DECIDING WHO DECIDES IN CONFLICT-OF-LAWS:

An Institutional Perspective !

Asian Law and Economics Society Congress July 20-21, 2014 ・National Taiwan University

Toshiyuki Kono !

Paulius Jurcys

Law and Economics of PIL: status quo of the academic debate

Added-value of comparative institutional approach (O. Williamson, E. Ostrom, N. Komesar)

Case-study Institutional perspective to international IP law

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(1) CURRENT PRIVATE INTERNATIONAL LAW

DEBATE

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BORDER EFFECT, (UN)CERTAINTY & PIL

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Dispute Settlement

Taiwanese Buyer

Rights & Obligations

Enforcement of awards

Taiwanese Seller

Code of Civil Procedure of Taiwan

Civil Code of Taiwan

Code of Civil Procedure of Taiwan

BORDER EFFECT, (UN)CERTAINTY & PIL

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Dispute Settlement

Taiwanese Buyer

Rights & Obligations

Enforcement of awards

Japanese Seller

BORDER EFFECT, (UN)CERTAINTY & PIL

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Dispute Settlement

Taiwanese Buyer

Rights & Obligations

Enforcement of awards

Japanese Seller

Jurisdiction Choice of Law Recognition & enforcementPIL

Reduction of transaction

costs & border effect

CURRENT L&E DEBATE IN PIL (1)

EFFICIENCY (Stakeholders)

LEGAL FRAMEWORK

POLICY OBJECTIVES

PIL THEORY

PUBLIC MODEL (State)

PRIVATE MODEL (Private Parties)

MIXED MODEL (States &

Private Parties)

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CURRENT L&E DEBATE IN PIL (2)

EFFICIENCY (Stakeholders)

LEGAL FRAMEWORK

POLICY OBJECTIVES

PIL THEORY

PUBLIC MODEL (State)

Rules (ex ante) Legal certainty

Vested rights doctrine

(cf. governmentalinterest analysis)

PRIVATE MODEL (Private Parties)

Standards (ex post) Flexibility Private ordering

(party autonomy)

MIXED MODEL (States &

Private Parties)Rules & Standards (e.g., 2nd Restatement)

Legal certainty & flexibility

Pragmatic approaches

(e.g., Leflar’s Choice influencing considerations )

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CURRENT DEBATE IN PIL (2)

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L&E HAS MUCH POTENTIAL FOR FURTHER STUDY OF PIL

!General methodology of PIL

(choice of law mechanism) !

Specific PIL tools (e.g., public policy, mandatory rules,

comity, party autonomy) !

Further directions of PIL: facilitating interface between socio-economic traditions

CRITICISM OF L&E ANALYSIS PIL

!Abstract economic models do not help solve specific PIL problems

!Ambiguity of the notion of

“efficiency” !

“Efficiency” perspective offers little guidance in making tough policy decisions

(2) COMPARATIVE INSTITUTIONAL APPROACH

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ELINOR OSTROM

OLIVER WILLIAMSON

RONALD COASE

Transaction costs & institutional choice

Markets & Hierarchies Organizational Complexity

Bounded RationalityGovernance Structures

“Positive research agenda”

Institutional analysis in economic and political sciences

INSTITUTIONAL APPROACH IN LEGAL SCHOLARSHIP

Richard Posner: Economic analysis of Law

Subsequently, many law and economics scholars applied costs & benefits analysis

Neil Komesar : leading scholar who tried to embrace institutional approach to law problems

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– Neil Komesar –

“The correct question is not whether, following Posner, the market works better in one setting …

than in another … but whether the market is better or worse than its available alternatives or the

political process is better or worse than its available alternatives”

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“rules of the game in a society” (D. North)

“Institutional choice: deciding who decides” (N. Komesar)

“institutions are the prescriptions that humans use to organize all forms of repetitive and

structured interactions” (E. Ostrom)

definition of “INSTITUTION”

“ex ante agreements about a structure of cooperation … that economize on transaction costs, reduce opportunism …

and enhance the prospects of gains through cooperation” (Shepsle)

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KOMESAR’S MAIN

FINDINGS

Complexity and number of participants

Limited capacities of institutions & bounded rationality

Market, courts, and political process

Deciding who decides: imperfect alternatives

Institutions move together: “cycling” (dynamic approach)

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Political Process

Market

Courts

• Market functions in a relatively simple environment where the transaction costs are low and the number of participants is small

• However, when the complexity and the number of participants increases, market process is replaced by the adjudicative process

• Courts are entrusted with the task of adjusting complex relations between private actors

• Courts can solve simple cases; but their limited capacities often leads to a rather unsatisfactory decisions

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Political Process

Market

Courts

• Limited capacities of courts often prevent them from judicial activism

• Although courts are independent, they often fail to solve complex cases and defer the decision-making to the political process

• Courts defer to the political process despite the fear of “agency capture”(minoritarian/majoritarian bias)

• Courts defer by refusing to grant strong property rights or review administrative decisions

• The Political process has then to decide how to react

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Political Process

Market

Courts

• The political process may have multiple implications to the functioning of the market & courts

• Allocation of strong property rights facilitatesmarket transactions: lower TC & easier bargaining

• Yet, if property rights are not clearly defined, market process is likely to come up with alternative solutions that would off-set malfunctioning political process

(3) INSTITUTIONAL APPROACH: !

CASE-STUDIES FROM INTERNATIONAL IP LAW

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GLOBAL INNOVATION MARKETPLACE

• Domestic regulations, world-wide markets

• Two case-studies:

• Exploitation of employee inventions

• Multi-state litigation (Apple vs. Samsung)

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Country A

Country B

Country C

Country D

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Nakamura

Nakamura case $189M Compensation and $8M settlement

!the “institutional choice” dilemma

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EMPLOYEE INVENTIONS Hitachi case

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EMPLOYEE INVENTIONS Hitachi case

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EMPLOYEE INVENTIONS Hitachi case

Japanese Patent Act Art 35: > Right to obtain patent belongs to the inventor (employee); > This right to obtain patent can be transferred to the employer > Reasonable Compensation to the Inventor

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EMPLOYEE INVENTIONS Hitachi case

Japanese Patent Act Art 35: > Right to obtain patent belongs to the inventor (employee); > This right to obtain patent can be transferred to the employer > Reasonable Compensation to the Inventor

Market failure → courts (ownership & reasonable compensation) > Reasoning by analogy did not provide any guidance for future court practice > Ongoing discussion about patent law reform in Japan

WHERE TO SUE? JURISDICTION CONFLICTS

• Global market & multi-state IP infringements(Samsung vs. Apple litigation)

• Domestics regulationsAbsence of rules on jurisdiction

• Cycling between institutions: Market → courts → political process

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APPLE - SAMSUNG (1)!

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Apple�s !iPhone! Samsung�s !

Galaxy Phone! Apple�s !iPad!

Samsung�s !Galaxy Tablet!

•  Apple, an American company, and Samsung, a South Korean company, are both cutting-edge technology producers. !

•  Samsung provides component parts for many of Apple�s products, including the iPhone and iPad, allegedly selling $5.9 billion in component parts to Apple in 2010.!

•  However, Samsung is also Apple�s competitor, with its Galaxy line of products including smart phones and tables that compete with the iPhone and iPad. !

•  In 2011, Apple accused Samsung�s Galaxy line of products of infringing upon its IPRs.!

•  In 2012, a number of suits and countersuits between Apple and Samsung have been made.!

APPLE – SAMSUNG!

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Samsung responded by filing patent infringement lawsuits !against Apple in South Korea, Japan, and Germany. !

APPLE - SAMSUNG (2)

APPLE – SAMSUNG!

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market process: !Apple and samsung were unable to

resolve their disagreement

adjudicative process: !institutional limitations !

irreconcilable judgments (e.g., Apple won in the US, in Korea - both infringing)

market response: !Alternative dispute resolution !

legislative proposals

administrative process: !no political consensus re. international

enforcement of IPRs !Hague Conference negotiations !

WIPO taking a very careful approach

CONCLUDING REMARKS

• “Efficiency” is still a helpful normative criterion: especially in order reconsider the “core problems” of PIL

• Both efficiency and comparative institutional approach offer new - sometimes counter-intuitive - insights for PIL

• Institutional approach offers a powerful tool to think about future directions of PIL and the facilitation of interface among different legal and socio-economic systems:

• Next task: to identify under which conditions those institutions function better

• EU could be a possible source for a case-study (interaction among EU institutions)

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Thank you!

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