . .”); Ann Travers, The Sport Nexus and Gender Injustice , 2 S TUD .
S OC .
J UST .
79, 80-83 (2008).
271
See infra notes 303, 305 and accompanying text.
272
Importantly, sex tests have been applied only to female athletes. See generally Wackwitz, supra note 247, at 554.
273
See infra Part III.C.2.
274
See infra notes 307-10 and accompanying text.
275
See generally Messner, supra note 246, at 199-200.

2010] POLICING THE POLICING OF INTERSEX BODIES 421 foundation for the middle class masculine identity, once the physically powerful breadwinner and head of family.” 276 At the same time, women began to challenge masculine political and social power.
277 These economic and social forces culminated in a “crisis of masculinity.” 278 As traditional institutional spheres of masculinity appeared to crumble, sports offered men an outlet to reaffirm their masculine superiority.
279
Gender equality has improved substantially since the advent of competitive sports. But sporting practices and ideologies still reflect the understanding of sports as a decidedly male arena. It is telling, for example, that the names of women’s professional sports associations specifically include gender identifiers while those of their male counterparts are unspecified.
280 Similarly, many colleges and university sports teams still use sexist nomenclature to distinguish their women’s teams, either by using the feminine suffix ette (e.g.,
Tigerettes) or by using a feminine prefix (e.g., Lady Tigers).
281
In professional football and baseball—the sports that
Americans most frequently watch on TV 282 —women are not even eligible to play. Only in 2000 did the first professional women’s soccer league make its debut.
283 The league folded
276
Suzanne Sangree, Title IX and the Contact Sports Exemption: Gender
Stereotypes in a Civil Rights Statute , 32 C ONN .
L.
R EV . 381, 402 (2000).
277
Id.
at 404.
278 supra note 246, at 200.
279
See Sangree, supra note 276, at 401-04.
280
Travers, supra note 270, at 83-84 (naming as examples “Ladies
Professional Golf Association vs. Professional Golf Association; Women’s National
Basketball Association vs. National Basketball Association”).
281
Cynthia Fabrizio Pelak, The Relationship Between Sexist Naming Practices and Athletic Opportunities at Colleges and Universities in the Southern United States ,
81 S OC .
E DUC . 189, 195-98 (2008) (In a study of colleges and universities in nine southern states, almost seventy percent employed a “sexist naming practice.”).
282
Compare Updated Ratings Make Super Bowl XLIII the Most-Watched Ever ,
USA T ODAY (Feb. 4, 2009), http://www.usatoday.com/sports/football/nfl/2009-02-04ratings_N.htm (about 98.7 million people watched Arizona-Pittsburgh Super Bowl), and TV Ratings for NBA Finals Down from Last Year , NBA.
COM (June 16, 2009), http://www.nba.com/2009/news/06/16/finals.ratings.ap/index.html?rss=true (2009 NBA
Finals had approximately 8.4 million viewers), and World Series Ratings Highest Since
2004, as Matsui Buzzes in out of Nowhere , N IELSEN W IRE (Nov. 6, 2009), http://blog. nielsen.com/nielsenwire/media_entertainment/world-series-ratings-highest-since-2004as-matsui-buzzes-in-out-of-nowhere (average of 19 million viewers watched the World
Series in 2009), with WNBA Postseason on ESPN2 Delivers Double-Digit Increases
Across the Board , WBNA.
COM (Oct. 12, 2009), http://www.wnba.com/news/postseason_ ratings_091012.html (average of 548,000 viewers of 2009 WBNA Finals).
283
Who’s Got Game?
, N ATION (Mar. 24, 2008), http://www. thenation.com/article/whos-got-game.

422 BROOKLYN LAW REVIEW [Vol. 76:1 three years later and did not relaunch until 2009.
284 Although female professional basketball leagues exist today, women’s basketball has a shorter season than its male counterpart, 285 and tickets to see a men’s basketball game are over three times more expensive than tickets for women’s games.
286
Moreover, when female athletes do appear in the media, the focus tends to be more on their sexuality than their athletic careers, which trivializes their athletic achievements and presents them as commodities for heterosexual male consumption.
287 In these ways, social practice fosters the notion that women are not
“real” athletes and that the sports realm is decidedly male.
B. Myth and Reality Collide: The Sporting Practice of Sex
Testing
As a gendered institution, competitive sports have long been committed to the male-female binary. Binary sex has been particularly central in the Olympics, the pinnacle of athletic competition. Consistent with this interest, the Olympic
Movement developed procedures early on to police the boundaries between male and female. The first sex verification policy was introduced prior to the 1966 European Athletics
Championship, in response to rumors that men had been masquerading as women in competitive events.
288 The procedure was rather crude, consisting solely of a visual genital inspection.
289 In 1968, the International Olympic Committee
(IOC) 290 officially adopted the Barr body 291 test.
292 The new
284
Bill Yes, but Can New League Survive?
, S TREET & S MITH ’ S
S PORTS B US .
J. (Mar. 2, 2009), http://www.sportsbusinessjournal.com/article/61681.
285 supra note 283.
286
See Rachel Elyachar & Lauren Moag, The Growth of Women’s Sports , in
T HE B USINESS OF S PORTS 346, 348 (Scott R. Rosner & Kenneth L. Shropshire eds.,
2004) (noting that the average ticket price for an NBA game is over $50, while the average cost of WBNA tickets is about $15); see also M C D ONAGH & P APPANO , supra note 46, at 239-40 (noting a similar disparity in the cost of college basketball tickets).
287
See Kristin Allbritton, (Un)covering Athletes: When Women Appear in
Sports Magazines, It’s All About Sex , N.Y.
R EV .
M AG ., http://archives.jrn.columbia. edu/nyrm/2006/Well/uncoveringathletes.htm (last visited July 16, 2010).
288
Robert Ritchie et al., Intersex and the Olympic Games , 101 J.
R OYAL S OC ’ Y
M ED . 395, 396 (2008). At the 1936 Berlin Olympics, officials conducted a “sex check” of a female sprinter after a competitor publicly accused her of being a man, but no formal sex verification policy existed at that time. Id.
at 395-96.
289
Id. at 396-97.
290
The IOC is the organization with the supreme authority over the Olympic
Movement. Anita DeFrantz, Which Rules?: International Sport and Doping in the 21st
Century , 31 H OUS .
J.
I NT ’ L L. 1, 4 (2008) (citation omitted). For a detailed discussion of the history and structure of the Olympic Movement, see id.
at 2-9.

2010] POLICING THE POLICING OF INTERSEX BODIES 423 procedure evaluated cells taken from the inner lining of an athlete’s cheek.
293 If the test detected that the athlete had two X chromosomes, 294 she was certified as female; if not, she would be subject to blood tests and a physical examination.
295 After a series of false positives and false negatives using the Barr method, 296 the IOC replaced it at the 1992 Winter Olympics with the DNA polymerase chain reaction chromosomal test.
297
The IOC finally abolished mandatory sex testing at its
109th session in June 1999 but reserved the authority to conduct sex verifications on an individual basis.
298 The IAAF, 299 on the other hand, employed the Barr body test until 1991 when it abandoned compulsory sex testing but reserved the right to conduct sex tests on an ad hoc basis 300 —that is, when suspicion was raised.
301 This policy remains in place in both the
IOC and IAAF today.
302
291
The Barr body test was also known as the sex chromatin or buccal smear test. W AMSLEY , supra note 168, at 13.
292
Haley K. Olsen-Acre, Note, The Use of Drug Testing to Police Sex and
Gender in the Olympic Games , 13 M ICH .
J.
G ENDER & L. 207, 217 (2007).
293
Id.
294
For a discussion of chromosomes, see supra note 113.
295
W AMSLEY , supra note 168, at 13.
296 supra note 292, at 217. Under the Barr body test, for example,
“[w]omen with complete androgen insensitivity syndrome would have been barred from competing due to the presence of XY sex chromosomes despite an entirely female phenotype. Men with Klinefelter syndrome (who have an XXY mosaic) would be eligible to compete . . . .” Ritchie et al., supra note 288, at 397.
297
Pilgrim, Martin & Binder, supra note 98, at 510. The polymerase chain reaction test amplifies the DNA extracted from buccal smears to allow detection of
SRY, a Y chromosome gene that codes for male determination. See Ritchie et al., supra note 288, at 397; Olsen-Acre, supra note 292, at 217 n.46.
298
I NT ’ L O LYMPIC C OMM ., F ACT S HEET , T HE S ESSIONS 2 (2008), http:// multimedia.olympic.org/pdf/en_report_942.pdf; W AMSLEY , supra note 168, at 13.
299
For a discussion of the IAAF, see supra text accompanying note 10.
300
Pilgrim, Martin & Binder, supra note 98, at 511; W AMSLEY , supra note
168, at 13. This new policy would involve examinations by a gynecologist, an endocrinologist, a psychologist, an internist, and an “expert on gender/transgender issues.” W AMSLEY , supra note 168, at 13.
301
W AMSLEY , supra note 168, at 13.
302
The IAAF allows male-to-female transsexuals to compete as women after
(1) a two-year grace period, (2) legal recognition of their assigned sex, and (3) a certain degree of hormonal therapy. IAAF M ED .
& A NTI -D OPING C OMM ’ N , IAAF P OLICY ON
G ENDER V ERIFICATION 6 (2006), available at http://www.iaaf.org/mm/Document/ imported/36983.pdf.

424 BROOKLYN LAW REVIEW [Vol. 76:1
C. Weighing the Benefits
1.
The Elusive Level Playing Field
The justification for sex testing has long been a level playing field 303 —the same goal of antidoping rules.
304 Intersexbased advantages, some have argued, jeopardize the integrity of competition.
305 But intersex conditions are very different from performance-enhancing drugs. The volitional element is wholly absent.
306
As a practical matter, athletic advantages are relative.
Elevated testosterone levels, for example, are not uncommon among female athletes—intersex or not.
307 The typical female athlete surpasses average standards of strength, speed, agility, and endurance.
308 All top twenty female tennis players in
February 2007, for example, exceeded the average height for a woman aged twenty to thirty.
309 Considered in this context, the advantage derived from intersex conditions is perhaps overstated.
At any rate, whatever advantages are conferred by intersex conditions, they are fundamentally no different from any other inborn physical advantage, such as long limbs,
303
Alice Dreger, Science Is Forcing Sports to Re-examine Their Core
Principles , N.Y.
T IMES (Sept. 13, 2009), at D1, available at http://www.nytimes.com/
2009/09/13/sports/13dreger.html [hereinafter Dreger, Science Forcing Sports ]. But not all intersex conditions provide a competitive edge. Chris Lehourites, Semenya’s Status No
Clearer Despite Media Leak , USA T ODAY (Sept. 11, 2009), http://www.usatoday.com/ sports/olympics/2009-09-11-3776936744_x.htm (“Some [intersex conditions] give no advantage.” (citation omitted)).
304
See Jennifer Elle Lewis, Caster Semenya: A Girl of Two Parts , 7 G ENDER &
M EDIA D IVERSITY J.
112, 115 (2009); Dreger, Science Forcing Sports , supra note 303 .
Antidoping rules are also about safety, but the primary concern is competitive integrity. See Dreger, Science Forcing Sports , supra note 303 (“The safety argument against steroids may be a good one, but . . . . [i]t isn’t the one that motivates most officials and fans to frown on steroids. Steroid use does not just seem risky or unnatural[;] it seems to disrupt the level playing field.”).
305
See, e.g.
, William Lee Adams, Could This Women’s World Champ Be a
Man?
, T IME (Aug. 21, 2009), http://www.time.com/time/world/article/0,8599,1917767,
00.html (statement of Italian runner Elisa Piccione to journalists after finishing the 2009
World Championships in sixth place—behind first-place winner Caster Semenya) (“These kinds of people should not run with us. For me, she’s not a woman. She’s a man.”).
306 supra note 304, at 115.
307
Where’s the Rulebook?
, supra note 205 (“[T]o state the obvious, the average female athlete is not the average woman. In some sports, she is likely to have naturally high levels of androgens. That is probably part of why she has succeeded athletically.”). Also, the correlation between testosterone and competitive edge is not well understood. See supra notes 211-14 and accompanying text.
308
Swallows and Amazons, or the Sporting Exception to the
Gender Recognition Act , 17 S OC .
& L EGAL S TUD .
39, 48 (2008).
309 supra note 308, at 49.

2010] POLICING THE POLICING OF INTERSEX BODIES 425 strong lungs, or a fast metabolism—none of which are viewed as unfairly disadvantaging less endowed athletes.
310 Cyclist
Lance Armstrong, for instance, reportedly has half as much lactic acid in his muscles than the average person, enabling him to recover much faster than other athletes.
311 One physiologist opined that “there are probably no more than 20 people on earth with [Lance Armstrong’s cycling] ability.” 312
Organized sports not only tolerate athletes like Armstrong but idolize them for their superhuman athletic abilities.
313
Even advantages derived from bodily abnormalities are permitted. Under the IAAF’s policy, a female athlete with adrenal cancer may compete as a woman, even though she may have higher testosterone levels than a typical male.
314 Volleyball player
Flo Hyman had Marfan’s syndrome, a condition characterized by tall stature and long limbs.
315 Similarly, several professional basketball players have had acromegaly or gigantism, diseases responsible for their unusual tallness.
316 South African sprinter
310
Dreger, Where’s the Rulebook?
, supra note 205 (“Some men naturally have higher levels of androgens than other men. . . . Men on average are taller than women. But do we stop women from competing if a male-typical height gives them an advantage over shorter women? . . . So why would we want to tell some women, ‘You naturally have too high a level of androgens to compete as a woman?’ There seems to be nothing wrong with this kind of natural advantage.”); Levy, supra note 5 (“Michael
Phelps, who has won fourteen Olympic gold medals, has unusually long arms and is said to have double-jointed elbows, knees, and ankles.”); Aimee Mullins, Racing Carbon
Fiber Legs: How Abled Should We Be?
, G IZMODO (Nov. 12, 2009), http://gizmodo.com/
5403322/racing-on-carbon-fiber-legs-how-abled-should-we-be (“It’s absurd to look at a star line-up of athletes and think that they all have an equal shot. . . . It’s tough luck that 5’11” Tyson Gay has to line up against a 6’5” Usain Bolt.”).
311
Stefan ,
N AT ’ L G EOGRAPHIC N EWS (July 22, 2005), http://news.nationalgeographic.com/news/ pf/73545248.html.
312
Super, Sure, but Not More than Human , N.Y.
T IMES (July 24,
2005), http://www.nytimes.com/2005/07/24/weekinreview/24kola.html (quoting physiologist
Eric Coyle).
313
See David Zirin, The Fall of Marion Jones, Inc.
, N ATION (Oct. 15, 2007), http://www.thenation.com/article/fall-marion-jones-inc.; see also Sheila L. Cavanaugh &
Heather Sykes, Transsexual Bodies at the Olympics: The International Olympic
Committee’s Policy on Transsexual Athletes at the 2004 Athens Summer Games , 12
B ODY & S OC ’ Y 75, 78 (2006) (describing Olympic bodies as “display[ing] superhuman strength, endurance, balance, coordination, speed and agility”); Jennifer Warner, Genes
Separate Olympians from Average Joes , M EDICINE N ET .
COM (Aug. 6, 2004), http://www. medicinenet.com/script/main/art.asp?articlekey=50333 (“[Elite Olympic athletes] are an anomaly with some of them almost bordering on freaks of nature.”).
314
The Sex of Athletes , supra note 209.
315
J Reeser, , 39 B R .
J.
S PORTS M ED . 695, 698 (2005). Though Hyman was not diagnosed until after her death,
“she was clearly phenotypically different from the vast majority of her fellow athletes . . . .
[and] was never . . . restricted from competing because she was different.” Id.
316 supra note 5. For example, former NBA player Gheorghe Mure ş an and Chinese basketball player Sun Ming Ming, who has played in American minor

426 BROOKLYN LAW REVIEW [Vol. 76:1
Oscar Pistorius, who has a double amputation, was declared eligible to run in the Olympic Games, despite criticism that his prosthetic legs afforded him an unfair advantage.
317
The goal of a level playing field is also undercut by socioeconomic factors. Athletic achievement is influenced by access to coaching and training, facilities, nutrition, equipment, technology, and “even sheer opportunity to participate.” 318
Golfer Tiger Woods underwent two LASIK procedures to achieve 20/15 vision.
319 Prior to the surgery, Woods was so nearsighted that he was considered legally blind without glasses or corrective lenses.
320 Woods stated that contact lenses burned his eyes and negatively impacted his golf performance.
321 But not all athletes have access to LASIK surgery—or even corrective lenses, for that matter.
322 Likewise, at the 2008 Beijing Olympics, athletes wearing the controversial Speedo LZR Racer swimsuit won ninety-four percent of the swimming gold medals and broke seventy-four world records.
323 And with a $550 price tag, the suit was inaccessible to less affluent competitors, particularly those from developing regions.
324 Although FINA 325 —the international governing body for swimming—subsequently banned the suits, it allowed the Beijing world records to stand.
326 leagues, both have gigantism. See Adam Himmelsbach, Basketball Skills Come Slowly to a 7-Foot-9 Center from China , N.Y.
T IMES (Mar. 10, 2007), http://www.nytimes. com/2007/03/10/sports/basketball/10sun.html.
317
Press Release, Int’l Ass’n of Athletics Fed’ns, Pistorius Is Eligible for IAAF
Competition (May 16, 2008), available at http://www.iaaf.org/aboutiaaf/news/newsid
=44917.html. The IAAF had initially decided that Pistorius could not compete, relying on the report of a biomechanics expert who had tested the prosthetics. Id. The Court of
Arbitration for Sport reversed the IAAF’s decision, finding inconclusive evidence of an unfair advantage. Id.
318 supra note 182, at 201; W AMSLEY , supra note 168, at 12.
319 supra note 310.
320
Id.
321
Id.
322
Cf.
William Saletan, The Beam in Your Eye: If Steroids Are Cheating, Why Isn’t
LASIK?
, S LATE (Apr. 18, 2005), http://www.slate.com/id/2116858 (questioning whether
LASIK surgery is really any different from steroid usage).
323
Anna , G UARDIAN (U.K.) (Nov. 23, 2008), http://www. guardian.co.uk/sport/2008/nov/23/swimming-olympics2008; Mullins, supra note 310.
324
Kessel, supra note 323; Candus Thomson & Kevin Van Valkenburg,
Speedo’s Strong Suit , B ALT .
S UN (Apr. 4, 2008), http://www.baltimoresun.com/sports/ olympics/bal-sp.swim04apr04,0,3142477.story.
325
FINA stands for Fédération Internationale de Natation. See Structure , F INA , http://www.fina.org/H2O/index.php?option=com_content&view=article&id=602&Itemid=
359 (last visited Aug. 24, 2010).
326 supra note 310.

2010] POLICING THE POLICING OF INTERSEX BODIES 427
At bottom, athletic competition is not a democratic enterprise. The bodies of athletes are no more homogeneous than the opportunities available to them. On some level, then, competitive sports will always be intrinsically “unfair.” To the extent that fair competition is not frustrated by this baseline disparity, intersex bodies are no more subversive to a level playing field than the naturally occurring advantages permitted in competitive sports.
2.
Identifying the Metaphor: Level for Binary
Given the plethora of systemic inequalities in organized sports, why are intersex-based advantages singled out as unfair? Unlike other advantages, intersex is understood as arising from a degree of “maleness”—in particular, testosterone. Although testosterone is endogenous to both male and female bodies, 327 its connotation of maleness remains culturally entrenched.
328 By default, an elevated level of testosterone (read maleness ) is seen as a competitive edge too great to tolerate in sex-segregated sports.
A female athlete perceived as too athletically skilled, too muscular, too masculine-looking—characteristics traditionally
(even if simplistically) associated with testosterone—disrupts the binary division of sports and must be reined in.
329 Thus, her status as a woman is challenged, and she is depicted as a
“biological freak” or a “deviant-mutant.” 330 By branding this woman as the “other,” the boundaries between male and female
327
D REGER , H ERMAPHRODITES , supra note 136, at 7.
328
See F AUSTO -S TERLING , M YTHS OF G ENDER , supra note 131, at 81.
Accordingly, testosterone has been invoked to justify aggression, violence, and power.
See id. at 123-54 . In 2000, for example, columnist Andrew Sullivan wrote a controversial piece, arguing that testosterone was the reason that various “inequalities between men and women remain so frustratingly resilient in public and private life.”
Andrew Sullivan, The He Hormone , N.Y.
T IMES , Apr. 2, 2000, § 6 (Magazine), at 46, available at http://www.nytimes.com/2000/04/02/magazine/the-he-hormone.html. The notion that “testosterone equals male” and “absence of testosterone equals female” reflects the traditional understanding of femaleness as a “lack” of maleness. F AUSTO -
S TERLING , M YTHS OF G ENDER , supra note 131, at 81.
329
For example, Caster Semenya’s deep voice, muscular build, and athletic prowess fueled rumors on South African blogs that she was “born a hermaphrodite,” prompting the IAAF to conduct tests. See Levy, supra note 5. Tennis pro athlete
Martina Navratilova was criticized for looking “too manly” and one of her competitors claimed that she “must have a chromosome loose somewhere.” Dave Zirin & Sherry
Wolf, The Idiocy of Sex Testing , N ATION (Aug. 21, 2009), http://www. thenation.com/doc/20090831/zirin_wolf.
330 supra note 182, at 210-12; see also Olsen-Acre, supra note 292, at 233.

428 BROOKLYN LAW REVIEW [Vol. 76:1 in sports are reaffirmed and normalized 331 —the implication being that it is the woman who is flawed, not the social institution. Sex testing, then, is less about egalitarianism than it is about gender politics. At its core, the level playing field is a metaphor for a binary one.
3.
Balancing the Social Costs
The intolerance for sex nonconformity is socially costly as well. For one thing, sex testing normalizes the inquisition of athletes who are too masculine—or too strong—to be women and encourages their vilification.
332 Moreover, these procedures subject women to tremendous psychological harm. After Caster
Semenya’s sex was publicly called into question, she went into hiding and sought trauma counseling.
333 Semenya is one of many female athletes to suffer this emotional damage at the hands of sex testing policies. Ewa Klobukowska was the first athlete to fail a sex test.
334 Stripped of her Olympic medals and barred from future competition, she fell into a severe depression and severed all ties with the sports world.
335 In 1986,
Maria Jose Martinez-Patiño was publicly disqualified after the
Barr body test 336 revealed that she had a Y chromosome.
337 In the aftermath, her athletic scholarship was revoked, her
331
Cf.
Lena Eckert, ‘Diagnosticism’: Three Cases of Medical Anthropological
Research into Intersexuality , in C RITICAL I NTERSEX 41, 54 (Morgan Holmes ed., 2009)
(“[P]ositioning ‘normal’ bodies as dependent on ‘other’ and ‘abjected’ bodies or identities
. . . constructs the normal.” (citations omitted)).
332
For example, it is doubtful that Caster Semenya would have been subjected to sex tests if she were conventionally beautiful. Gregg Doyel, The Ugly Side of Semenya Gender Saga , CBSS PORTS .
COM (Aug. 25, 2009), http://www.cbssports.com/ columns/story/12111248 (“[I]f [Semenya] were beautiful, there would be no outrage here, because her winning time and even her margin of victory [would be] plausible.”).
Caster Semenya’s treatment has been likened to the prurient interest in the Khoikhoi woman Saartjie Bartmann during the nineteenth century. Dubbed the
“Hottentot Venus,” Bartmann’s naked body—in particular, her large buttocks and elongated labia—was displayed as a sideshow attraction and utilized to reinforce racial difference. See, e.g.
, Lewis, supra note 304, at 114-15 (2009); see also J ENNIFER
M ORGAN , L ABORING W OMEN : R EPRODUCTION AND G ENDER IN N EW W ORLD S LAVERY 12-
49 (2004) (arguing that early European travelers’ descriptions of African women’s bodies formed the ideological foundations of slavery in the West).
333
Alex Duval Smith & Stewart Maclean, Fears for Caster Semenya over
Trauma of Test Results , G UARDIAN (U.K.) (Sept. 13, 2009), http://www.guardian.co.uk/ sport/2009/sep/13/caster-semenya-gender-test-results.
334
Alison Carlson, Essay: Suspect Sex , 366 L ANCET S39, S39 (2005).
335 id.
336
For a discussion of the Barr body test, see supra notes 291-96 and accompanying text.
337
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 1.

2010] POLICING THE POLICING OF INTERSEX BODIES 429 records were erased, and her fiancé left her.
338 She later wrote,
“What happened to me was like being raped. I’m sure it’s the same sense of incredible shame and violation. The only difference is that, in my case, the whole world was watching.” 339
Perhaps most tragic is Santhi Soundarajan’s story. The Indian middle-distance runner won a silver medal at the 2006 Asian
Games only to be stripped of her medal over a failed sex test.
340
Soundarajan attempted suicide in 2007.
341
At bottom, binary sex classification is inescapably exclusive because it fails to recognize the natural bodies of all human beings. Sex testing makes intersex people scapegoats for the inadequacy of a sex/gender system that, by its very nature, casts them as biological freaks. Treating intersex people as deviants may reaffirm the binary, but as intersex becomes more visible, sexual dimorphism becomes increasingly difficult to vindicate.
Ideally, the prevailing sex/gender model would be displaced entirely. But this goal is admittedly overambitious (at least currently). The present challenge, then, is to “make room for” 342 intersex people within the existing binary framework by recognizing sexual identity as a valid signifier of binary sex. As a remedial statute 343 that has dramatically improved gender equality in sports, 344 Title IX is a promising avenue to deconstruct the deep-rooted assumption that sex is binary.
338
Maria Jose Martinez-Patiño, Personal Account: A Woman Tried and
Tested , 366 L ANCET S38, S38 (2005).
339
See Alison Carlson, When Is a Woman Not a Woman?
, W OMEN ’ S S PORTS &
F ITNESS , Mar. 1991, at 24, 29 (quoting Maria Jose Martinez-Patiño); see also Maria
Jose Martinez-Patiño, supra note 338, at S38.
Patiño later discovered that she had androgen insensitivity syndrome (AIS).
F AUSTO -S TERLING , S EXING THE B ODY , supra note 22, at 2. People with AIS have XY chromosomes, but their bodies are unresponsive to testosterone. See supra text accompanying notes 123-25. The IAAF reinstated Patiño in 1988. Maria Jose Martinez-
Patiño, supra note 338, at S38. But by then, much of her momentum was lost; she failed to qualify for the 1992 Olympics, missing the mark by ten hundredths of a second. Id.
340
Harmeet Shah Singh, Indian Athlete Makes Plea for Semenya , CNN (Sept.
14, 2009), http://www.cnn.com/2009/WORLD/asiapcf/09/14/Semenya.India.Athlete.
341
Id.
342 make room for is taken from Kate Haas’s article. See Kate
Haas, Who Will Make Room for the Intersexed?
, 30 A M .
J.L.
& M ED . 41 (2004).
343
See, e.g.
, 118 C ONG .
R EC .
5803 (1972) (statement of Senator Bayh)
(explaining that Title IX’s purpose was to combat “the continuation of corrosive and unjustified discrimination against women” in the American educational system).
344 e.g.
, NWLC, A N ATION ’ S P ROMISE , supra note 251, at 1 (“The number of college women participating in competitive athletics is now nearly five times the pre-
Title IX rate. In 2005-06, a record number of 170,526 women competed, representing
42% of college athletes nationwide.”).

430 BROOKLYN LAW REVIEW [Vol. 76:1
IV. P REVENTING D ISCRIMINATION ON THE B ASIS OF S EX IN
S CHOOL A THLETICS
To protect intersex student athletes from discrimination on account of their binary nonconformity, the law must first recognize that binary categories themselves are oppressive vis-
à-vis intersex people. This section begins by examining Title
IX’s application to intersex individuals. It then considers two policies for preventing intersex-directed discrimination in school sports: (1) sex-integrated teams and (2) sex-segregated teams organized by students’ self-identified gender.
A.
Discrimination Against Intersex Individuals as
Discrimination on the Basis of Sex
Title IX’s application to intersex individuals depends largely on the interpretation of the word sex . If sex comprises the anatomical traits associated with males and females, the plain language of Title IX seems to protect intersex individuals. But if the term is limited to the status of being male or female, then intersex people—who fit neatly into neither category—are left unprotected.
To date, very few courts have addressed discrimination against intersex people, 345 and none have done so under Title IX.
Still, the sex-discrimination cases decided under Title VII 346 are
345
Only one case, as far as I have found, directly addresses discrimination against intersex individuals. In DiMarco v. Wyoming Department of Corrections
(“ DiMarco I ”), 300 F. Supp. 2d 1183 (D. Wyo. 2004), the plaintiff, Miki Ann DiMarco, was an intersex woman incarcerated in a Wyoming female correctional facility. Id.
at
1186. DiMarco had initially been classified as a minimum security risk. Id. at 1188.
But after a routine search revealed her atypical genitals, prison officials placed
DiMarco in maximum-security isolation without providing her a hearing to challenge the decision. Id. at 1187, 1189. DiMarco subsequently brought suit in a federal district court, arguing that the conditions of her confinement violated her constitutional rights.
In rejecting DiMarco’s equal-protection claim, the district court held that intersex people were not a suspect class under the Equal Protection Clause and concluded that the prison’s decision survived rational-basis scrutiny. Id. at 1197. The court did find, however, that DiMarco’s procedural-due-process rights had been violated, noting that the sole reason for her solitary confinement was “a genetically created ambiguous gender and the [prison] had plenty of time to develop other more respectable, less harsh alternatives.” Id.
at 1195. On appeal, the Tenth Circuit reversed the lower court’s due-process ruling. The panel conceded that the prison officials “could have done better,” but it concluded that safety and the prison’s lack of resources were legitimate reasons for segregating DiMarco. Estate of DiMarco v. Wyo. Dep’t of Corr.
(“ DiMarco II ”), 473 F.3d 1334, 1342-43, 1345 (10th Cir. 2007).
346
Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e (2006). Title VII prohibits workplace discrimination based on certain characteristics, one of which is sex. See id.
§ 2000e-2.

2010] POLICING THE POLICING OF INTERSEX BODIES 431 instructive, as courts typically interpret Title IX by analogy to
Title VII.
347 While no Title VII case squarely addresses intersex discrimination, several cases have considered Title VII’s application to other gender-nonconforming plaintiffs—namely, transgender 348 individuals. The evolving judicial approach to
Title VII claims for transgender discrimination suggests that
Title VII (and thus, Title IX) protects intersex people.
Like Title IX, Title VII prohibits discrimination based on sex . Embracing a traditional view of sex categorization, courts have consistently ruled that transgendered individuals are not protected under Title VII solely due to their status as transgendered.
349 Nevertheless, most modern courts extend
Title VII protection to transgendered individuals who can demonstrate that they were subjected to discrimination because they do not conform to male or female stereotypes.
350 In
Kastl v. Maricopa Community College , for example, a federal district court held that Title VII prohibits discrimination against a transgender employee for failure to conform to the employer’s gender expectations, “whether th[ose] stereotype[s] relate[] to an individual’s behavior, appearance, or anatomical features.” 351 The court reasoned,
347
See, e.g.
, Franklin v. Gwinnett Cnty. Pub. Sch., 503 U.S. 60, 75 (1992)
(relying on a Title VII case, Meritor Savings Bank v. Vinson , 477 U.S. 57 (1986), to hold that Title IX applied to the sexual harassment of a student); Murray v. N.Y. Univ.
Coll., 57 F.3d 243, 249 (2d Cir. 1995) (“[I]n a Title IX suit for gender discrimination based on sexual harassment of a student, an educational institution may be held liable under standards similar to those applied in cases under Title VII.”).
348 transsexual and transgender are often used interchangeably.
This note uses transgender as “[a]n umbrella term . . . for people whose gender identity and/or gender expression differs from the sex they were assigned at birth.” G AY &
L ESBIAN A LLIANCE A GAINST D EFAMATION , M EDIA R EFERENCE G UIDE 8 (8th ed. 2010), available at http://www.glaad.org/document.doc?id=99. “Transgender people may or may not decide to alter their bodies hormonally and/or surgically.” Id.
349
See Schroer v. Billington ( Schroer II ), 577 F. Supp. 2d 293, 305 (D.D.C.
2008) (collecting cases).
350
See, e.g.
, Barnes v. City of Cincinnati, 401 F.3d 729, 737 (6th Cir. 2005);
Smith v. City of Salem, 378 F.3d 566, 571-75 (6th Cir. 2004); Schroer II , 577 F. Supp.
2d at 305; Lopez v. River Oaks Imaging & Diagnostic Grp., Inc., 542 F. Supp. 2d 653,
660-61 (S.D. Tex. 2008); Creed v. Family Express Corp., No. 3:06-CV-465RM, 2007 WL
2265630, at *2-4 (N.D. Ind. Aug. 3, 2007); Mitchell v. Axcan Scandipharm, Inc., No. 05-
243, 2006 WL 456173, (W.D. Pa. Feb. 17, 2006); Kastl v. Maricopa Cnty. Cmty. Coll.
Dist., No. Civ. 02-1531-PHX-SRB, 2004 WL 2008954, at *2 (D. Az. June 3, 2004);
Tronetti v. TLC Healthnet Lakeshore Hosp., No. 03-CV-0375E, 2003 WL 22757935, at
*4 (W.D.N.Y. Sept. 26, 2003).
Sex-stereotyping Title VII claims were first recognized as actionable claim under Title VII in Price Waterhouse v. Hopkins , 490 U.S. 228 (1989). See id.
at 251
(plurality opinion) (holding that adverse treatment based on the failure to conform gender stereotypes was an impermissible form of sex discrimination under Title VII).
351
Kastl , 2004 WL 2008954, at *2.

432 BROOKLYN LAW REVIEW [Vol. 76:1
The presence or absence of anatomy typically associated with a particular sex cannot itself form the basis of a legitimate employment decision unless the possession of that anatomy (as distinct from the person’s sex) is a bona fide occupational qualification. . . . Therefore, neither a woman with male genitalia nor a man with stereotypically female anatomy, such as breasts, may be deprived of a benefit or privilege of employment by reason of that nonconforming trait.
352
Kastl ’s reasoning seems to apply to intersex people as well.
When intersex persons are subject to adverse treatment for failing to conform to a binary sex, they, too, are discriminated against because their anatomical characteristics do not align with their gender identity. And this mistreatment, like that directed at transgendered people, stems from the stereotypical expectation that certain anatomical traits appropriately dictate gender identity. To be sure, unlike intersex people, transgendered individuals are born with a socially recognized sex, and discrimination directed at them is based on their failure to conform to the social expectations for someone of their natal sex.
But just because intersex people fall outside of the binary does not mean that they are without a sex.
353 Indeed, most identify as male or female.
354 As Judge James Robertson of the D.C. District Court recognized in Schroer v. Billington , sex is not simply a matter of anatomical characteristics; it necessarily encompasses gender identity.
355 To treat anatomical traits as conclusive of sex not only grossly oversimplifies the issue, but “superimpose[s] classifications” on individuals and “then legitimize[s] discrimination based on [their] gender non-conformity by formalizing the non-conformity into an ostensibly unprotected
352
Id.
(footnote omitted).
353
Tronetti , 2003 WL 22757935, at *4 (“Transsexuals are not gender-less[;] they are either male or female and are thus protected under Title VII to the extent that they are discriminated against on the basis of sex.”).
354
April Herndon, Why Doesn’t ISNA Want to Eradicate Gender?
, I NTERSEX
S OC ’ Y N.
A M . (Feb. 17, 2006, 1:28 PM), http://www.isna.org/faq/not_eradicating_gender
(“[M]any intersex people are perfectly comfortable adopting either a male or female gender identity and are not seeking a genderless society or to label themselves as a member of a third gender class.”).
355
Schroer II , 577 F. Supp. 2d 295, 306 (D.D.C. 2008); see also Schroer v.
Billington ( Schroer I ), 424 F. Supp. 2d 203, 212-13 (D.D.C. 2006) (“[F]actual complexities that underlie human sexual identity . . . . stem from real variations in how the different components of biological sexuality—chromosomal, gonadal, hormonal, and neurological—interact with each other, and in turn, with social, psychological, and legal conceptions of gender.”).

2010] POLICING THE POLICING OF INTERSEX BODIES 433 classification.” 356 Under this approach, discrimination against intersex people constitutes discrimination “on the basis of sex” within the plain meaning of Title IX.
357
Although Title IX may not have been explicitly intended to remedy discrimination against intersex people, when it was enacted in 1972, legislators perceived sex discrimination only in terms of the inequalities between men and women; they had little knowledge of intersex.
358 As the Supreme Court has noted,
“statutory prohibitions often go beyond the principal evil to cover reasonably comparable evils. . . .” 359 Because the male-female binary is itself socially prescribed, discrimination based on status as male or female is comparable to discrimination based on failure to conform to either binary sex group. In both cases, binary sex categories are used to elevate some individuals over others—males over females (or vice versa) or individuals that conform to binary expectations over those that cannot.
B.
Policies of Protection for Intersex Athletes
If intersex individuals are covered by Title IX, preventive measures should be taken to ensure that they are not subjected to sex discrimination without consequence. Two potential policies are considered below.
1.
The Case for Sex-Integrated Sports in Title IX
Programs
Since the sex-segregated sports model perpetuates problematic cultural fictions, should it be dismantled altogether in school athletics? Some commentators say yes, advocating gender-neutral criteria to decide eligibility in sexintegrated sports teams.
360 After all, if more physical variation
356
Cf. Smith v. City of Salem, 378 F.3d 566, 574 (6th Cir. 2004) (criticizing the view that discrimination based on sex stereotyping is removed from Title VII’s coverage simply because it is directed at transgendered individuals).
357
Cf. Schroer II , 577 F. Supp. at 308 (“[T]he . . . refusal to hire [the plaintiff] after being advised that she planned to change her anatomical sex by undergoing surgery was literally discrimination ‘because of . . . sex’” under Title VII.).
358 supra notes 138-42.
359
Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75, 79 (1998).
360
Some commentators have decried organized sport as a bastion of “sexual apartheid,” see, e.g.
, Travers, supra note 270, at 92 (summarizing this view); Dominic
Lawson, No Sexing, Please—Let’s All Race Together , S UNDAY T IMES (U.K.) (Aug. 23, 2009), http://www.timesonline.co.uk/tol/comment/columnists/dominic_lawson/article6806508.ece, and have likened sex-segregated athletics to the de jure racial segregation ruled unconstitutional in Brown v. Board of Education , 347 U.S. 483 (1954), see Travers, supra

434 BROOKLYN LAW REVIEW [Vol. 76:1 is found within sex categories than between them, 361 then sex is not the most meaningful variable in structuring sports. Indeed, if sex ceases to be an organizing principle in team sports, intersex athletes would no longer be excluded; bodies would no longer be sex-verified and forced into binary conformity.
362
But if integration solves one problem, it precipitates another—namely, the marginalization of women. In theory, integration shifts the focus away from sex as the yardstick for athletic performance: if organized sports actively reinforce the binary fiction—and its concomitant gender stereotypes— dispensing with sex as an organizational category helps deconstruct the view that women are, by default, inferior athletes.
363 Nevertheless, while sex is by no means a proxy for athletic talent, the performance gap does tip in favor of males.
364
In effect, then, integrated team sports would shut out girls and women 365 —a result that, ironically, flies in the face of Title IX.
366 note 270, at 92. Under this view, “just as racial segregation in sport has been abolished
[based on] the revelation that race is not meaningful as a biological category, so too should sex segregation.” Travers, supra note 270, at 92 (citing M ARTINE R OTHBLATT , T HE
A PARTHEID OF S EX : A M ANIFESTO ON THE F REEDOM OF G ENDER (1995)).
361 sources cited supra note 182.
362
Cf. Travers, supra note 270, at 92 (noting that integrated sports would eliminate the need for the IOC’s policy on transsexual participation).
363
See, e.g.
, Eric Anderson, “I Used to Think Women Were Weak”: Orthodox
Masculinity, Gender Segregation, and Sport , 23 S OC .
F. 257, 274-75 (2008) (finding that male members of integrated team sports “were influenced to undo much of their . . . sexist thinking” and came to view their female teammates as “worthy and competent athletes”).
364
See supra Part II.C.1.
365
Integration at the elite level, however, would advantage the most talented female athletes by opening the door for them to compete in the prestigious male-only events. See Travers, supra note 270, at 91.
Different variations of the sex-integration model have been proposed. See, e.g.
, M C D ONAGH & P APPANO , supra note 46, at 224 (arguing that female-only teams should be retained and that females should be given the option to play on currently male-only teams); B. Glenn George, Fifty/Fifty: Ending Sex Segregation in School
Sports , 63 O HIO S T .
L.J. 1107, 1145 (2002) (advocating mixed-sex sports teams where half the players are male and half are female).
366
The case law addressing sex-integrated sports is in accord. See, e.g.
,
O’Connor ex rel.
O’Connor v. Bd. of Educ., 449 U.S. 1301, 1307 (Stevens, Circuit Justice
1980) (“Without a gender-based classification in competitive contact sports, there would be a substantial risk that boys would dominate the girls’ programs and deny them an equal opportunity to compete in interscholastic events.”); Clark ex rel.
Clark v.
Ariz. Interscholastic Ass’n, 695 F.2d 1126, 1131 (10th Cir. 1982) (“[D]ue to average physiological differences, males would displace females to a substantial extent if they were allowed to compete for positions on the volleyball team. Thus, athletic opportunities for women would be diminished.”); Kleczek v. R.I. Interscholastic League,
Inc., 612 A.2d 734, 738-39 (R.I. 1992) (“Because of innate physiological differences, boys and girls are not similarly situated as they enter athletic competition. . . . The tradition of having separate teams is based on a realization that . . . . distinguishing between boys and girls in interscholastic sports will . . . provide more athletic opportunities for both boys and girls.”); B.C. ex rel. CC. v. Bd. of Educ., 531 A.2d 1059, 1065 (N.J. Super.

2010] POLICING THE POLICING OF INTERSEX BODIES 435
For the purposes of the statute, the root of this sex-linked differential—whether biological limitation or social influence—is of little consequence. “Just because something is socially constructed . . . does not mean it is not ‘real’; social forces have material consequences.” 367 The performance differential may not be inevitable, but—for now at least—it exists nonetheless.
2. Constructing Categories of Inclusion in School Sports a.
Self-Identified Gender as Determinative
If sex-integrated competition is not a viable option, the binary organization of sports must bend to recognize the reality of intersex bodies. Sex itself is a social judgment about how to classify material bodies, where to draw the line between nature and pathology.
368 The boundary where femaleness ends and maleness begins is simply too complex—and too subjective—to be verifiable.
369 But as long as sports—and society at large—are structured on a binary understanding of sex, intersex athletes
“must be sexed.” 370 The only way to avoid alienating individuals who cannot conform to our sex classification system is to respect their gender identity.
To prevent the gender inquisition that befell Caster
Semenya from occurring in the educational context, the DOE should issue Title IX regulations—or, failing that, a policy interpretation 371 —making a student’s self-identified gender determinative of eligibility to compete in school athletics. If a
Ct. App. Div. 1987) (“[E]xcluding males from participation on female high school athletic teams . . . prevents males from dominating and displacing females from meaningful participation in available athletic opportunities.”); Petrie ex rel. Petrie v.
Ill. High Sch. Ass’n, 394 N.E.2d 855, 864 (Ill. App. Ct. 1979) (“Because of the innate advantage in volleyball [that] many boys possess over many girls, permitting boys to play [on girls’ teams] would place a substantial competitive premium upon schools placing themselves in that position.”); cf.
Williams ex rel.
Williams v. Sch. Dist., 998
F.2d 168, 178-79 (3d Cir. 1993) (finding a genuine issue of material fact over whether allowing boys to play on a school’s female field-hockey team would inhibit girls’ athletic opportunities at the school). But see Attorney Gen. v. Mass. Interscholastic Athletic
Ass’n, Inc., 393 N.E.2d 284, 293 (Mass. 1979) (”[B]iological circumstance does contribute to some overall male advantages. But we think the differences are not so clear or uniform as to justify a rule in which sex is sought to be used as a kind of ‘proxy’ for a functional classification.”).
367 supra note 270, at 92.
368
See
369
See
370
See W ILCHINS , supra note 166, at 56 (“To participate in society, we must be sexed.”).
371
As discussed earlier in this note, the DOE has oversight responsibility for
Title IX. See supra notes 51-52, 69 and accompanying text.

436 BROOKLYN LAW REVIEW [Vol. 76:1 student lives and identifies as a female, there should be no other eligibility criterion for participation on a female team.
372
Under this policy, the perspective of the individual student is the deciding factor. But an individual’s selfidentified gender is not always readily discernable to others.
Some basic guidelines, then, are needed to ensure that this policy is administered fairly. Above all, students should not be subjected to gender-identity tests. Procedures seeking to establish gender identity are just as pernicious as those purporting to verify biological sex. The DOE should make clear that testing of this nature is likely to violate Title IX.
To determine a student’s gender identity, there are a numbers of factors that school administrators can consider.
Substantial weight should be accorded to the gender self-identified by the student at enrollment.
373 Administrators might also consider the gender marker on identification documents, such as passports, driver’s licenses, or birth certificates. These records should not be regarded as conclusive, however, given the adverse implications for transgender students, who often face obstacles in modifying the gender designation on personal documents even after sex reassignment surgery.
374 Whatever factors are used to show selfidentified gender, the DOE should require that school officials apply them consistently across the board. A case-by-case approach risks that athletes appearing more “masculine” than others will be subjected to more vigorous scrutiny. b.
The Gender-Fraud Concern
A self-identification policy could arguably create incentives for men to hold themselves out as women in school athletics. In practice, though, this result seems highly improbable. Sex tests in the Olympics originated from the
372
Importantly, these regulations should be framed as recognition of human anatomical diversity. This approach has the potential to shift normative ideas toward the recognition that intersex is no less biological than the categories male and female.
373
That being said, school administrators must also be mindful of transgendered individuals that undergo sex-reassignment surgery after their initial enrollment.
374
In some states, for example, transgender individuals are not permitted to amend the gender marker on their birth certificates even after sex-reassignment surgery.
See Dean Spade, Documenting Gender , 59 H ASTINGS L.J. 731 app. at 832-41 (2008)
(compiling the state-specific requirements for gender amendments on birth certificates).
Moreover, gender amendments to driver’s licenses are more difficult in some states than in others. Some states require an amended birth certificate; in others, a court order is necessary; and other states require a doctor’s letter. See id. app. at 822-29 (compiling state-by-state requirements for changing the gender marker on a driver’s license).

2010] POLICING THE POLICING OF INTERSEX BODIES 437 concern that men had been infiltrating women’s events.
375
Notably, however, only one instance of deliberate gender misrepresentation has been recorded—in 1936, when German athlete Hermann Ratjen bound his genitals and competed in the women’s high-jump event.
376
In the educational context, the risk of males masquerading as females is even slighter. Even if athletic scholarships furnish sufficient incentive, practical difficulties make it unlikely for any male student to successfully pass himself off as a female. To do so, he would have to pose as a woman for the full span of his enrollment at a school—a drastic measure even for the most ambitious athlete. A self-identification policy, therefore, provides a built-in safeguard against gender fraud. c.
The Fair-Play Concern
The self-identification approach also treats intersexbased advantages like any other natural competitive advantage.
377 There is no good reason to treat an athletic advantage differently when it arises from an intersex condition.
378 To the extent that a level playing field is feasible in athletics, it is not the type of equal opportunity that Title IX— or, for that matter, organized sports—has in mind. Title IX was intended to remedy gender inequities in education, 379 but intersex advantages do not change the elitist nature of sports.
380
By respecting the gender identity of their students, schools discourage athletes from seeking other types of fairness-based accommodations that, if implemented, would undermine the very point of athletic competition.
C ONCLUSION
The way things have always been is not an argument for the way things should be; some of our nation’s most shameful moments have been justified on the basis of entrenched ideologies
375
Ritchie al., note 288, at 396.
376 supra note 292, at 212. Rajten finished fourth—behind three women. Id.
377
See supra Part III.C.1-2.
378
See supra Part III.C.1-2.
379
See supra text accompanying notes 41-45.
380
See supra Part III.C.1-2.

438 BROOKLYN LAW REVIEW [Vol. 76:1 perceived as self-identifying truths.
381 Only by recognizing the error of oversimplication that pervades binary sex/gender categories can we gradually move beyond drawing unneeded lines between male and female, natural and unnatural. Like other dark chapters in history that have been illuminated by the benefits of hindsight, this undertaking will demonstrate that our intolerance, rather than our gender binary, needs policing.
Laura A. Zaccone †
381 e.g.
, Plessy v. Ferguson, 163 U.S. 537 (1896); Dred Scott v. Sandford,
60 U.S. 393 (1857).
†
J.D. Candidate, Brooklyn Law School, 2011; B.A., New York University, 2006.
I would like to thank Professor Anita Bernstein for her invaluable guidance in honing this topic and the members of the Brooklyn Law Review for their assistance in preparing this note. I also thank my wonderful family and friends for their support throughout my law school studies. A special note of thanks to Ben Fontana and Doris
Suarez for their endless encouragement, to Jerry Coffin for never letting me down, and to Nina Shulepina for always believing in me. Finally, I thank my mother, Fenisia
Zaccone, for her unconditional love and selflessness, and for inspiring me every day.

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